Australian Securities and Investment Commission v Drury Management Pty Ltd & Ors [2003] QSC 285

jzccsj QsC-^s State Reporting Bureau Queensland Government Department of Jusfice and Attorney-General _________ Transcript of Proceedings Copyright in this transcript is vested in the Crown. Copies thereof must not be made or sold without the written authority of the Director, State Reporting Bureau. SUPREME COURT OF QUEENSLAND CIVIL JURISDICTION JONES J REVISED COPIES ISSUED State Reporting Bureau Date: 11 August, 2003 No S464 of 2002 AUSTRALIAN SECURITIES AND INVESTMENT Applicant COMMISSION and DRURY MANAGEMENT PTY LTD (ACN 089 253 958) First Respondent and PIET CORNELIUS WALTERS Second Respondent and MARK SAMUEL EVANS Third Respondent and RANSOM HOUSE PTY LTD (ACN 072 391 407) Fourth Respondent CAIRNS ..DATE 24/07/2003 JUDGMENT WARNING: The publication of information or details likely to lead to the identification of persons in some proceedings is a criminal offence. This is so particularly in relation to the identification of children who are involved in criminal proceedings or proceedings for their protection under the Child Protection Act 1999, and complainants in criminal sexual offences, but is not limited to those categories. You may wish to seek legal advice before giving others access to the details of any person named in these proceedings. 1 4th Floor, The Law Courts, George Street, Brisbane, Q. 4000 Telephone: (07) 3247 4360 Fax: (07) 3247 5532 -- 1 of 9 -- 24072003 D.2 T18/LET M/T CNS1/2003 (Jones J) HIS HONOUR: At the commencement of the hearing, counsel on behalf of the applicant sought to amend the application seeking a further order, namely that the fourth respondent be wound-up and that the present receiver, Ian David Jessup, be appointed liquidator. The counsel for the applicant's outline of submission indicated this relief was sought on the ground of the fourth respondent's insolvency. Those submissions were made available on the 17th of July, some five days before the hearing date . The amended application also relies upon the making of a winding-up order on the just and equitable ground. This fact was communicated only on the morning of the first day of trial . The amendment was opposed by the fourth respondent on grounds, firstly, that it had insufficient notice of the proposed amendment for its legal representatives to be in a position to meet the issue, and, secondly, that there has been no compliance with the procedures required for the winding-up, no dispensation from compliance having been sought. 3 4 The first notice of the proposed amendment was given when the proceedings were last before the Court on 10 July 2003. The proposed amendment was described as a "technical matter" and was accepted by me as such. The fourth respondent was then represented by counsel whose retainer for the appearance was limited, and whose continued involvement in the action was uncertain. The scope of the amendment was notified the next 2 £ -- 2 of 9 -- 24072003 D .2 T18/LET M/T CNS1/2003 (Jones J) day by letter dated the 11th of July 2003. 1 The fourth respondent has not complied with the procedural directions made by Justice Moynihan in September of 2002. Its legal representatives, in various appearances before me since that date, have generally lacked instructions about the fourth respondent's attitude to these proceedings. The sole director of the fourth respondent is Virginia Ransom- Waiters. From answers which she gave in a public examination it appears that she allows the affairs of the company to be controlled by her husband, the second respondent. The evidence discloses that the company has been used as a vehicle to dispose of funds received by the first respondent. It is asserted that the fourth respondent was a party in the alleged illegal scheme. 20 30 Much of the difficulty about notification of the proposed amendment stems from the lack, in this case, of the usual engagement between legal representatives about the issues to 40 be determined and the evidence to be adduced. Had the fourth respondent fully briefed legal representatives through these proceedings, the substance of the amendment would, no doubt, have been explored and would not have given rise to the difficulties that now occur. 50 The fourth respondent's present legal team was retained only a few days ago, and some eight days after the respondent's unsuccessful attempt to have the trial adjourned. This has 3 80 -- 3 of 9 -- 24072003 D.2 T18/LET M/T CNS1/2003 (Jones J) obviously imposed great demands upon the present representatives and problems generally for the proper conduct of the action. The difficulties are of the fourth respondent's own making, t and so it should not expect any indulgence beyond the minimum necessary to meet the case against it. That case has been outlined in a timely way, and in considerable details, by the written submissions made by counsel on behalf of the applicants. I have since, however, been informed that the submissions will be amplified because of the now reliance upon the just and equitable ground. Mr Morrison, of Queen's Counsel, for the fourth respondent argues that before the Court can consider the application for 3 winding-up, compliance with the advertising provisions should be undertaken. 4 < 4 in -- 4 of 9 -- The application for the winding-up is made pursuant to section 464 of the Corporations Act, which provides, by subsection (2), and I quote: "For the purposes of an application under subsection (1), this Act applies with such modifications as the circumstances require as if a winding-up application had been made by the company" . Mr Morrison submits that the general provisions for the winding-up, namely those provided by section 465A still apply. This sets out specified times for the notice of the application. In addition, the Uniform Civil Procedure Rules set out procedural requirements for a winding-up, see rule 995. Those requirements include public advertising within a certain time frame. This being an application by Australian Securities and Investment Commission, part of whose mission it is to enforce statutory requirements, Mr Morrison argues it should not be seen to, nor allowed to "cut corners" on these procedural matters. One reason why the fourth respondent seeks compliance with these time limits is that it wishes to establish its solvency, which seems to be predicated upon its capacity to obtain outside financial support. On the facts of this case so far outlined to the Court by the applicant, the practical purpose of advertising, namely to bring the application to the attention of the fourth 24072003 D .2 T19/MNH M/T CNS3/2003 (Jones J) 5 JUDGMENT -- 5 of 9 -- 24072003 D .2 T19/MNH M/T CNS3/2003 (Jones J) respondent's creditors, can be met otherwise, in my view, than by public advertisement. To the extent the identity of these creditors are known to the receiver, this has been disclosed in the receiver's report which details the nature of the debt and the fact that each of the creditors has been made aware of 1 the receivership. The response, or lack of it, by those creditors does not suggest a high level of interest by them in these proceedings. There does, however, remain a potential for conflict between the interests of the applicant and that of creditors which might provoke a creditor to suggest that a different liquidator be appointed. Mr Flanagan of Senior Counsel for the applicant submits that the liquidation in the circumstances of this case is almost an inevitable consequence if the applicant is successful on the 3 principal relief. He refers me particularly to section 601EE of the Corporations Act and relies upon two authorities to which I will refer. Section 601EE provides: "(1) If a person operates a managed investment scheme in contravention of subsection 601EB(5), the following may apply to the Court to have the scheme wound up..." "(2) The Court may make any orders it considers appropriate for the winding-up of the scheme". 5 It was in the context of the fact that the fourth respondent was in receivership and the fact that the role of the fourth respondent in the scheme as disclosed by the receiver's report 6 JUDGMENT 6 -- 6 of 9 -- 24072003 D .2 T19/MNH M/T CNS3/2003 (Jones J) that Mr Flanagan used the term, "technical," to describe the application for winding-up contending that such a step ought to have been within the contemplation of the fourth respondent if not, indeed, expected by it. The authorities to which I have been referred are the Australian Securities and Investment Commission v Chase Capital Management Pty Ltd, which is (2001) WASC 27, and the Australian Securities and Investment Commission versus Pegasus Leveraged Options Group Pty Ltd (2002) NSWSC 310. In the first of those cases, Justice Owen, considering the discretion that arises pursuant to section 601EE(2), made the following comment : "Counsel for ASIC submitted that in exercising the discretion pursuant to s601EE(2) I should be guided by the considerations that are relevant to the exercise of the discretion to wind up companies on the just and equitable ground under s461(l)(k). Each case has to be assessed according to its own circumstances. However, in the context of this case I accept that the just and equitable ground is a sound base against which to test the proper exercise of discretion. ASIC relies primarily on public interest considerations. The public interest justifies intervention where, among other things, it is required for investor protection and where there has been regular or repeated breaches of the Law: Australian Securities Commission v A S Nominees Ltd (1995) 62 FCR 504 at 530-3 and Australian Securities and Investments Commission v Austimber Pty Ltd (1999) 17 ACLC 893 at [5]. I was also referred to Walter L Jacob Ltd (1989) 5 BCC 244 a decision of the Court of Appeal in the United Kingdom. I do not think it takes the matter much further than the Australian authorities do, other than to make the point that it is important for the Court to identify the aspects of the public interest that would be promoted by the making of a winding-up order." 7 JUDGMENT -- 7 of 9 -- 24072003 D .2 T19/MNH M/T CNS3/2003 (Jones J) In the latter case Acting Justice Davies referred to the remarks of Justice Merkel in a decision of Australian Securities and Investment Commission v Austimber, who in return referred to a decision of Justice Finn in Australian Securities Commission versus A S Nominees Ltd, in the following passage: "Reliance on the just and equitable ground by a regulatory authority, such as ASIC was considered by Finn J in Australian Securities Commission v A S nominees Ltd (1995) 62 FCR 504. His Honour (at 530-3) discussed the case law in respect of a winding up order on the just and equitable ground, which has been relied upon where it is appropriate for investor protection, where there are regular or repeated threatened breaches of the Corporations Law and also where there has been mismanagement or misconduct in the conduct of the affairs of the corporation. There has been a longstanding resort to the just and equitable ground in similar circumstances, see Re Chemical Plastics Ltd [1951] VLR 136 at 142 and Re Producer's Real Estate and Finance Co Ltd [1936] VLR 235 at 246. In the latter case Mann CJ said that it was appropriate to wind up a company on the just and equitable ground where a company's business cannot be carried on consistently with candid and straightforward dealings with the public, from whom further capital must be obtained if the company's existence is to be prolonged. In the present case, a winding up on the just and equitable ground is appropriate for investor protection, particularly as there have been repeated contraventions of the Act and mismanagement of and misconduct in the conduct of the affairs of the corporation. As Owen J pointed out in Australian Securities and Investments Commission v Chase Capital Management Pty Ltd at [93], if the scheme is to be wound up, the case for a liquidation of the company that conducted it is compelling." The discretion therefore to wind-up a company if it is established that it has been involved in such misconduct is wide but very likely to be exercised in the interests of the public and interests of investor protection. JUDGMENT -- 8 of 9 -- 24072003 D .2 T20/KSJ M/T CNS3/2003 (Jones J) I do not accept that it is necessary if the winding-up application is made for there to be strict compliance with procedure commonly required on a winding-up in insolvency. In the exercise of my discretion, having regard to the competing interests that the fourth respondent and its creditors have the opportunity to be heard on the question of the liquidation and the identity of the liquidator, and the public interests, it is my view that there will be sufficient compliance if creditors identified in a list agreed upon by counsel are notified and ' advised that if they wish to oppose the application they must do so by giving notice within a short period of time. I propose therefore to grant leave, and I do grant leave, to amend the application in terms of the draft which is marked Exhibit 1 on the application to amend. I order that the creditors listed in the document agreed by counsel be notified in the terms set out in that document forthwith . Now, is that sufficient? Then I make directions for the further conduct of this action and make other orders in terms of the draft initialed by me and placed with the papers. 9 JUDGMENT -- 9 of 9 --