Australian Securities & Investments Co v Enterprise Solutions 2000 Pty Ltd & Ors [2001] QSC 82

SUPREME COURT OF QUEENSLAND CITATION: Aust Securities & Investments Co v Enterprise Solutions 2000 Pty Ltd & Ors [2001] QSC 082 PARTIES: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION (applicant) v ENTERPRISE SOLUTIONS 2000 PTY LTD (ACN 085 105 540) (first respondent) AND HONG KONG MULTIS PTY LTD (ACN 085 712 063) (second respondent) AND INVESTMENT SOLUTIONS 2000 PTY LTD (ACN 079 481 066) (third respondent) AND TROY ADAM HUNT (fourth respondent) AND ADRIAN LESLIE REBBECK (fifth respondent) AND WALTER JOHN DEVIR (sixth respondent) AND IS 2000 PTY LTD (ACN 083 196 070) (seventh respondent) FILE NO: S6802 of 1999 DIVISION: Trial DELIVERED ON: 27 March 2001 DELIVERED AT: Brisbane HEARING DATE: 12 March 2001 JUDGE: Chesterman J ORDER: Orders as per draft. CATCHWORDS: CORPORATIONS – RECEIVERS, MANAGERS AND CONTROLLERS – REMUNERATION AND COSTS – Where receivers apply for approval of their remuneration without challenge -- 1 of 6 -- 2 CORPORATIONS – RECEIVERS, MANAGERS AND CONTROLLERS – OTHER MATTERS – Where receivers apply for an order to pay net proceeds of the receivership rateably to those investors identified and their debts admitted – Where not possible to identify any particular funds as being the property of any particular investor Corporations Law s. 77, s. 93, s. 1114 Uniform Civil Procedure Rules 1999 (Qld) r.269 Clayton’s Case (1816) 1 Mer 572; 35 ER 781, distinguished. Keefe v Law Society of New South Wales (1998) 44 NSWLR 451, cited. Re British Red Cross Balkan Fund [1914] 2 Ch 419, cited. COUNSEL: Mr. L. Kelly for the applicant Mr. G. Collins (self-representative) for a third party (investor) SOLICITORS: Allen Allen & Hemsley for the applicant [1] CHESTERMAN J: This action was commenced by the Australian Securities and Investments Commission against the respondents for orders pursuant to s 1324 and s 1114 of the Corporations Law restraining them from carrying on an investment advice business within the meaning of s 77 of the Law and for consequential orders that they repay all moneys obtained by them in consequence of their having acted as investment advisors or by conducting a securities business within the meaning of s 93 of the Law. The respondents had invited the public to participate in elaborate schemes which were designed to generate substantial profits from betting on race horses in Australia and Hong Kong. The money paid by the public was utilised by the respondents in paying their expenses and secondly in providing the stakes to be ventured on horses selected by the respondents. On 10 December 1999 after a trial, Douglas J found that the schemes were “managed investment schemes” as defined by the Law. The respondents were not licensed nor authorised to conduct such a scheme. They had not issued any prospectus before inviting public subscription of moneys. Douglas J ordered that moneys held by the respondents be paid into a trust account operated by a firm of solicitors. On 11 February 2000 his Honour appointed receivers to take possession and control of all assets employed by the respondents in relation to the gambling schemes. The order provided for the receivers to be remunerated “on a time basis within the scale of charges issued by the Insolvency Practitioners Association of Australia . . . to be paid from the proceeds of the receivership”. [2] The receivers have collected and taken possession of all of the assets of the scheme which they have been able to identify with the exception of some moneys that were said to be held by residents of Vanuatu. It has proved impossible to establish whether any moneys that might be regarded as property of the scheme are in fact held by those residents or the amount of it. The cost of further investigation or proceedings to recover any moneys would be substantial and the return is -- 2 of 6 -- 3 problematic. The receivers intend to proceed no further in that regard and no criticism is made of their decision. [3] The orders made previously in the proceeding did not empower the receivers to distribute the proceeds of the receivership. They wish to pay the proceeds to the members of the public who invested in the schemes, (“investors”) but cannot do so without an order. The receivers have therefore applied for: (a) Pursuant to UCPR 269 the court’s approval of their remuneration. (b) An order that they pay the net proceeds of the receivership rateably to those investors in the schemes who have been identified and whose proofs of debt have been admitted. [4] Notice of the application and of the amounts claimed by the receivers for their remuneration have been served on all of the parties to the original proceedings. That application included details of the remuneration claimed. The same information was given to the investors by correspondence. There is no opposition to the receivers’claim for remuneration. [5] The receivers presently stand possessed of net proceeds of $576,340.89. The total amount collected was $619,601.95 from which expenses of $43,261.06 have been paid. The amount claimed for remuneration is $111,470.10 (plus GST). It is sought in respect of work done for the period 11 February 2000 to 28 February 2001. The amount has been calculated in accordance with the terms of the order made by Douglas J on 11 February 2000. A detailed breakdown of the amount claimed for fees is before the court. It is based upon records maintained in the receivers’ files and daily timesheets which have recorded work performed by the receivers and members of their staff. The amount of detail provided complies with the requirements of liquidators seeking payment of their remuneration approved by the court. The persons doing the work, the rank of the person, the work done, the time spent on doing it and the rate of charge for the persons who perform particular items of work are all identified. [6] Although the amount claimed is large the receivership has been a complex one. There were over 500 individual investors all of whom had to be contacted and whose claims had to be investigated. A number of them reside in New Zealand. Moneys were kept in accounts in various countries including Hong Kong and Vanuatu. No proper records were kept of the respondents. Moneys were mixed, proper authorisations for the use of the money did not exist; what records were found were incomplete or inaccurate. [7] One of the receivers, Ms Tracy Dare has sworn that the charges are fair and reasonable and the work done was necessary for the proper conduct of the receivership. She estimates that the amount of future remuneration to cover the period from 1 March 2001 to the termination of the receivership will be $40,000.00 (plus GST) and that the expenses and outlays for the same period are expected to be $35,000.00. [8] On the material and in the absence of any challenge it is appropriate to make an order approving the remuneration sought by the receivers. -- 3 of 6 -- 4 [9] Secondly, the receivers apply for the court’s approval for a distribution of the net proceeds of the receivership rateably among the investors. [10] Section 1114 empowers the court to make such an order. It provides that where, as here, the respondents have contravened the Law relating to dealing in securities the court may make such order as it thinks fit, including an order appointing a receiver of property and any ancillary order considered to be just and reasonable in consequence of the making of any such order. The distribution sought by the receivers is in conformity with the general law regulating payment to persons who have contributed to a common fund the amount of which is inadequate to repay all their claims in full. [11] The investors have been advised of the proposal to distribute the fund rateably and with one exception which I shall mention shortly, there is no opposition to the proposal. [12] The material suggests that it is not possible to identify any particular funds recovered by the receivers as being the property of any particular investor or investors or of being funds to which such property could be traced. The schemes operated by utilising moneys paid by the investors into a bank account operated by two of the corporate respondents, Investment Solutions 2000 Pty Ltd and Enterprise Solutions 2000 Pty Ltd. The investors then separately entered into agreements with either or both of Hong Kong Multis Pty Ltd or IS 2000 Pty Ltd. The investors did not authorise the companies which operated the bank accounts to disburse their moneys nor was there any written agreement between those companies and the parties to the investor agreements by which the money standing to the credit of the bank accounts could be employed. In fact the moneys were withdrawn by the fifth respondent who is the sole director of each of the corporate respondents. He used it to place aggregate bets on horse races which were laid in his own name. There was no written agreement between the fifth respondent and any of the companies whose bank accounts were used or the companies who had undertaken contractual obligations with the investors. The investors’ moneys were pooled and bets placed on this aggregate basis. No bets were placed for individual investors. [13] The moneys deposited by investors were mixed in three bank accounts and the mixed pooled funds was used for various purposes such as paying management fees to the respondents, placing bets, distributing winnings to investors and maintaining credit balances with bookmakers with whom bets were laid. The poor state of the records has made it impossible to trace individual investors’ moneys. Any attempt to do so would involve considerable time and expense. It is unlikely that the result would be reliable. [14] The purposes for which the investors paid money to the respondents cannot be achieved. The solicitation of their money was unlawful and the operation of the schemes has been brought to an end. Less than 10% of the moneys paid have been recovered. Whatever were the terms on which the respondents held moneys paid by investors in the present circumstances the receivers hold the recovered moneys on resulting trusts for the investors. The trust fund being inadequate for reimbursement in full and there being no means of identifying any particular fund as being the moneys of any particular investor the appropriate order is for a rateable distribution. This proposition is supported by Re British Red Cross Balkan Fund -- 4 of 6 -- 5 [1914] 2 Ch 419; Keefe v Law Society of New South Wales (1998) 44 NSWLR 451 at 460 - 461 and the discussion in Jacob’s Law of Trust in Australia 6th ed para 2711, 2712. [15] The exception concerns Mr Collins whose particular case is hard. He opposes a rateable distribution and seeks to recover in full the amount of $30,150.00 he invested. He claims it can be traced from the bank account into which he paid it into funds obtained by the receivers. [16] Mr Collins was induced to invest in the scheme by misrepresentations made by one of the schemes’ functionaries. He was asked to deposit the amount of $30,150.00 into a ‘trust account” pending his decision whether to become an investor. He was assured that the trust account was “secure”. When sent the pro forma investment contract Mr Collins noted that its terms differed substantially from those which he had been advised of orally. He decided not to proceed and requested the repayment of his deposit. Although it was promised the money was never refunded. Mr Collins feels the loss keenly. It represents money entrusted to him to invest for the benefit of two disabled children for whom he is responsible. [17] Mr Collins made the deposit on 21 July 1999. Six days later the respondents were prohibited by order of the court from operating the bank accounts or engaging in the activities of the betting schemes. The next day, 28 July 1999, Mr Collins asked for the return of his money. He was asked to put the request in writing and did so by letter dated 29 July 1999. [18] Despite having paid moneys into the account near the end of the schemes’ operations the bank statements reveal that a number of transactions occurred in the account subsequent to Mr Collins’ deposit. The result of those transactions is to make it impossible to determine what happened to the fund represented by his money. On 21 July 1999 the bank account of Enterprise Solutions 2000 Pty Ltd into which Mr Collins paid his money had a credit balance of $50,165.72. Mr Collins' deposit was only one (though the biggest one) of five made that day. On the same day over $42,000.00 was paid out of the account. The next day, 22 July, $25,420.00 were paid away but $20,000.00 were paid in leaving a credit balance of $44,745.72. Then next day $20,294.00 were deposited and $34,358.58 withdrawn. The credit balance was then $30,681.14. On 26 July $60,950.00 were withdrawn and $30,290.00 deposited. The balance on the account was then only $1.14. Further deposits on 27 July of $13,150.00 and some debits to the account resulted in a credit balance of $13,134.16. A large series of deposits and withdrawals on 29 July and 9 August left a credit balance on 20 August of $17,451.93. Relevant pages of the bank statements evidencing these transactions are exhibited to the affidavit of Mr Hennessy and Mr Collins. [19] The result is that an amount greater than Mr Collins’ deposit was withdrawn from the account on the day it was deposited but subsequent to the deposit. On the following days amounts aggregating more than $100,000.00 were taken from the account. Although other deposits were made the last credit balance was less than the amount paid in by Mr Collins. [20] This brief recital of fact shows that it is not possible to know which of the withdrawals made on the account subsequent to the relevant deposit represented -- 5 of 6 -- 6 Mr Collins’ money. Even if those withdrawals could be traced into some identifiable fund which fell into the receivers’ possession it would not be possible to know which withdrawal and which fund could be regarded as his. Putting aside the difficulties involved in tracing the movement and destination of the funds withdrawn there is no means of knowing which withdrawal should be traced. [21] Nor would the application of the rule in Clayton’s case (1816) 1 Mer 572; 35 ER 781 assist Mr Collins. I would respectfully accept the criticism advanced in Jacobs (op.cit.) para 2709, 2711, that Clayton’s case is inapplicable to circumstances where a trustee has mixed trust moneys held for a number of beneficiaries and then misapplied funds leaving a balance insufficient to discharge the trust obligations. [22] Even if the rule in Clayton’s case were applied it would not assist Mr Collins because it presumes that moneys are withdrawn from an account in the order in which they were deposited. The application of the rule would mean that Mr Collins’$30,000.00 were withdrawn by 23 July at the latest and that the balance left in the account when it was frozen does not represent any of his funds. [23] For these reasons it is impossible to treat Mr Collins any differently from the other investors. I will make orders in terms of the draft submitted by counsel for the receivers. -- 6 of 6 --