Australian Securities and Investments Commission v Atlantic 3 Financial (Aust) Pty Ltd [2003] QSC 265

SUPREME COURT OF QUEENSLAND CITATION: ASIC v Atlantic 3 Financial (Aust) Pty Ltd [2003] QSC 265 PARTIES: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION (applicant) v ATLANTIC 3 FINANCIAL (AUST) PTY LTD ACN 056 262 723 (first respondent) FREDRIC ACKER (second respondent) GERILYN MARIE POLANSKI (third respondent) FILE NO: S4426 of 2003 DIVISION: Trial Division PROCEEDING: Application DELIVERED ON: 19 August 2003 DELIVERED AT: Brisbane HEARING DATE: 7 August 2003 JUDGE: Mullins J ORDER: 1. Leave be given to each of CB Darvall & Darvall, the intervening investors, DF Kerrigan and ND Barton to appear, subject to each of them bearing its, their or his own costs of the application. 2. That Gregory Michael Moloney and Peter Ivan Felix Geroff be appointed to wind up the schemes involving: a) Mackay Leagues Club Ltd; b) Numinko Pty Ltd; c) Sentry Alliance Pty Ltd; d) Plymouth Greens Pty Ltd, Atlantic 3 Maryborough Mortgage Pty Ltd Advance; and e) Clearview Properties Pty Ltd. CATCHWORDS: CORPORATIONS LAW – MANAGED INVESTMENT SCHEME – WINDING UP BY COURT – where court ordered that 15 unregistered managed investment schemes operated by the respondent company be wound up pursuant to s 601EE Corporations Act 2001 (Cth) – where the issue of the identity of the person to carry out the winding up was to be determined – where ASIC sought an order that registered -- 1 of 21 -- 2 liquidators be appointed to wind up the schemes – where respondent proposed to wind up the schemes subject to external control and/or supervision ordered by the court – all factors relevant to the winding up of an unregistered scheme must be balanced in determining who should be the party given the responsibility for winding up the scheme and on what terms CORPORATIONS LAW – MANAGED INVESTMENT SCHEME– WINDING UP BY COURT- where proposal to wind up unregistered managed investment schemes by transferring them to a registered scheme – whether transfer of unregistered scheme to registered scheme amounts to winding up Corporations Act 2001 (Cth) Property Law Act 1974 Australian Securities and Investments Commission v Pegasus Leveraged Options Group Pty Ltd (2002) 41 ACSR 561 Australian Securities and Investments Commission v Takaran Pty Ltd (2002) 43 ACSR 46 Australian Securities and Investments Commission v Takaran Pty Ltd (No 2) (2002) 43 ACSR 334 Australian Securities Investments Commission v Young (2003) QSC 29 Bells Securities Pty Ltd v LPG Mourant [2002] QSC 156 Re Crust `N’ Crumb Bakers (Wholesale) Pty Ltd [1992] 2QdR 76 Lawloan Mortgages Pty Ltd v Lawloan Mortgages Pty Ltd [2003] 21 ACLC 289 COUNSEL: RM Derrington for the applicant PE Hack SC for the respondents PJ Dunning with leave for CB Darvall & Darvall DG Clothier with leave for intervening investors L Alford with leave for Mr DF Kerrigan RP Hawkins (art. clerk) with leave for Mr ND Barton SOLICITORS: Australian Securities and Investments Commission for the applicant Corrs Chambers Westgarth for the respondents Marler & Darvall with leave for CB Darvall & Darvall Brian Bartley & Associates with leave for intervening investors James Varitimos with leave for Mr DF Kerrigan Porter Davies with leave for Mr ND Barton [1] MULLINS J: On 21 May 2003 the applicant filed an originating application seeking relief in respect of certain unregistered managed investment schemes (“the schemes”) operated by the respondents. On 27 May 2003 McMurdo J made orders with the consent of the parties to the application appointing accountants Messrs GM -- 2 of 21 -- 3 Moloney and PIF Geroff (“the accountants”) as investigative accountants to prepare and file a report within 28 days in relation to the nature of the assets and property of the schemes, the potential claims available to third parties in relation to the assets and property of the schemes, the extent of the assets and liabilities of the schemes, the solvency of the schemes, the value of the schemes’ real property, whether the respondents have kept proper books and records in relation to the schemes and whether there were grounds to suspect the first respondent or its officers have contravened the Corporations Act 2001 (Cth) (“the Act”). [2] The report of the accountants prepared in response to the order made on 27 May 2003 (“the report”) was filed in the court on 25 June 2003. A supplementary report was prepared by the accountants and filed on 16 July 2003. [3] When the application came on for hearing before Fryberg J on 17 July 2003, the parties to the application were agreed that the schemes had to be wound up, but there was a dispute as to the identity of the person to carry out the winding up. Fryberg J ordered on 17 July 2003 that the 15 schemes referred to in section 3 of the report be wound up and that, until the appointment of a person to wind up the schemes or further order, the accountants be appointed as receivers of the property of the schemes for the purpose of identifying, securing and or preserving the property in the possession, custody or control of the first respondent. Fryberg J adjourned the question of the identity of the person to carry out the winding up and that was the question which came before me for determination on 7 August 2003. Intervenors [4] Apart from the parties to the proceeding, others sought to appear at the hearing on 7 August 2003. The applicant supported leave being given to any person to appear on the application who was able to provide some assistance to the court. The respondents were concerned about the costs of any intervenors and submitted that any party who wished to intervene should do so at its own cost. [5] The solicitors’ firm, CB Darvall & Darvall (“Darvall”) claims to be a creditor of the first respondent in respect of outstanding legal fees for work done in relation to a number of the loans which are the subject of the schemes. The total amount claimed by Darvall is in the order of $800,000. Those costs are disputed by the respondents. Darvall claims an interest as a creditor of the first respondent. Darvall also seeks to rely, where possible, on a priority in respect of legal fees which it claims are owed by the first respondent and secured under the relevant mortgages pursuant to s 88 of the Property Law Act 1974. Such priority is disputed by the first respondent, as a matter of law. [6] At the request of the respondents, the solicitors’ firm Brian Bartley & Associates wrote to the investors in the schemes and has received instructions from 100 of the investors to act on their behalf in respect of this application of whom 95 indicated their support for the first respondent being appointed to wind up the schemes, with 5 investors indicating their support for appointment of the accountants. [7] Mr Kerrigan is a former employee of the first respondent whose employment ceased in October 2002 and who claims to be owed a substantial (but unspecified) amount arising from his employment by the first respondent (which is denied by the first respondent) and seeks to ensure that his rights as a priority creditor of the first respondent are protected. -- 3 of 21 -- 4 [8] Mr Barton is a borrower from the first respondent under one of the schemes and claims to be a contingent creditor of the first respondent in respect of the claim which is the subject of proceeding S6621 of 2003 commenced in this Court on 25 July 2003. [9] Strictly speaking, each of the proposed intervenors could have provided one of the parties to the application with the material on which that intervenor sought to rely. Rather than take that course, each of the intervenors has elected to be more cautious and seeks to appear or put submissions before the court. In those circumstances, it is appropriate that leave be given to each of the intervenors to appear, but subject to a condition that the intervenor bears its, their or his own costs. Factual disputes [10] Another preliminary matter was that the parties were seeking that a determination be made as to the identity of the person to wind up the schemes, when the state of the affidavit material relied on in connection with the application was such that there were a number of disputed questions of fact. As the application was heard by me while sitting in the applications jurisdiction of the court, where time for the hearing was limited, it was not possible (and not sought) to have deponents cross- examined. The parties were therefore agreed that the application be determined on the basis that disputed factual questions could not be resolved at this stage. This is a sensible approach, as the schemes were ordered to be wound up on 17 July 2003 and that order has been unable to be implemented, in the absence of the appointment of a person for that purpose. Issue [11] The applicant sought that the accountants be appointed to wind up each of the 15 schemes. That was supported by Darvall and Mr Kerrigan. The position of the respondents was that the first respondent should wind up the schemes, subject to whatever degree of external control and/or supervision that the court considers necessary. The intervening investors supported the course proposed by the first respondent. Background [12] The first respondent was incorporated in 1992. It appears that since incorporation it has been in the business of lending money on security of mortgages by obtaining funds from persons who have money available for lending. The current directors of the first respondent are the second and third respondents. [13] The first respondent was required from 17 December 1999 to comply with ch 5C of the Corporations Law. Most of the schemes were set up prior to 17 December 1999. It appears that no application was made for registration of any of the schemes and that no attempt was made by the first respondent to comply with the Corporations Law and the successor provisions contained in the Act in respect of any of the schemes as from 17 December 1999 [14] On 21 March 2003 the applicant commenced an investigation under s 13 of the Australian Securities and Investments Commission Act 2001 into the first respondent for suspected contraventions of s 601ED of the Act in relation to the -- 4 of 21 -- 5 business of promoting managed investment schemes. That resulted in the commencement of this proceeding. The law [15] The order winding up the subject schemes was made pursuant to s 601EE(1) of the Act which permits the Court to wind up an unregistered managed investment scheme. Section 601EE(2) of the Act provides: “The Court may make any orders it considers appropriate for the winding up of the scheme.” [16] The court ordered independent liquidators to be appointed to wind up a solicitor’s mortgage lending business, rather than the operator of that business in Bells Securities Pty Ltd v LPG Mourant [2002] QSC 156. Wilson J referred to the wide discretion conferred by s 610EE(2) of the Act and that the following factors were identified in that matter as relevant to its exercise: “(a) the conduct of the mortgage lending business including the circumstances of the four remaining loans; (b) the potential that the applicant, the operator of the scheme, may face a conflict of interests, strictly a conflict of duty and interest, in winding up its own scheme; (c) the interests and wishes of contributories; (d) the comparative costs of the applicant’s proposal and those of a winding up by independent liquidators; (e) the public interest in the integrity of the system of investor protection for which the Corporations Act stands. (See ASIC v Chase Capital Management Pty Ltd (2001) 36 ACSR 778 at 795 per Justice Owen.).” There were no creditors to be considered in that matter. The contributories were in favour of the operator’s proposal rather than independent liquidators, because of the contributories’ concern about the costs of independent liquidators. Wilson J considered, however, that the wishes of the contributories in that matter were outweighed by the significant public interest in ensuring the transparency of the winding up process and the safeguarding of the rights of the contributories. [17] In another decision involving a solicitors’ firm’s contributory mortgage business, the court permitted the winding up of the schemes to be undertaken by the operator with the supervision of two independent chartered accountants: Lawloan Mortgages Pty Ltd v Lawloan Mortgages Pty Ltd (2003) 21 ACLC 289 (“Lawloan”). The operator had commenced the business when registration was not required. It had been running out the loans under a class order made by the Commission, but 9 loans had not been finalised by the date in 2002 when relief under the class order expired. These were the remaining loans from 754 loans which had been managed by the operator since 1995. It was held that each of the loan arrangements amounted to a managed investment scheme. There were criticisms of the operator’s conduct of its business in the past, but it was found that it was managing the loans appropriately at the time the application was made and retained the confidence of most of the investors. Holmes J stated at para 135: “I do not think ASIC’s argument that there should be a regime of general application for winding up of such schemes involving the appointment of an independent liquidator is compelling. The better -- 5 of 21 -- 6 approach in my view is a flexible one with a view to the best outcome. And, while there is undoubtedly a public interest in investor protection, that may better be achieved by using the sanction in s 601ED(5) against contravention, rather than penalising the investors in these schemes by imposing on them a form of winding up which the majority do not want and which is likely to produce a less satisfactory outcome.” [18] The issue in Australian Securities and Investments Commission v Takaran Pty Ltd (No 2) (2002) 43 ACSR 334 was whether receivers appointed by the Court to wind up a solicitors’ mortgage scheme should be given leave to continue the pursuit of litigation commenced by the operator of the scheme. Barrett J concluded that it was appropriate that those receivers should have leave to prosecute and conduct the litigation in the name of the operator of the scheme. The operator had sought to continue to conduct the proceedings on the basis that there would be advantages in its doing so, since the principals of the solicitors’ firm through which the mortgage loans were arranged had undertaken to fund the litigation for a specified period. By way of observation, Barrett J stated at 338: “I have already noted that a winding up regime imposed by the court under s 601EE might possibly entail some continuing control by the existing operator of the scheme, as in the Lawloan Mortgages case, above. It seems to me, however, that such an approach would not be favoured except in exceptional circumstances. The fact that a scheme is being operated by its existing operators in contravention of statute activates a public interest in favour of not only its being wound up under s 601EE (Australian Securities and Investments Commission v McNamara (2002) 42 ACSR 488) but also “ensuring the transparency of the winding up process and the safeguarding of the rights of the contributories” by committing the winding up to an independent party (Bells Securities Pty Ltd v LPG Mourant [2002] QSC 156; BC200202989 per Wilson J; see also Australian Securities and Investments Commission v Product Management Group Pty Ltd (2002) 42 ACSR 343).” [19] The decision in Australian Securities and Investments Commission v Young [2003] QSC 29 also involved unregistered managed investment schemes to which the Commission sought the appointment of a receiver to wind up the schemes. In respect of one of the schemes where the developments involved were largely defunct or concluded and there was no suggestion that investors’ funds were at risk, Muir J expressed the following concern at para [68]: “The appointment of a receiver in respect of these schemes, as well as causing unnecessary expense, may damaged (sic) the respondents’ business and this, in turn, could impact on the respondent’s ability to repay. The subject statutory provisions exist to protect members of the public. Care should be taken to ensure that orders made under them do not defeat their object by causing investors avoidable injury.” [20] These decisions illustrate that there can be a tension in the winding up process of an unregistered scheme between what is required for protection of investors, as a matter of public interest, and what is perceived to be in the interests of each of the investors, as a matter of private interest. Ultimately, it is a matter of balancing all -- 6 of 21 -- 7 the factors relevant to the winding up of a particular scheme, in determining who should be the party given the responsibility for winding up the scheme and on what terms. Summary of matters relied on by applicant [21] As there are 15 separate schemes which are the subject of this application which are not uniform in operation, the types of transactions, the amount of funds invested or the possible means for realising the investors’ funds, it is necessary to decide in respect of each of the schemes as to who is the appropriate person to wind up that scheme. As each of the parties put forward general submissions in support of that party’s position, it is useful to summarise those general submissions at the outset, rather than repeat them, when dealing with each of the schemes. [22] The applicant alleges that the respondents were aware of the legislative requirements for operating the schemes lawfully since 1999 and have not sought to do so. The second respondent concedes that in approximately 1999 he became aware of regulatory changes in the managed investment industry and obtained legal advice that it was necessary to obtain a licence under the Managed Investments Act 1998 (Cth) or run out the old book or transfer the loans back to investors. The first respondent therefore caused the set up of Atlantic 3 Funds Management Limited (“A3FM”) which obtained a dealer’s licence and acts as the responsible entity of the Atlantic 3 Mortgage Fund Scheme (“the registered scheme”). The registered scheme was licensed in July 2000. [23] Because the first respondent had existing loans which did not fall within the criteria of the Constitution and Compliance Plan that was being prepared for A3FM, the second respondent states that he was advised that the only option was to transfer the mortgages held by the first respondent back into the investors’ names which he did not consider was appropriate, because many of the loans had multiple investors and there would not have been anyone to manage the loans. The inference that can be drawn from this is that the respondents knowingly acted in disregard of the legislative requirements that applied to the operations of the first respondent in respect of the schemes as from 17 December 1999 and were prepared to risk the consequences of conducting unregistered managed investment schemes. [24] The applicant alleges and the respondents dispute that they have sought to conceal the first respondent’s activities from the applicant. That is not a matter which can be resolved on this application and I proceed on the basis that it is disputed. [25] The applicant alleges that the first respondent and its directors are not competent to operate the schemes, because: (i) the funds of investors were held and used contrary to investors’ known instructions; (ii) there is doubt that the investors acquired any proprietary interest in the mortgages as security for their investments; (iii) no independent valuations for lending purposes were obtained by the first respondent before making the loans; (iv) there is no evidence that any real due diligence in relation to the making of the loans has been performed; (v) there is little evidence of communication with the investors in relation to the events surrounding their investments; -- 7 of 21 -- 8 (vi) the respondent has placed itself in a conflict situation in relation to the loans. [26] The respondents concede that no independent valuations for lending purposes were obtained by the first respondent before making the loans. In many of the cases, the first respondent relied on either the valuation or other material put forward by the borrower in making the decision to make the loan. The first respondent has conceded that it was not its practice at the time to obtain assignments to it of valuations obtained by the borrowers. The other matters relied on by the applicant to allege that the respondents are not competent are disputed by the respondents. These are matters which cannot be resolved at this stage. By way of example, in relation to the evidence of communication between the first respondent with investors, it appears that the applicant relies on evidence of written communications and the affidavit of Mr Kerrigan filed on 21 May 2003. The second respondent deposed to his practice of speaking regularly by telephone to investors and keeping them informed in that manner. Four long term investors with the first respondent, Messrs Gallagher, Gilchrist, Nairn and Ryder, have provided affidavits which support that there were regular communications from the second respondent to these investors. It is neither appropriate nor possible to determine such issue at this stage. [27] The applicant also alleges that the respondents lack the required independence to be appointed by the court to undertake the task of winding up the schemes. [28] The applicant also relies on the fact that questions have been raised in this proceeding about the solvency of the first respondent. As part of the final relief sought in the application filed on 21 May 2003, the applicant seeks an order that the first respondent be wound up which is presumably based on the just and equitable ground on the basis that it is appropriate for investor protection: Australian Securities and Investments Commission v Pegasus Leveraged Options Group Pty Ltd (2002) 41 ACSR 561, 580. That part of the application has not been pursued at this stage. The respondents assert that the first respondent is able to pay its debts as they fall due. The solvency of the first respondent will have a significant impact on the winding up of the schemes. It is not a matter that can be resolved on this part of the application. [29] The respondents have put forward proposals for implementing the winding up of the schemes, if the first respondent is allowed to wind them up. In respect of some of the schemes, the first respondent proposes that the schemes be wound up by transferring them to the registered scheme. The applicant submits that transferring these schemes to the registered scheme does not amount to a winding up of those schemes. Summary of matters relied on by respondents [30] If the first respondent is appointed to wind up the schemes, the respondents will pay the costs associated with winding up the schemes. For that purpose the second and third respondents injected into the first respondent, by way of capital contribution, the sum of $200,000 which was paid to the first respondent’s solicitors, Lynch and Company, on 6 August 2003 to be held in trust for the purpose of paying those costs. The respondents submit that the accountants’ fees to wind up the schemes are likely to be very significant, as their fees to prepare a report to the court and carry out a period of supervision for about a month were in excess of $200,000. The respondents submit that as the first respondent has operated the schemes for years, -- 8 of 21 -- 9 the second and third respondents are more familiar with the schemes and the underlying securities than the accountants. [31] If the first respondent is appointed to wind up all the schemes, the first respondent is prepared to subordinate in favour of the investors its priority claims which could amount to $520,000 or more, depending on what fees are owed to Darvall. The respondents submit that external controllers will not have the confidence of the investors and there is strong support by investors for the schemes to be wound up by the first respondent. There was an issue raised by the applicant as to the quality of the information provided to the investors, when seeking their indication as to who should wind up the schemes. Sufficient material was provided to them by Mr Bartley to enable the court to act on the investors’ indications. The first respondent is prepared to provide undertakings to the Court to ensure that the winding up is conducted properly and to subject itself to the type of supervision such as that imposed in Lawloan. The respondents accept that an order for the first respondent to conduct the winding up would be made until further order, so that the applicant or any other interested person could apply to terminate the appointment and appoint another person to conduct the winding up. [32] It is apparent that many of the investors in the subject schemes are also investors in the registered scheme. The second and third respondents together with Dr Jeffrey Carmichael are the directors of A3FM. In practical terms, the second and third respondents must wish to preserve the goodwill of the investors in the subject schemes for the purpose of not causing detriment to the registered scheme. Quite properly, this was not put forward by the respondents as a matter which should be taken into account in determining the identity of the person appointed to wind up the subject schemes. It is not a relevant consideration to that decision. It does, however, explain the motivation of the respondents for putting forward the proposal for the first respondent to wind up the subject schemes on the conditions that are offered by the respondents and must be an incentive for the respondents to implement the proposals for winding up in a proper manner. Whether transfer of unregistered scheme to registered scheme amounts to winding up [33] The Act does not specify the details of how a winding up of an unregistered managed investment scheme must be undertaken. Unlike the extensive provisions in the Act which deal with each type of winding up of a corporation, the extent of the legislative guidance in respect of the winding up of an unregistered managed investment scheme is that set out in s 601EE of the Act. What is meant by the concept of winding up under s 601EE was considered by Barrett J in Australian Securities and Investments Commission v Takaran Pty Ltd (2002) 43 ACSR 46 at 55-56 who adopted as relevant the passage in the judgment of McPherson SPJ in Re Crust `N’ Crumb Bakers (Wholesale) Pty Ltd [1992] 2QdR 76, 78 including: “Winding up is a process that consists of collecting the assets, realising and reducing them to money, dealing with proofs of creditors by admitting or rejecting them, and distributing the net proceeds, after providing for costs and expenses, to the persons entitled.” -- 9 of 21 -- 10 Although that passage comes from a judgment dealing with the winding up of a corporation, it encapsulates what is commonly understood by the concept of winding up which is that winding up a company, partnership or other body amounts to bringing its life and affairs to an end. [34] Corrs Chambers Westgarth have been instructed by A3FM to draft the documents necessary to enable the schemes operated by the first respondent and Atlantic 3 Maryborough Mortgage Pty Ltd (“A3MM”) to be transferred to the registered scheme. The proposed amendments to the Constitution and Compliance Plan of A3FM are set out in the exhibits to the affidavit of Mr C A Jorss filed on 28 July 2003. These amendments contemplate that the existing mortgages will be transferred to the registered scheme and A3FM will offer to an investor who is not already a member of the registered scheme, the opportunity to become a member of the registered scheme by giving the investor a general prospectus relating to the existing mortgages. It is also proposed that A3FM will issue all members holding an interest in an existing mortgage with a specific prospectus containing information about the existing mortgage including an application form. [35] There are two aspects to each of the unregistered schemes: the existing security and the investments in that security. In order for the unregistered scheme to be wound up, the existing security must be transferred or realised and each investment must either be repaid or otherwise dealt with by the investor in such a way that there is no longer an investment through the first respondent. If steps can be taken so that both aspects of the scheme are completely resolved and it is therefore at an end, that amounts to the scheme having been wound up. [36] It is apparent that the respondents assume that most of the investors in the subject schemes which it is proposed be transferred to the registered scheme will take up the offer to invest in those existing mortgages through the registered scheme. The proposal to wind up the unregistered schemes in this way can also work, if an investor decides not to invest in the same security through the registered scheme and is able to be paid out, as a result of the transfer of the existing security from the first respondent to A3FM. [37] Theoretically, what is proposed by way of transfer of the unregistered scheme to the registered scheme can amount to winding up of the unregistered scheme, whether or not an existing investor chooses to substitute the existing investment for an investment in the registered scheme, provided the investor is repaid the amount of the existing investment, if the investor does not elect to invest the same amount in the registered scheme. Position of creditors of the first respondent [38] Although this hearing was concerned with the identity of the party to wind up the schemes, the creditors who appeared were concerned that their interests as creditors of the first respondent may be adversely affected, if in the course of winding up the schemes, the first respondent were to transfer assets and deal with its own assets in such a way that may defeat the interests of creditors. [39] The assumption underlying the submissions was that the first respondent is insolvent which is an issue that has not been decided at this time. If the first respondent is to be permitted to wind up any of the schemes, its directors must observe all duties imposed on directors in relation to any decisions of the first -- 10 of 21 -- 11 respondent to make payments of its funds. The prospective concerns of creditors of the first respondent is a relevant consideration, but not one which carries great weight, when there is no finding that the first respondent is insolvent. [40] The issue raised as to the priority claimed by Darvall based on s 88 of the Property Law Act 1974 can be determined as a separate question between Darvall and the first respondent at any time that is convenient to the parties. 1. Bass Group Pty Ltd [41] A loan was made by the first respondent to Bass Group Pty Ltd (“Bass”) of which the sum of $15,000 remains outstanding. The first respondent’s prior solicitor, Mr Marler of Darvall is a guarantor of the loan. The first respondent alleges that Mr Marler has defaulted on his guarantee and legal proceedings have been commenced against Mr Marler. [42] There is only one investor whose funds are in this scheme. The principal of the investor, Mr Gallagher, has dealt with the respondents since 1993 and invested in the order of $1 million in investments managed by the first respondent. Mr Gallagher supports the appointment of the first respondent to wind up the schemes, including this scheme. [43] It is proposed by the first respondent to continue the legal proceedings to recover from the guarantor the sum of $15,000. Whether an independent liquidator or the first respondent is appointed to wind up this scheme, the same course of action is likely to be followed. The accountants recommend that the first respondent be appointed to wind up the Bass scheme with an independent party (“a supervisor”) appointed to supervise the first respondent. The appointment of a supervisor addresses to some extent the concern of the applicant and the creditors about the independence of the first respondent. [44] In view of the quantum of the loan and the fact that the only investor in this scheme supports the appointment of the first respondent to wind up the scheme, that should be the course that is followed, provided an appropriate supervision regime is put in place. 2. Nathaniel Barton [45] In August 1999 the first respondent advanced the sum of $278,076.14 to Mr Barton. The first respondent also lent moneys to Loawave Pty Ltd in respect of which Mr Barton was the guarantor. The indebtedness of Loawave Pty Ltd is $125,000, making a total of $403,076.14 which the first respondent claims is outstanding from Mr Barton. The indebtedness of Mr Barton is secured over his property in New South Wales. The first respondent has accepted an offer of $420,000 made by Mr Barton in proceedings taken against him in the Supreme Court of New South Wales by the first respondent. [46] Because Mr Barton has been in default for some time, the first respondent has been making payments of interest to the investors from its own funds. Of the investors, 60% by value support the first respondent winding up this scheme. There are 10 investors. The settlement sum of $420,000 was due to be paid by 4 July 2003,but it is not apparent from the material that it has been paid. The first respondent proposes to collect the proceeds of the deed of settlement which it will use to pay all -- 11 of 21 -- 12 principal and interest, if the first respondent subordinates its priority claims to the interests of the investors. [47] The first respondent’s priority claims extend to considerable legal fees incurred in the New South Wales proceedings of $141,263.36, interest paid by the first respondent to investors of $78,998 and deferred fees of $14,623.74. Darvall also claims legal fees of $72,089.40 pursuant to itemised bills of costs which Darvall claims have not been objected to. [48] It is not appropriate to make it a condition of any winding up by the first respondent that it subordinate its priority claims to the interests of the investors, as that is a matter for decision of the first respondent, when there are funds available to distribute under this scheme. [49] Because of the stage the recovery proceedings against Mr Barton has reached, the costs of the first respondent continuing with those proceedings should be less than if they were continued on behalf of the first respondent by the accountants. The accountants recommend that the first respondent be appointed liquidator to wind up this scheme, subject to supervision. [50] The borrower is the same Mr Barton for whom leave to appear on this application was granted. Mr Barton’s proceeding in this court relates to an alleged claim for damages arising out of the dealings between the first respondent and Loawave Pty Ltd. Mr Barton’s concern, expressed in his affidavit, is based on the report and his ability to recover any judgment obtained against the first defendant in the Queensland proceeding, if the first defendant acts as liquidator of the mortgage schemes. Mr Barton’s concerns are not directed specifically to the scheme in respect of which he is the debtor and it does not appear that his admitted liability in the New South Wales proceeding is linked to the claim made by him in the Queensland proceeding, even though the accountants were informed by or on behalf of Mr Barton that he intended to seek to set off the claim in the Queensland proceeding against the settlement sum of $420,000. [51] I would therefore propose to follow the recommendation of the accountants. 3. Mackay Leagues Club Ltd [52] In April 1996 Giltony Enterprises Pty Ltd (“Giltony”) advanced the sum of $1.45m to the Mackay Leagues Club Ltd (“MLC”) in order to purchase the Prince of Wales Hotel in Mackay. In August 1996 the first respondent purchased the mortgage from Giltony for $1.295m using funds from 14 investors. Further advances were made to MLC. Then on 7 December 1998 the first respondent entered into possession of the property. MLC was placed in voluntary administration on 19 December 1998. The first respondent has continued to trade the hotel as mortgagee in possession whilst searching for a new tenant. In June 1999 the first respondent entered into a lease agreement of the ground floor of the hotel with Magpies Rugby League Football Club Ltd. That lease expired in July 2002 at which time it was not renewed. The ground floor of the hotel has remained vacant since July 2002. The second floor of the hotel was leased for a restaurant between November 1997 until 31 October 2000 and has remained vacant since this time. -- 12 of 21 -- 13 [53] The total investment of investors in this scheme is $2,043,956.36. The first respondent claims to have paid interest to investors of $70,402.41. The first respondent has also paid rates on the property. [54] The first respondent has engaged agents to seek new tenants. The second respondent considers that selling the property while vacant will cause loss to investors and that the costs of a liquidator or receiver will add to those losses. [55] Darvall has claimed legal fees of $169,597 in respect of this scheme and its itemised bills of costs delivered in that amount have been objected to. Darvall estimates that it is owed further legal costs of $18,400 which have not been billed and these are also disputed by the first respondent. The accountants ascertained that as at 18 June 2003 there were outstanding rates in respect of the property of $77,955.37 and a statutory charge was lodged over the property on 11 April 2002 by the Commissioner of Land Tax. About 20 investors have been substituted for original investors in this scheme between May 2000 and April 2003 when the loan was significantly in default and when the respondents were aware that the scheme was unlawful. [56] Notwithstanding that 69.5% by value of 55 investors in this scheme support winding up of the scheme by the first respondent and the investors will be affected by the costs of independent liquidators, the recommendation of the accountants that an independent liquidator be appointed to wind up this scheme should be followed, particularly because of the amount of the total investment in this scheme and the longstanding default under the loan. 4. Yasmine McCarthy [57] This scheme involves a mortgage over property owned by Ms McCarthy near Inglewood which is not readily saleable. The amount currently owed is $75,043.08. There is one investor who has invested $75,000 in this mortgage. The principal of that investor, Mr Ryder, supports the appointment of the first respondent to wind up this scheme. [58] It is proposed to wind up the scheme by transferring it to the registered scheme. This could be effected only if the existing investor or another investor is prepared to subscribe for the same investment with the registered scheme or the first respondent is otherwise able to pay out the investor. [59] The accountants recommend that the first respondent be appointed liquidator to wind up this scheme, subject to supervision. That appears to be the appropriate course, having regard to the quantum of the loan, the nature of the investment and the difficulty which would otherwise arise in realising the secured property. 5. Numinko Pty Ltd [60] In July 1998 a managed investment scheme conducted by Delaneys Lawyers advanced the sum of $1.85m to Numinko Pty Ltd (“Numinko”) which was secured over a student accommodation building known as “Downsview Lodge” in Toowoomba. The loan went into default and Delaneys took possession of the property. In approximately October 2000 the first respondent approached Delaneys and its investors to purchase the mortgage. Investors in that mortgage to the extent of $1.127m sold the face value of their debt to the first respondent for $799,750 for -- 13 of 21 -- 14 which the respondent raised $968,065.40 from 33 investors. This was used to provide for refurbishment costs in addition to the purchase from the Delaneys investors. Fifteen investors of Delaneys have remained in the loan and are now tenants in common with the first respondent and have a principal debt outstanding of $723,000. Those Delaneys’ investors will be paid their principal on a pro rata basis with the investors put by the first respondent into this loan. [61] The total investment outstanding under this scheme is $988,984.25. Investors to the value of 82.9% support a winding up of this scheme by the first respondent. The first respondent is operating the building as mortgagee in possession and has hired and trained full-time on site managers for this purpose. The complex provides the students with three meals per day. The first respondent proposes that the property be sold as a going concern and has engaged a Gold Coast real estate agent with which the first respondent appears to have worked closely in other schemes to market the property. [62] Notwithstanding the support of a majority of investors for the proposal that the scheme be wound up by the first respondent, the fact that significant funds were procured by the first respondent for this investment after the respondents were aware that it was necessary to register a managed investment scheme, it is not appropriate that the first respondent have the carriage of the winding up of this scheme. I therefore propose to follow the recommendation of the accountants that independent liquidators be appointed to wind up this scheme. It is appropriate to appoint the accountants for that purpose. 6. Sentry Alliance Pty Ltd [63] This scheme involves a first registered mortgage over 18 of 70 strata titled storage units in Campbellfield, Victoria. In May 1998 the first respondent provided finance to Sentry Alliance Pty Ltd (‘Sentry”) to pay out an existing mortgage debt and for construction finance in a total sum of $238,000. It appears that subsequent advances were made to Sentry bringing the total principal advanced to $588,400. The first respondent is currently mortgagee in possession. Construction of the units was completed, but they remain vacant with no income being received. The first respondent obtained a personal guarantee from a director of Sentry who has been unable to be located. [64] There are 14 current investors of whom 12 who hold 80.6% of the total investment of $588,400 support winding up of this scheme by the first respondent. [65] The first respondent proposes engaging an agent to obtain tenants for the units in preparation for sale. The first respondent is confident that the sale of tenanted units will be sufficient to discharge the mortgage and that it would take six months for the winding up of this scheme to be completed. [66] What was of concern to the accountants is that 8 of the 14 investors invested in this scheme between 23 November 2001 and 24 May 2002, when the respondents were aware that the scheme was unlawful. The amount invested by those 8 investors is $334,400. The loan period expired in May 2000. It appears that the loan was in default at the time these investors invested. [67] According to the first respondent’s affidavit filed on 28 July 2003, the first respondent has made interest payments to investors in the Sentry scheme, where -- 14 of 21 -- 15 Sentry failed to make the payments. The schedule prepared by the first respondent with respect to its winding up proposal in respect of Sentry which is Ex FA-22 to the first respondent’s affidavit filed on 6 August 2003 does not disclose the quantum of the interest payments made by the first respondent. The accountants’ investigations indicate that the first respondent has paid insurance in the sum of $18,197.91 and that rates of $32,587.67 are outstanding. In addition, Darvall claims costs of $7,500 which are, as yet, unbilled and are disputed. [68] The accountants recommend that an independent party be appointed as liquidator to wind up this scheme. [69] Notwithstanding the support of a majority of investors for the winding up of this scheme by the first respondent, the history of the loan, the promotion by the first respondent of this scheme to 8 investors when the respondents knew the scheme was unregistered and the loan was in default and the lack of information provided both to the court and the accountants in relation to the quantum of interest paid by the first respondent to investors justifies the appointment of the accountants to wind up this scheme. 7. Outback Cuisine Pty Ltd, Shannonville Pty Ltd and NAF (Rockhampton Property) Pty Ltd [70] This scheme commenced with the first respondent advancing the sum of $420,000 to Outback Cuisine Pty Ltd (“Outback”) for the purchase of an abattoir at Rockhampton and the sum of $320,000 to a director of Outback, Mr Dowdle, for the acquisition of an emu farm at Collarenebri. Outback defaulted in May 2000 and the first respondent, as mortgagee in possession of the abattoir, sold the abattoir to Shannonville Pty Ltd (“Shannonville”) to which A3FM advanced funds in the sum of $220,000. In February 2002 Shannonville defaulted and the first respondent as mortgagee exercising power of sale sold the abattoir and business to NAF (Rockhampton Property) Pty Ltd (“NAF”) on 16 December 2002 on vendor finance for 10 years. NAF is a company associated with the Tancred family and has been making its monthly payments. The investors in Shannonville were rolled into the loan with NAF and A3FM has been given a first ranking mortgage over the abattoir with the first respondent as tenants in common. [71] Darvall has a claim for costs of $60,330.56 which are disputed and also claims for costs, as yet, unbilled of $78,622.24. These are also disputed by the first respondent. [72] The first respondent identifies investments to the extent of $460,000 as still subject to this scheme and proposes that it be wound up by transferring it to the registered scheme. Although the accountants are critical of the information provided to investors during the course of dealings with the Rockhampton abattoir, the accountants recommended that the first respondent be appointed liquidator to wind up this scheme with a supervisor. Of $420,000 invested in this scheme, investors holding in value investments to the extent of $320,000 (76.1%) support winding up by the first respondent. [73] In view of the long term loan to NAF which is the subject of this scheme, any winding up of the scheme is likely to involve transferring the mortgage. I consider that at this stage it is appropriate to follow the recommendation of the accountants. This will give the first respondent an opportunity to implement its proposal of -- 15 of 21 -- 16 transferring this scheme to the registered scheme. An issue was raised about A3FM not presently being able to renew its professional indemnity insurance. That is being dealt with as an ongoing matter by A3FM and the applicant and may ultimately affect whether the first respondent can transfer the scheme to the registered scheme. It should not preclude giving the first respondent the opportunity to proceed as it has indicated, as A3FM is currently licensed. 8. All Seasons Resort Related Loans [74] In December 1995 the first respondent commenced to advance moneys to persons to purchase strata titled units in the “All Seasons Village Resort” in Cairns. The first respondent financed 13 borrowers to purchase 17 units. Currently there are 10 borrowers and the total amount invested by investors is currently $565,441.61, although some part of that represents funds of the first respondent. According to Mr Bartley, the solicitor for the intervening investors, the amount invested in this scheme, excluding the first respondent, of $525,696.12 is from investors who fully support the first respondent being appointed to wind up this scheme. Darvall claims legal fees of $14,000 which are unbilled and disputed by the first respondent. [75] The first respondent proposes to wind up this scheme by transferring it to A3FM. This was not one of the schemes which the accountants recommended be wound up by independent liquidators. At this stage, it is appropriate to give the first respondent the opportunity to implement the proposal to transfer this scheme to the registered scheme, subject to appropriate supervision. 9. Creevy Related Loans [76] Mr Creevy was a property developer who sold properties under vendor finance secured by a first mortgage. From 1992 the first respondent commenced purchasing portfolios of first mortgages from entities associated with Mr Creevy. Currently, there are 38 mortgages of which investors hold the first registered mortgage in their own name, except in four cases where the first respondent is the mortgagee and holds the security on trust for the investors. The loans are all current and performing according to the terms of the mortgages. The first respondent provides management of the mortgages. [77] The accountants recommended that the first respondent be required to provide each investor/mortgagee with three months’ notice of ceasing to act as the mortgage manager for each mortgage and/or instalment contract. The first respondent proposes to request the individual investors who are mortgagees to transfer their mortgages to the registered scheme and to transfer its interest in the four mortgages which it holds as mortgagee to the registered scheme. [78] The respondent considers that, as the loans will require servicing and management for an extended period and A3FM’s directors and staff have detailed knowledge of the loans and the borrowers, it is in the investors’ interest for the first respondent’s proposal to be implemented. There is currently $709,770.82 invested in this scheme. Of the investors who hold investments to the value of $687,432.77, the investors who hold 82.1% in value of that amount support appointment of the first respondent to wind up the scheme. -- 16 of 21 -- 17 [79] Having regard to the nature of the transactions involved in this scheme, it is appropriate at this stage to give the first respondent the opportunity to implement its proposal, subject to appropriate supervision. 10. Glenn Kable Related Loans [80] In December 1994 the first respondent commenced making advances to Mr Kable secured by first ranking real property mortgages granted over various properties held by him which were subject to instalment purchase contracts with third parties. The mortgaged property is typically semi rural residential land. There are currently 17 advances to Mr Kable and the total amount currently owed is $603,707.61. Of investors to the extent of $556,055.96, those who hold in value 79.5% of that amount are in favour of the winding up of this scheme being conducted by the first respondent. [81] It appears that the purchasers under the instalment contracts who make their payments to the first respondent in repayment of the funds advanced to Mr Kable are not in default. [82] The first respondent proposes to transfer this scheme to the registered scheme. This is not one of the schemes which the accountants recommended be the subject of winding up by an independent liquidator. At this stage, it is appropriate to give the first respondent the opportunity to wind up this scheme, in accordance with its proposal, but subject to appropriate supervision. 11. Hallas Related Loans [83] The total investment outstanding in this scheme is $74,988.61 which has been invested by three investors, two of whom hold 80.9% by value of the investments and are in favour of it being wound up by the first respondent. This loan which was made to Mr Hallas and two companies associated with him and secured by a sub mortgage over a first mortgage over a residential house property and a vacant block of land is in default. The first respondent attempted to auction the property, but Mr Hallas obtained an injunction stopping that sale and the first respondent is now waiting for a trial of the proceeding. [84] It appears that what is required to wind up this scheme is the completion of the outstanding litigation which the first respondent proposes to continue at no cost to the investors. The first respondent believes there is some equity in the property and is prepared to risk paying the legal fees for this litigation in the expectation that there will be sufficient equity recovered to pay out the investors and cover the legal fees expended. [85] Darvall claims legal costs of $9,500 which are, as yet, unbilled and are disputed by the first respondent. The accountants recommend that the first respondent wind up this scheme, with a supervisor appointed to supervise the running out of this loan. In view of the stage which has been reached in respect of the litigation relating to this loan, it is appropriate that the first respondent be appointed to wind up this scheme. 12. Snadra Pty Ltd -- 17 of 21 -- 18 [86] In October 1995 the first respondent commenced to make a number of advances to Snadra Pty Ltd (“Snadra”) secured by real property mortgages granted over various properties which Snadra held and sold via instalment contracts. There are currently five advances to Snadra under which the total amount of $456,570.06 is owed. Although the maturity dates of each loan have expired, the loans have been extended and payments are up to date. It appears that investors who hold approximately 90% by value of the investments in this scheme support winding up by the first respondent. [87] The first respondent proposes to wind up the scheme by transferring it to the registered scheme. The accountants did not recommend that independent liquidators be appointed to wind up this scheme. It is appropriate to give the first respondent an opportunity to implement its proposal for winding up this scheme, subject to appropriate supervision. 13. Washington Developments Pty Ltd Related Loans [88] This scheme did not commence until after the respondents were aware of the requirement to register a managed investment scheme. The first respondent in February 2000 purchased a portfolio of first ranking real property mortgages over 17 properties from four entities associated with Washington Developments Pty Ltd (“Washington”). Each Washington company had provided vendor finance to purchasers of land from that company and obtained a first ranking mortgage as security for repayment of the loans. The terms of the mortgages were between two and 6.5 years. There is currently $122,454.81 invested in this scheme of which $36,734.05 is held by the first respondent. Of the other investors, investors who hold around 94% in value support winding up of this scheme by the first respondent. Because the loans are current and performing according to the terms of the mortgages, the scheme can be wound up only by allowing the mortgages to run out or transferring the mortgages. [89] The first respondent proposes transferring the scheme to the registered scheme. This is not one of the schemes which the accountants recommended be wound up by an independent liquidator. In view of the nature of the mortgages which are the subject of this scheme and the quantum of the investment, I have concluded that it is appropriate to allow the first respondent to endeavour to implement its proposal for winding up this scheme, notwithstanding that it came into existence after 17 December 1999. 14. Plymouth Greens Pty Ltd, Atlantic 3 Maryborough Mortgage Pty Ltd Advance [90] The investments in these two projects have been treated as the one scheme by the accountants who have recommended that an independent liquidator be appointed to wind up this scheme. The first respondent puts forward one proposal for investors in the loan that was made to Plymouth Greens Corporation Pty Ltd (“Plymouth Greens”) and another proposal for the loan for which A3MM is the mortgagee. [91] The first respondent advanced $1.335m to Plymouth Greens for the development of a lawn bowls resort in Eumundi secured by a first registered mortgage over the relevant lands. It appears that most of the advance was made in December 1996. The development did not proceed and it appears that one of the mortgaged properties was sold and an amount of $200,000 returned to investors. It is difficult -- 18 of 21 -- 19 to understand the history in relation to the balance of the secured properties, but it appears that they were transferred to Rainbow Goldmines Pty Ltd (“Rainbow”) in December 1999 and that at the same time the first respondent purchased six strata titled lots located in two commercial buildings in Maryborough from Rainbow for which the Plymouth Greens’ land formed part of the consideration. [92] The total amount currently owed by Plymouth Greens is $1,415,819.26. The extent of investments held by the first respondent in this scheme is $17,232.54. Investors (other than the first respondent) holding investments to the value of 74.5% in this scheme support the appointment of the first respondent to wind up the scheme. [93] When the first respondent purchased the Maryborough buildings, it claims to have obtained the approval of the investors in the Plymouth Greens scheme and that an agreement exists which contemplates that the investors in the Plymouth Greens scheme will be paid the entire surplus of the proceeds of sale of the Maryborough properties, after the discharge of the loan that was made from A3MM to the first respondent and the reimbursement of certain expenses paid by the first respondent. [94] When the first respondent purchased the Maryborough buildings, it used a loan advanced to it by A3MM to which 48 investors contributed $1,329,823.32. This is what is referred to as the Maryborough scheme. [95] Of the two commercial buildings in the Maryborough CBD that are owned by the first respondent, one building is tenanted and the other is vacant. It is proposed by the first respondent to transfer the Maryborough scheme to the registered scheme. [96] It is a reasonable inference that the Maryborough scheme came about, as a result of the problems encountered with the Plymouth Greens scheme. This has been the conclusion drawn by the accountants. It is of concern that the Maryborough scheme was promoted and significant funds obtained from investors at a time when the respondents were aware that a managed investment scheme must be registered. [97] In view of the quantum of funds contributed to each of the Plymouth Greens scheme and the Maryborough scheme and the relationship between them, it is not appropriate that the first respondent be involved in the winding up of these schemes. These schemes should be under the control of an independent liquidator. It is appropriate that the accountants be appointed to wind up these schemes. 15. Clearview Properties Pty Ltd [98] In May 1996 the first respondent made an advance of $690,000 to Clearview Properties Pty Ltd (“Clearview”) which was secured by a second mortgage ranking behind Lex Nominees Pty Ltd over semi rural land proposed to be developed in four stages at Montville. The first mortgagee exercising power of sale sold the land to the first respondent in or around October 2001 for $1.25m. According to the second respondent’s affidavit filed on 28 July 2003 “funds were raised on a pari passu basis with the existing loan”. This appears to have included $300,000 for construction of stage 2, although Mr Marler asserts in his affidavit filed by leave on 7 August 2003 that development costs were advanced by A3FM. Investors with the first respondent are currently owed a total amount of $2,250,612.88. [99] It is the first respondent which is developing this property into acreage home sites. According to the second respondent, stage 1 is now sold, although one lot remains -- 19 of 21 -- 20 to settle, and development of stage 2 should be completed within 14 days. The first respondent anticipates that repayment to investors will be completed upon the sale of stage 2 which should be sold within six months. [100] In his affidavit filed on 6 August 2003 the second respondent also refers to the first respondent having equity partners in the Montville property who will receive a return on their investment pari passu with the first respondent, but no details are provided. [101] It appears that the investment was promoted by the first respondent to the investors who provided the funds for the purchase of the land and development costs on the basis that there would not be a cash distribution for 18 months. It is therefore of concern that the first respondent is the developer of this property and is, in effect, using the funds of the investors to assist in that purpose on the basis that a fixed interest on the sum invested will ultimately be paid to the investors, while the first respondent obtains the benefit of any additional income generated from a successful development. [102] The lack of appreciation of the second respondent of the conflict situation in which the first respondent finds itself in relation to this scheme is reflected by the proposal that was put forward by the second respondent in his affidavit filed on 28 July 2003 for this scheme. Para 202 of that affidavit provides: “If an independent liquidator/receiver was to sell this security now, investors will not achieve the maximum return. For example, Stages 3a and 3b have yet to have infrastructure such as access roads, power, telephones added. If this land is sold now without those improvements it may be worth as little as a quarter of the prices I am confident we could achieve with the infrastructure and proper marketing. It is unlikely that an independent liquidator/receiver would devote the time or have the expertise to achieve the maximum return to investors that his land could achieve.” After having stated that the loans should be paid out during the sale of stage 2, avoiding the interposition of an independent liquidator would assist in attempting to ensure that the value of the first respondent’s interest as registered proprietor is maximised. [103] The accountants recommended that an independent liquidator be appointed to wind up this scheme. That is appropriate in view of the different interests which the first respondent has in the property the subject of this scheme and that investments to the extent of $1.55m were procured when the respondents were aware that it was unlawful to operate a managed investment scheme which was unregistered. Orders [104] It follows that the following order can be made: That Gregory Michael Moloney and Peter Ivan Felix Geroff be appointed to wind up the schemes involving: a) Mackay Leagues Club Ltd; b) Numinko Pty Ltd; c) Sentry Alliance Pty Ltd; d) Plymouth Greens Pty Ltd, Atlantic 3 Maryborough Mortgage Pty Ltd -- 20 of 21 -- 21 Advance; and e) Clearview Properties Pty Ltd. [105] The question arises whether that order needs to be supplemented by orders specifying the powers of the accountants in respect of winding up these specified schemes. That is a matter on which I will hear further submissions. [106] Although I have indicated in respect of the balance of the schemes that I am prepared to order that the first respondent wind up these schemes, subject to supervision, the question arises whether the first respondent wishes to wind up these schemes, in view of the fact that I am not prepared to order that the first respondent wind up all the schemes. If the first respondent wishes to proceed with winding up those schemes which I have indicated in these reasons it is appropriate at this stage to permit the first respondent to wind up, the details of a supervision regime including the identity of the supervisors need to be resolved. In view of the information already obtained by the accountants in respect of the schemes, if the accountants were prepared to undertake the role of supervisors, it would be ideal to appoint the accountants to that role. Submissions will need to be made on the identity, role, powers and remuneration of the supervisors and what reporting should be made by the supervisors and/or the first respondent to the applicant during the winding up. There will also need to be a regime in respect of the approval of payments proposed to be made by the first respondent whether of expenses or distribution of funds in respect of each scheme. [107] The winding up of a specified scheme by the first respondent must not continue, if it is determined that the first respondent is insolvent. The winding up by the first respondent must be able to be determined on the application of the applicant, the first respondent, the supervisors or other interested person. [108] It will be necessary for the applicant and the respondents to make submissions on the question of the costs of the application. -- 21 of 21 --