FEDERAL COURT OF AUSTRALIA

Australian Securities and Investments Commission v ActiveSuper Pty Ltd (No 2) [2013] FCA 234

Citation: Australian Securities and Investments Commission v ActiveSuper Pty Ltd (No 2) [2013] FCA 234

Parties: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v ACTIVESUPER PTY LTD (ACN 125 423 574), ACN 143 832 053 PTY LTD (ACN 143 832 053), JASON GRANT BURROWS, JUSTIN LUKE GIBSON, U.S. REALTY INVESTMENTS #1, LLC (L-1666059-6), U.S. REALTY INVESTMENTS #2, LLC (L-1666058-5), U.S. REALTY INVESTMENTS #3, LLC (L- 1668734- 4), U.S. REALTY INVESTMENTS #4, LLC (L- 1668736-6), SYNDICATED PROPERTY GROUP LTD (BVI COMPANY NUMBER 1678711), WORLDWIDE PROPERTY OPPORTUNITIES LTD (BVI COMPANY NUMBER 1678279), CAYCO MANAGEMENT (REGISTRATION NUMBER CR- 265977), MOGS PTY LTD (ACN 136 499 360), JEFFREY GEORGE, GRAEME STONEHOUSE, MARINA ULRIKA LOVISA GORE, MARK GORDON ADAMSON and CRAIG KIRRIN GORE

File number: VID 426 of 2012

Judge: GORDON J

Date of judgment: 19 March 2013

Catchwords: CORPORATIONS – application to appoint provisional liquidator – discretionary considerations for appointment of provisional liquidator – whether appropriate to appoint a provisional liquidator to a trustee company – company automatically removed as trustee

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

Cases cited: Allstate Exploration NL v Batepro Australia Pty Ltd [2004] NSWSC 261 Australian Securities Commission v AS Nominees Limited (1995) 62 FCR 504 Australian Securities Commission v Solomon (1996) 19

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ACSR 73 Australian Securities and Investments Commission v ActiveSuper Pty Ltd (No 1) [2012] FCA 1519 Australian Securities and Investments Commission v ABC Fund Managers (2001) 39 ACSR 443 Australian Securities and Investments Commission v Chase Capital Management Pty Ltd (2001) 36 ACSR 778 Australian Securities and Investments Commission v Finchley Central Funds Management Ltd [2009] FCA 1110 Australian Securities and Investments Commission v Global SDR Technologies Pty Ltd (2004) 51 ACSR 42 Australian Securities and Investments Commission v International Unity Insurance Pty Ltd (2004) 22 ACLC 1416 Australian Securities and Investments Commission, in the matter of Bennett Street Developments Pty Ltd v Weerappah (No 2) [2009] FCA 249 Australian Securities and Investment Commission v Kingsley Brown Properties Pty Ltd [2005] VSC 506 Australian Securities and Investments Commission v Tax Returns Australia Dot Com Pty Ltd [2010] FCA 715 Brylyn No 2 Pty Ltd; Re (1987) 12 ACLR 697 Constantinidis v JGL Trading Pty Ltd (1995) 17 ACSR 625 Denilikoon Nominees (No 2) Pty Ltd: Re (1981) 6 ACLR 262 Earth Loop Pty Ltd v AIAN Investments Pty Ltd [2008] NSWSC 1042 Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 Emmacourt Pty Limited v Jewels of Australia Pty Limited [2007] FCA 1483 Galanopoulos v Moustafa [2010] VSC 380 Huntford Pty Ltd; Re (1993) 12 ACSR 274 Kizquari Pty Ltd v Prestoo Pty Ltd (1993) 10 ACSR 606 Loch v John Blackwood Ltd [1924] AC 783 Lubavitch Mazal Pty Ltd v Yeshiva Properties No 1 Pty Ltd (2003) 47 ACSR 197 New Cap Reinsurance Corporation Holdings Ltd; Re (1999) 32 ACSR 234 Nilant v RL & KW Nominees Pty Ltd [2007] WASC 105 Riviana (Aust) Pty Ltd v Laospac Trading Pty Ltd (1986) 10 ACLR 865 Telfer v Astarra Securities Pty Ltd [2010] NSWSC 682 Tickle v Crest Insurance Co of Australia Ltd (1984) 2 ACLC 493 Yellowrock Pty Ltd v Eastgate Properties Pty Ltd [2004] QSC 214 Zempilas v J N Taylor Holdings Ltd (No 2) (1990) 3 ACSR 518

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Date of hearing: 26 February 2013

Date of last submissions: 15 March 2013

Place:

Division: GENERAL DIVISION

Category: Catchwords

Number of paragraphs: 56

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

Solicitor for the Plaintiff: Australian Securities and Investments Commission

Counsel for the Twelfth, Mr M Robins SC with Mr N Kirby Fourteenth and Fifteenth Defendants:

Solicitor for the Twelfth, Clamenz Evans Ellis Lawyers Fourteenth and Fifteenth Defendants:

IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 426 of 2012

BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION Plaintiff

AND: ACTIVESUPER PTY LTD (ACN 125 423 574) First Defendant

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

JASON GRANT BURROWS Third Defendant

JUSTIN LUKE GIBSON Fourth Defendant

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

U.S. REALTY INVESTMENTS #2, LLC (L-1666058-5) Sixth Defendant

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

U.S. REALTY INVESTMENTS #4, LLC (L- 1668736-6) Eighth Defendant

SYNDICATED PROPERTY GROUP LTD (BVI COMPANY NUMBER 1678711) Ninth Defendant

WORLDWIDE PROPERTY OPPORTUNITIES LTD (BVI COMPANY NUMBER 1678279) Tenth Defendant

CAYCO MANAGEMENT (REGISTRATION NUMBER CR- 265977) Eleventh Defendant

MOGS PTY LTD (ACN 136 499 360) Twelfth Defendant

JEFFREY GEORGE Thirteenth Defendant

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GRAEME SYDNEY STONEHOUSE Fourteenth Defendant

MARINA ULRIKA LOVISA GORE Fifteenth Defendant

MARK GORDON ADAMSON Sixteenth Defendant

CRAIG KIRRIN GORE Seventeenth Defendant

JUDGE: GORDON J DATE OF ORDER: 19 MARCH 2013 WHERE MADE: MELBOURNE

THE COURT ORDERS THAT:

1. Pursuant to s 472(2) of the Corporations Act 2001 (Cth) (the Act), Michael Gerard McCann and Graham Robert Killer, of c/- Grant Thornton, Ground Floor, 102 Street, in the State of be appointed as joint and several provisional liquidators to the twelfth defendant, MOGS Pty Ltd (ACN 136 499 360) (the provisional liquidators). 2. The provisional liquidators have the following powers: (a) to enter into possession and take control of all assets (including money) of the twelfth defendant, including all assets of the twelfth defendant used in or relating to its operations, together with all books, records, computers, computer disks, and any other papers or records relating thereto; (b) to deal with any monies held by or on behalf of the twelfth defendant or its officers, employees or agents or any of them, being monies received in relation to or employed in the twelfth defendant’s operations; (c) to operate and inspect any account at any bank or other financial institution being an account operated by the twelfth defendant or its officers, employees or agents or any of them and to withdraw any such monies and to pay any such monies into an account or accounts opened or maintained by or for the provisional liquidators;

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(d) to appoint a solicitor, accountant or other professionally qualified person either within or outside Australia to assist the provisional liquidators; (e) to delegate to their partners, employees and agents whether within or outside Australia any business or matter that the provisional liquidators are unable to do themselves or that can be done more conveniently by those others; (f) to receive any monies due to the twelfth defendant relating to its operations; (g) to compromise any calls, liabilities to calls, liabilities capable of resulting in debts and any claims (present or future, certain or contingent, ascertained or sounding only in damages) subsisting or supposed to subsist between the twelfth defendant and a contributory or other debtor or person apprehending liability to the twelfth defendant, and all question in any way relating to or affecting the property of the twelfth defendant, on such terms as are agreed, and take any security for the discharge of, and give complete discharge in respect of, any such call, debt, liability or claim; (h) for the purposes of maintaining and securing the assets of the twelfth defendant, to: (i) pay any expense, including for the purposes of insurance; (ii) execute any document; (iii) bring or defend any proceeding; (iv) to carry on business; (v) to obtain credit; and/or (vi) do any other act or thing, in the name of or on behalf of the twelfth defendant, its officers, employees or agents or any of them; (i) to make any application to any court or regulatory agency for the purposes of exercising the powers in (a) to (h) above; (j) to apply for further orders, including the power to realise the assets and pay the liabilities of the twelfth defendant, and to seek directions as to the disposition of any remaining proceeds; and (k) to receive remuneration on a time basis within the scale of charges approved by the Court, such remuneration to be paid from the proceeds of the winding up.

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3. The provisional liquidators shall, within 45 days of their appointment, provide to the Court and to the plaintiff a report as to the provisional liquidation of the twelfth defendant, including: (a) the identification of the assets and liabilities of the twelfth defendant; (b) an opinion as to the solvency of the twelfth defendant; (c) the likely return to creditors of the twelfth defendant; (d) any other information necessary to enable the financial position of the twelfth defendant to be assessed; and (e) any suspected contravention of the Act by the any directors and or officers of the twelfth defendant. 4. Pending the final determination of the proceeding or until further order, the fourteenth and fifteenth defendants (whether by themselves, their agents or howsoever otherwise) be restrained, directly, or indirectly, from exercising or purporting to exercise any power whether under cll 28 and 32 of the MOGS Unit Trust Deed between the twelfth defendant and Goreco Pty Ltd dated 1 January 2011 (the Trust Deed), or otherwise, to appoint a new trustee, or a co-trustee to the MOGS Unit Trust, or to amend the Trust Deed. 5. The application by the plaintiff for the leave to amend its interlocutory application dated 10 December 2012 be adjourned to a date to be fixed. 6. The interlocutory application filed on behalf of the 12th, 14th and 15th Defendants on 10 December 2012 be dismissed. 7. Liberty to apply. 8. Costs reserved.

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

IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 426 of 2012

BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION Plaintiff

AND: ACTIVESUPER PTY LTD (ACN 125 423 574) First Defendant

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

JASON GRANT BURROWS Third Defendant

JUSTIN LUKE GIBSON Fourth Defendant

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

U.S. REALTY INVESTMENTS #2, LLC (L-1666058-5) Sixth Defendant

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

U.S. REALTY INVESTMENTS #4, LLC (L- 1668736-6) Eighth Defendant

SYNDICATED PROPERTY GROUP LTD (BVI COMPANY NUMBER 1678711) Ninth Defendant

WORLDWIDE PROPERTY OPPORTUNITIES LTD (BVI COMPANY NUMBER 1678279) Tenth Defendant

CAYCO MANAGEMENT (REGISTRATION NUMBER CR- 265977) Eleventh Defendant

MOGS PTY LTD (ACN 136 499 360) Twelfth Defendant

JEFFREY GEORGE Thirteenth Defendant

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GRAEME SYDNEY STONEHOUSE Fourteenth Defendant

MARINA ULRIKA LOVISA GORE Fifteenth Defendant

MARK GORDON ADAMSON Sixteenth Defendant

CRAIG KIRRIN GORE Seventeenth Defendant

JUDGE: GORDON J DATE: 19 MARCH 2013 PLACE: MELBOURNE

REASONS FOR JUDGMENT

A. INTRODUCTION

1 The Australian Securities and Investments Commission (the Plaintiff) (ASIC) sought the appointment of a provisional liquidator to MOGS Pty Ltd (ACN 136 499 360) (the 12th Defendant) (MOGS) with specified powers and for the provisional liquidator to report to the Court and to ASIC. The application was made pursuant to s 472(2) of the Corporations Act 2001 (Cth) (the Act).

2 ASIC submitted that there was substantial evidence that MOGS had committed, or been knowingly concerned in, a number of contraventions of the Act including breaches of s 1041H(1) (misleading or deceptive conduct in respect of a financial product or service), s 911A(1) (provision of financial services without a relevant licence) and s 727(1) (offering securities without a current disclosure document lodged with ASIC). In general terms, ASIC sought the appointment of a provisional liquidator:

1. to secure and preserve MOGS’ assets pending the final hearing and determination of ASIC’s winding up application against MOGS; and 2. to empower an independent expert and officer of the Court to investigate MOGS’ affairs and report back to the Court.

ASIC’s application was opposed by MOGS.

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3 There was also an application by MOGS, Graeme Sydney Stonehouse (the 14th Defendant) (Mr Stonehouse) and Marina Gore (the 15th Defendant) (Mrs Gore) to set aside ex parte orders made against them on 3 December 2012. Each application was supported by extensive affidavit evidence. These applications came on for hearing on 26 February 2013.

4 During the course of argument, it became apparent that MOGS was, at least to some extent, acting as trustee of the MOGS Unit Trust.

5 Prior to that time, neither ASIC nor MOGS had adduced evidence of the fact that MOGS acted as trustee of the MOGS Unit Trust. Taken at its highest, the evidence was unclear as to whether the transactions undertaken by MOGS (and the subject of criticism by ASIC) were undertaken by MOGS as trustee of the MOGS Unit Trust or in its own right. Surprisingly, MOGS had failed to inform the Court that it was a trustee of the MOGS Unit Trust, had not provided the Court with a copy of the MOGS Unit Trust Deed and had not identified the unitholders of the MOGS Unit Trust. The blame does not rest with MOGS alone. ASIC was aware of MOGS’ status, but apparently had not turned its mind to these questions until the issue was raised by the Court.

6 ASIC and what may be described as the MOGS parties (MOGS, Mr Stonehouse and Mrs Gore) were directed to consider ASIC’s application for appointment of a provisional liquidator having regard to the Court’s concern that MOGS appeared to be a trustee, at least in respect of some assets and activities, the fact that the Court had not been provided with the documents referred to in [5] above and that the unitholders of the MOGS Unit Trust were not then known and had not been notified. The possibility of replacing the trustee under s 80 of the Trusts Act 1973 (Qld) was also raised by the Court.

7 ASIC and the MOGS parties filed outlines of legal submissions directed to the question of the Court’s power to appoint a provisional liquidator to a trustee company. At the same time as the MOGS parties filed their legal submissions (namely 28 February 2013), the MOGS parties filed an affidavit sworn by Mr Stonehouse (the Stonehouse affidavit). That affidavit was important for what it said and what it did not say.

8 First, the Stonehouse affidavit provided the Court with a copy of the MOGS Unit Trust Deed and the resolutions for the transfer of units in the MOGS Unit Trust. The trustee was MOGS. The sole unitholder was Mash Investments Pty Ltd (ACN 149 597 384),

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as trustee of the MASH Investments Unit Trust. Mash Investments Pty Ltd is a company controlled by Mr Stonehouse and Mrs Gore. A copy of the MASH Investments Unit Trust Deed was also annexed to the Stonehouse affidavit. The unitholders of that trust are listed as MAC Enterprises (Aust) Pty Ltd as trustee of the MAC Bloodline Trust, Mascard Pty Ltd as trustee of the Mascard Trust, Mark Adamson (the 16th Defendant) (Adamson) as trustee of the MGA Trust and Dr William and Shannon Anseline as trustee of the Anseline Superfund. It will be necessary to return to consider the balance of the Stonehouse affidavit later in these reasons for judgment.

9 In response to the submissions filed by the MOGS parties and the Stonehouse affidavit, ASIC filed an outline of submission by which it sought, for the first time, not only the appointment of a provisional liquidator to MOGS but also the following:

1. the appointment of those appointed as provisional liquidators as replacement trustees of the MOGS Unit Trust pursuant to s 80 of the Trusts Act 1973 (Qld); and 2. orders restraining the defendants from seeking to remove or replace the Court appointed trustees or to appoint co-trustees of the MOGS Unit Trust.

On Friday 15 March 2013, ASIC applied for leave to amend its interlocutory application to include these two further orders.

10 These reasons for judgment will deal with some relevant principles and then consider ASIC’s application.

B. SOME RELEVANT LEGAL PRINCIPLES

(1) Appointment of a provisional liquidator

11 Section 472(2) of the Act gives the Court power to appoint a provisional liquidator at any time after the filing of a winding up application and before the making of a winding up order. The Court has a wide and complete discretion whether or not to appoint a provisional liquidator: Re Huntford Pty Ltd (1993) 12 ACSR 274 at 277.

12 The matter was explained in Re New Cap Reinsurance Corporation Holdings Ltd (1999) 32 ACSR 234 at [23]:

… As was said in Re McLennan Holdings Pty Ltd [(1983) 7 ACLR 732] at p 738 and affirmed by the Court of Appeal in Constantinidis, the power to appoint a provisional liquidator is by no means limited, the grounds on which a provisional liquidator may be appointed are infinite, and all that really has to be shown is that there is a bona fide application constituting sufficient

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ground for the making of the order.

13 It is well established that appointment of a provisional liquidator pending the determination of a winding up application is a drastic intrusion into the affairs of the company and will not be done if other measures would be adequate to preserve the status quo: Zempilas v J N Taylor Holdings Ltd (No 2) (1990) 3 ACSR 518 at 522; Constantinidis v JGL Trading Pty Ltd (1995) 17 ACSR 625 at 635; Lubavitch Mazal Pty Ltd v Yeshiva Properties No 1 Pty Ltd (2003) 47 ACSR 197 at [105]; Australian Securities and Investments Commission, in the matter of Bennett Street Developments Pty Ltd v Weerappah (No 2) [2009] FCA 249 at [8]; Australian Securities and Investments Commission v Tax Returns Australia Dot Com Pty Ltd [2010] FCA 715 at [86].

14 Therefore, an applicant must also show some good reason for intervention prior to the final hearing of the winding up application. For example, an applicant may show that the appointment is needed in the public interest or to preserve the status quo or to protect the company’s assets or affairs: Allstate Exploration NL v Batepro Australia Pty Ltd [2004] NSWSC 261 at [30]; Weerappah at [8].

15 An applicant for the appointment of a provisional liquidator must establish, among other things, that there is a reasonable prospect that a winding up order will be made on the application: Tickle v Crest Insurance Co of Australia Ltd (1984) 2 ACLC 493 at 494; Australian Securities Commission v Solomon (1996) 19 ACSR 73 at 80; Weerappah at [8]. It will be necessary to return to consider this aspect.

16 In Solomon at 80 Tamberlin J listed six principles concerning the appointment of a provision liquidator, which are often cited in this context:

(a) The court should only appoint a provisional liquidator where it is satisfied that there is a valid and duly authorised winding up application and that there is a reasonable prospect that a winding up order will be made: see Debelle J in Re J N Taylor Holdings Ltd; Zempilas v J N Taylor Holdings Ltd (1991) 3 ACSR 516; 9 ACLC 1 at 12-3.

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

(c) The provisional liquidator’s primary duty is to preserve the status quo to ensure the least possible harm to all concerned and to enable the court to decide, after a further examination, whether the company should be wound up: Re Carapark Industries Pty Ltd (in liq) (1966) 9 FLR 297; 86 WN (Pt 1)(NSW) 165 at 171.

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(d) The court should consider the degree of urgency, the need established by the applicant creditor and the balance of convenience: Re Club Mediterranean Pty Ltd (1975) 11 SASR 481 at 484 per Bright J. The power is a broad one and circumstances will vary greatly. Commercial affairs are infinitely complex and various and it is inappropriate to limit the power by restricting its exercise to fixed categories or classes of circumstances or fact.

(e) It may be appropriate to appoint a provisional liquidator in the public interest where there is a need for an independent examination of the state of accounts of the corporation by someone other than the directors: Tickle v Crest Insurance Co of Australia Ltd (1984) 2 ACLC 493.

(f) Where the affairs of the company have been carried on casually and without due regard to legal requirements so as to leave the court with no confidence that the company’s affairs would be properly conducted with due regard for the interests of shareholders, it may be appropriate to appoint a provisional liquidator: see Montgomery Windsor (NSW) Pty Ltd v Ilopa Pty Ltd (1984) 2 ACLC 224.

17 His Honour proceeded to list at 81-2 a further eight considerations which weighed in favour of the appointment of a provisional liquidator in that case several of which are presently relevant:

In this proceeding, the evidence leads to the conclusion that it is essential that a provisional liquidator be appointed to each of the three corporate respondents immediately. The relevant considerations are as follows:

…

(b) There is on any view at present, a substantial deficiency of assets against liabilities which has not been contested. This is not a case of marginal insolvency.

(c) There is a demonstrated lack of control over the assets of the corporations arising from the intermingling of moneys between the corporate respondents. For practical purposes they have been administered as if comprising a single undertaking operated to suit the whims or purposes of Mr Solomon without due regard to their individual best interests.

(d) No proper records have been kept of the moneys lent to or distributed between the corporate respondents which were received from investments made with Mr Solomon. For example, it appears that investment moneys procured to be invested in taxis and share markets have been diverted to publishing ventures of Mr Solomon and his personal enterprises.

(e) Mr Solomon is the controlling mind and will of the corporate respondents and faces a conflict of interest. He is a debtor to the

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investors and liable to them in respect of moneys advanced and at the same time he is a creditor of the corporate respondents as result of the on lending to the corporate respondents. They have no doubt received the funds with notice that they were placed by the investors with Mr Solomon for investment in nominated ventures. Mr Solomon proposes to engage in further commercial activities through the corporate respondents and to obtain further credit.

(f) It is essential, in these circumstances, that an independent person is appointed who can ensure that any remaining funds are not further diverted by Mr Solomon for other ventures or intermingled with additional moneys. An independent person would be in a position to realise the assets, determine the claims and administer the remaining funds evenly as between the investors free from any personal or pecuniary interest in the outcome.

(g) There is cogent evidence that moneys may have been obtained illegally by offering prescribed interests in contravention of the Corporations Law. The corporate respondents were no doubt on notice of such illegality.

…

See also Weerappah where Goldberg J adopted the approach of Tamberlin J in Solomon: Weerappah at [10]. Despite MOGS’ submission to the contrary, several of these considerations are relevant to the present application, at least on ASIC’s version of events.

18 There is arguably one qualification to these principles. In Riviana (Aust) Pty Ltd v Laospac Trading Pty Ltd (1986) 10 ACLR 865 at 866 Young J said that where there is an application made and the company appears, the onus is not as heavy on the applicant because:

… the court takes into account the fact that the company is present, so that the company has an opportunity of putting before the court any relevant factors as to why a provisional liquidator should not be appointed. If the plaintiff’s affidavits raise matters to which a court would expect there to be some answer and there is no answer provided then that in itself raises a matter of suspicion that it may well be in the public interest to put in a provisional liquidator.

See also Emmacourt Pty Limited v Jewels of Australia Pty Limited [2007] FCA 1483 at [11]; Earth Loop Pty Ltd v AIAN Investments Pty Ltd [2008] NSWSC 1042 at [19] and Australian Securities and Investments Commission v Global SDR Technologies Pty Ltd (2004) 51 ACSR 42 at [50].

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

19 In the present case, the appointment of a provisional liquidator is sought where the winding up is sought on the just and equitable ground under s 461(1)(k) of the Act. There is no dispute that ASIC has standing to bring an application to wind up a company on the statutory just and equitable ground: ss 462(2) and 464 of the Act. The classes of conduct which justify the winding up of a company on the just and equitable ground are not closed, and each application will depend upon the circumstances of the particular case: Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 at 374 and 376-379; Australian Securities and Investment Commission v Kingsley Brown Properties Pty Ltd [2005] VSC 506 at [95]-[97]; Nilant v RL & KW Nominees Pty Ltd [2007] WASC 105 at [117]. Nevertheless, it is possible to discern some guiding principles from the authorities.

20 It has long been established that a company may be wound up where there is “a justifiable lack of confidence in the conduct and management of the company’s affairs” and thus a risk to the public interest that warrants protection: Loch v John Blackwood Ltd [1924] AC 783 at 788. In Australian Securities and Investments Commission v ABC Fund Managers (2001) 39 ACSR 443 at [119], Warren J (as her Honour then was) set out three “general fundamental principles”:

First, there needs to be a lack of confidence in the conduct and management of the affairs of the company … Second, in these types of circumstances it needs to be demonstrated that there is a risk to the public interest that warrants protection. Third, there is a reluctance on the part of the courts to wind up a solvent company.

(Citation omitted.)

21 In relation to the first, a lack of confidence may arise where, “after examining the entire conduct of the affairs of the company” the Court cannot have confidence in “the propensity of the controllers to comply with obligations, including the keeping of books, records and documents, and looking after the affairs of the company”: Galanopoulos v Moustafa [2010] VSC 380 at [32]; see also Australian Securities Commission v AS Nominees Limited (1995) 62 FCR 504 at 532-3; ABC Fund Managers at [117]-[118]; Australian Securities and Investments Commission v International Unity Insurance Pty Ltd (2004) 22 ACLC 1416 at [135]-[139].

22 There is thus a significant overlap between the matters relevant to the just and equitable ground and the matters which weigh in favour of the exercise of the Court’s

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discretion to appoint a provisional liquidator. For example, matters which indicate “the propensity of the controllers to comply with obligations, including the keeping of books, records and documents, and looking after the affairs of the company” might also demonstrate that “the company’s affairs have been conducted in a manner without regard to legal requirements or accepted principles of corporate management”.

23 In relation to the second, a risk to the public interest may take several forms. For example, a winding up order may be necessary to ensure investor protection or where a company has not carried on its business candidly and in a straightforward manner with the public: International Unity Insurance at [138]; see also Australian Securities and Investments Commission v Finchley Central Funds Management Ltd [2009] FCA 1110 at [3]. Alternatively, it might be justified in order to prevent and condemn repeated breaches of the law: Kingsley Brown Properties at [96]; see also AS Nominees at 527; Australian Securities and Investments Commission v Chase Capital Management Pty Ltd (2001) 36 ACSR 778 at 793. Again, there is an overlap between matters which would pose a risk to the public interest for the purpose of s 461(1)(k) and which are relevant to the appointment of a provisional liquidator.

24 In relation to the third, it has been said that “a stronger case might be required where the company was prosperous, or at least solvent”: Kingsley Brown Properties at [96]. Solvency, however, is not a bar to the appointment of a liquidator on the just and equitable ground, particularly where there have been serious and ongoing breaches of the Act: ABC Fund Managers at [124]-[130].

C. ASIC’S APPLICATION

(1) Introduction

25 ASIC must establish two matters:

1. that there is a reasonable prospect that a winding up order will be made on the application; and 2. that there are present factors sufficient to require the exercise of the Court’s discretion to appoint a provisional liquidator prior to the final hearing.

26 ASIC relied upon five grounds as justifying the appointment of a provisional liquidator to MOGS:

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1. in excess of $4 million raised from Australian investors and paid to MOGS appears to have been dissipated by MOGS and both the receipt and dissipation of those funds require investigations; 2. MOGS has engaged in transactions with no apparent commercial purpose, failed to comply with its obligations, and there are accounting inconsistencies and inaccuracies for which there is no or no satisfactory explanation; 3. MOGS has contravened the law including by maintaining inadequate accounts and records; 4. the information provided by Mrs Gore lacks veracity; and 5. MOGS’ appears to be insolvent.

27 It is neither necessary nor appropriate to consider each of these allegations in detail. However, by way of example, the evidence disclosed transactions of the following nature:

1. payments of $1,674,588.72 to GFC09 Pty Ltd, a company associated with the personal insolvency of Craig Gore (the 17th Defendant and the husband of Mrs Gore) (Mr Gore), and payments of $798,758.62 to Mr Gore personally, those payments purportedly being made in accordance with a consultancy agreement under which MOGS agreed to pay Mr Gore a fee of $2 million per year; 2. payments to Mrs Gore totalling $832,983.92 in the nine months between 21 October 2011 and 31 July 2012 in circumstances where Mrs Gore alleged that she received a salary of $350,000 per year; 3. payments of $274,012.31 to Mr Gore’s former wife in the nine months between 21 October 2011 and 31 July 2012 purportedly in accordance with a consultancy agreement between MOGS and Mr Gore’s former wife in circumstances where his former wife denied ever performing work for, or being engaged by, MOGS or issuing any invoice to MOGS; and 4. the alleged assignment of what were referred to as “promissory notes”, given by a company known as Propel Consolidated Holdings in favour of Mr Gore’s former wife, to MOGS, in circumstances where a director of Propel, a Mr Simon Banks- Cooper, denied that the promissory notes had been assigned. This list is by no means exhaustive.

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(2) Background

28 The history of these proceedings was summarised by Dodds-Streeton J in Australian Securities and Investments Commission v ActiveSuper Pty Ltd (No 1) [2012] FCA 1519 at [5]-[31]. It is unnecessary to repeat that summary in any detail.

29 MOGS is an Australian company. It has two directors: Mrs Gore and Mr Stonehouse. As noted earlier, Mrs Gore is the wife of Mr Gore. Mr Stonehouse is a business associate of Mr Gore. Mr Gore is an undischarged bankrupt and is therefore forbidden from being involved in, directing or managing any Australian company. Adamson is Mr Gore’s solicitor. Adamson was a director of MOGS from May 2011 until April 2012.

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

2. MOGS was incorporated on 7 April 2009.

3. Initially, MOGS traded in its own right, however, on and from 1 January 2011, MOGS accepted the position of trustee of the MOGS Unit Trust and since that date its sole business has been conducted as trustee the MOGS Unit Trust.

4. Presently all of MOGS’s [sic] business is on behalf of the MOGS Unit Trust in its capacity as trustee. That business is owned by and is an asset of the MOGS Unit Trust.

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

6. The sole unitholder of the MOGS Unit Trust is Mash Investments Pty Ltd as trustee for the MASH Investments Unit Trust. A copy of the resolutions of MOGS as Trustee of the MOGS Unit Trust and related transfers and certificates of Units in the MOGS Unit Trust are exhibited as exhibit GS-3.

7. A copy of the MASH Investments Unit Trust Deed is exhibited as exhibit GS-4.

8. The present unitholders of MASH Investments Unit Trust are set out in exhibit GS-5.

9. Because the business of MOGS was, prior to 1 January 2011, undertaken by MOGS Pty Ltd in its own right (not as trustee) some assets used by the MOGS Unit Trust were and remained owned by MOGS Pty Ltd in its own right. The most significant of these assets was a BMW X6 (bought well before anyone from MOGS met Burrows). As a result of this ownership, some entries are made into the accounts on a “loan” account allocated to MOGS Pty Ltd for the use of these assets.

10. I have questioned MOGS’s [sic] accountant, Timothy Munro about these transactions and he advised me, and I believe, that these entries

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were done in accordance with normal accounting practices and the entries referred to are proper and appropriate.

(Emphasis added.)

31 On 28 February 2013, Mr Stonehouse also went on to describe MOGS’ business activities (or at least some of them) as follows:

29. Since about January 2011, MOGS has sold approximately of [sic] 300 homes and has a substantial business.

30. In addition, presently MOGS has 43 homes in various states of completion that are due to settle (assuming they are completed) within 6 months. These 43 homes would be at risk of not completing if a provisional liquidator is appointed to MOGS.

31. No one, to my knowledge, has ever paid MOGS an option fee or deposit and then not been able to complete their purchase due to any default of MOGS.

In other words, MOGS is apparently engaged in large continuing commercial transactions with what may well be wholly innocent third parties – but allegedly solely in its capacity as trustee of the MOGS Unit Trust. But that of itself raises serious questions.

32 As noted earlier, its role as the trustee of the MOGS Unit Trust and the details of those trust arrangements were not disclosed until late February. The documents exhibited to the Stonehouse affidavit repaid close reading. Clause 28 of the MOGS Unit Trust Deed, entitled “Removal or retirement of Trustee” states:

28.1 A Trustee shall automatically be removed from office if:

28.1.1 …

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

…

28.3 The Unitholders by Ordinary Resolution or a Trustee may at any time appoint one or more co-trustees. …

28.5 If at any time it appears to the satisfaction of the Trustee that it would be desirable to do so the Trustee may in its sole and unfettered discretion resign and by instrument in writing appoint a successor as the Trustee in any place outside the state or territory of the applicable law and transfer to such Trustee the Trust Fund and thereafter this Deed shall be construed as if Part 5 of the Schedule specified the law of that place as the applicable law.

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(Emphasis added.)

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

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

Subject to clause 32.2, the Trustee may with the sanction of a Special Resolution of Unitholders revoke add to release delete or vary this Deed and all or any of the trusts or powers declared or any trusts or powers declared by any revocation addition release deletion or variation made from time to time and may declare any new or other trusts or powers concerning the Trust Fund.

34 None of this was disclosed by MOGS prior to, or at, the initial hearing of ASIC’s application for the appointment of a provisional liquidator to MOGS. However, the non- disclosure did not stop there. MOGS also did not disclose (and therefore did not address) the legal effect of ASIC’s application to wind up MOGS under s 461(1)(k) of the Act.

35 Clause 28.1.2 provides for the automatic removal of MOGS as trustee of the MOGS Unit Trust when a petition for its winding up is presented against it. This proceeding (an application for the winding up of MOGS on the just and equitable ground under s 461(1)(k) of the Act) was filed (and served) in December 2012.

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

(1) does ASIC intend to pursue its application for the appointment of a replacement trustee for the MOGS Unit Trust: par 11(b) of ASIC’s submissions dated 1 March 2013?;

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

(a) to formally amend its interlocutory process; and

(b) to provide notice of the application to the unitholders of the MOGS Unit Trust?;

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

“A Trustee shall automatically be removed from office if: … 28.1.2 being a company it shall … have a petition for its winding up presented against it …”

(a) who is the trustee of the MOGS Unit Trust and if the trustee is a company, provide the relevant details of that company

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including date of incorporation, names of directors, names of shareholders;

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

(c) what are the assets and liabilities of the MOGS Unit Trust and who has day to day control of those assets;

(d) have any one of the powers contained in cl 28.3 or 28.4 (or both) been exercised and if so, when and how?

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

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

(5) does ASIC intend to pursue its application for the appointment of receivers and managers to the assets of the MOGS Unit Trust: par 13 of ASIC’s submissions dated 1 March 2013?;

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

(a) to formally amend its interlocutory process; and

(b) to provide notice of the application to the unitholders of the MOGS Unit Trust?;

… If any party wishes to refer to evidence already filed, the answers should include appropriate cross-references. If there is additional material relevant and necessary to providing an answer to these questions, the nature of that material should be identified. Prior to the response being filed, Senior Counsel for ASIC and the 12th, 14th and 15th defendants are directed to confer to identify areas of agreement and disagreement.

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

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

(b) The unitholders held a meeting on 16 December 2012, which had the effect of allowing MOGS to continue in the role as trustee as long as a liquidator is not appointed, pending a further meeting and receipt of legal advice to the trust.

(c) They are (as at 17 December 2012), in summary, as disclosed in the affidavit of Timothy Munro and the accounts as provided to ASIC. MOGS Pty Ltd presently has day to day control of the assets, subject to the Court orders.

(d) Yes, on 16 December 2012 MOGS Pty Ltd was reappointed. Additionally, a further unitholder meeting has been called for 21 March 2013 to table legal advice and further consider the issue in light of the recent Court hearing.

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(e) No.

(4) MOGS Pty Ltd owns a motor vehicle in its own right (the Toyota Hilux previously referred to), but has no other significant physical assets apart from its right of indemnity as trustee.

What transpired at the meeting on 16 December 2012 (held after the application to wind up MOGS was filed and served) was not disclosed. No less importantly, how MOGS says it can continue as trustee in light of cl 28.1.2 and the extant application to wind up MOGS was not addressed. These facts and matters raise more questions than they answer. MOGS’ answers to these questions were opaque at best.

38 In that context, ASIC applied for leave to amend its interlocutory process to seek an appointment of a new trustee to the MOGS Unit Trust. The basis for that application being, as the Court understands it, that the MOGS Unit Trust has no trustee. It is appropriate to defer the hearing of that application to a later date.

(3) Analysis

39 What then is the current position?

40 ASIC’s application came before the Court in circumstances where ASIC seeks relief against, inter alia, MOGS, Mrs Gore and Mr Stonehouse for their alleged involvement in the misuse of funds obtained from Australian investors (principally the trustees of self-managed superannuation funds). ASIC alleges that MOGS received investor funds by two routes:

1. funds raised pursuant to a so-called “US Realty Memorandum” for investment into distressed real estate in the United States, but loaned, at least in part, by the fifth to eighth defendants to MOGS; and 2. funds raised pursuant to so-called “product placement memoranda” for investment with the ninth and tenth defendants, but loaned, at least in part, by entities associated with those defendants to MOGS.

41 There was evidence regarding the raising of those funds, the loan agreements, the receipt of those funds by MOGS and MOGS’ subsequent use of the funds. MOGS strenuously denied any wrongdoing.

42 Separately, there are numerous past transactions entered into by MOGS which are said by ASIC to require investigation: see [26]-[27] above. The transactions appear to raise serious questions. At present, it is unnecessary to resolve those disputes. It is unnecessary to

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resolve any of those disputes because, no less importantly, the terms of the MOGS Unit Trust Deed are such that it is difficult to see how MOGS by its own acts (as it asserts) can avoid the consequences of ASIC filing an application for it to be wound up – its automatic removal as trustee of the MOGS Unit Trust.

43 There is a sufficient prospect that MOGS is no longer the trustee of the MOGS Unit Trust. According to Mr Stonehouse, that is its sole activity: see [30] above. According to the Stonehouse affidavit, MOGS’ own asset position is limited: see [30] above. Put simply, MOGS’ substratum has gone: see, by way of example Solomon at 81-2.

44 There is however another difficulty. Although it appears that MOGS’ substratum has gone, it continues to conduct, or appears to conduct, “MOGS’ Business”. In December 2012, Timothy Munro (a director and chief executive officer of Change Accountants and Advisors which had been engaged for three years to do accounting work for MOGS) filed an affidavit in which he stated that MOGS’ operating profit for the first six months of the 2013 financial year was approximately $5 million and was expected to be in excess of $8 million. That evidence was said to be based on a review of a profit and loss statement and him having spoken with “the directors and sales staff of MOGS”. In a later affidavit dated 21 February 2013, Mr Munro described MOGS’ solvency as follows:

MOGS is currently paying its debts as and when they fall due. It is in part doing so by arrangements with third party funders. As long as MOGS’ funding facility remains in place I have no current concern about its solvency. I understand from the Directors that the funding arrangements would be immediately terminated if a provisional liquidator was appointed.

45 Mrs Gore’s evidence was that:

… MOGS has had to obtain finance from other sources or make arrangements in order to fund and complete the property developments for purchasers (including many SMSF) …

46 The “third party funders” were not identified. The terms of the financing arrangements were not disclosed. The extent to which these facilities are drawn down was not disclosed. Mr Stonehouse did not address or seek to explain the assertion that “the funding arrangements would be immediately terminated if a provisional liquidator was appointed”.

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47 The appointment of a provisional liquidator pending the determination of a winding up application is a drastic intrusion into the affairs of the company. However, having regard to the facts and circumstances outlined, there are currently no other measures that would be adequate to preserve the status quo. In the circumstances (Riviana at 866), there is a reasonable prospect that a winding up order will be made. Indeed, the Court cannot presently ascertain MOGS’ current legal and factual status, including its financial standing, and the basis on which it concurrently conducts “the business of MOGS”: see [20]-[24] above.

48 MOGS is apparently engaged in large continuing commercial transactions with what may well be wholly innocent third parties (including self-managed superannuation funds) – but allegedly in its capacity as trustee of the MOGS Unit Trust. MOGS’ failure to provide satisfactory answers to direct questions about its current status itself raises suspicion. In this context, it is important to recall that, as at 28 February 2013, Mr Stonehouse stated that the completion of 43 homes “would be at risk of not completing if a provisional liquidator is appointed to MOGS” (emphasis added). He did not explain or describe that risk. He did not state that the homes would not be completed.

49 In the circumstances, it is appropriate, and in the public interest, that a provisional liquidator be appointed to MOGS: cf Riviana at 866. There is a need for an independent examination of the state of accounts of the corporation and its activities by someone other than the directors.

50 The provisional liquidators will need to take control and preserve the assets MOGS holds whether as trustee or otherwise. The provisional liquidators will, of course, also need to form a view about ASIC’s application to appoint a substitute trustee to the MOGS Unit Trust.

51 One submission that MOGS made in response to ASIC’s application to appoint a provisional liquidator to MOGS was that the “Corporations Act remedies were not appropriate for trust companies”. That contention is rejected: see [11]-[18] above. MOGS’ submission is misconceived. In particular, Kizquari Pty Ltd v Prestoo Pty Ltd (1993) 10 ACSR 606 and cases subsequently referring to Kizquari referred to by MOGS do not assist. Each of those cases is restricted to the oppression context. Those remedies are quite distinct from the power of the Court to appoint a provisional liquidator. There is no reason, in the authorities or in MOGS’ submissions, to extend the Kizquari line of reasoning to whether it is appropriate to appoint a provisional liquidator.

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52 Next, MOGS submitted that Re Brylyn No 2 Pty Ltd (1987) 12 ACLR 697 (a case relied upon by ASIC in support of its application for appointment of a provisional liquidator) was “questionable”. In addition, MOGS submitted that none of the other cases cited by ASIC addressed how or why a provisional liquidator should be appointed to a trustee. This submission is also misconceived. First, MOGS appears to have lost is substratum. It has been automatically removed as trustee: see [32] and [35] above. It does not appear to hold significant assets in its own right: see [30] above referring to [9] of the Stonehouse affidavit. The current state of the evidence (in light of the non-disclosure by MOGS) compels the appointment of a provision liquidator given the nature and apparent extent of its business.

53 Secondly, several of the authorities cited by ASIC (Telfer v Astarra Securities Pty Ltd [2010] NSWSC 682, Weerappah, Yellowrock Pty Ltd v Eastgate Properties Pty Ltd [2004] QSC 214 and Re Denilikoon Nominees (No 2) Pty Ltd (1981) 6 ACLR 262) concerned the appointment of a provisional liquidator to one or more trustee companies. While there was little or no consideration of the “how” and the “why” of appointing a provisional liquidator, the mere status of the company as a trustee was no bar to the appointment of a provisional liquidator. What was important in each of those cases (and important here) was, and remains, the individual circumstances of the particular case.

54 Finally, until ASIC’s application for leave to seek the appointment of a new trustee is heard and determined, the best method of preserving the status quo would be to restrain the unitholder (Mash Investments Pty Ltd) from exercising or purporting to exercise any power whether under cll 28 and 32 of the MOGS Unit Trust Deed, or otherwise, to appoint a new trustee, a co-trustee or to amend the Trust Deed. At present, Mash Investments Pty Ltd is not a party to the proceeding. In those circumstances, Mr Stonehouse and Mrs Gore (the directors of Mash Investments Pty Ltd) should be restrained, directly, or indirectly, from exercising or purporting to exercise any power whether under cll 28 and 32 of the MOGS Unit Trust Deed, or otherwise, to appoint a new trustee, a co-trustee or to amend the Trust Deed.

D. CONCLUSION

55 The foregoing analysis is incomplete. That is inevitable. This is an application for the appointment of a provisional liquidator. However, in the circumstances disclosed, there is a reasonable prospect that a justifiable lack of confidence in the conduct and management of

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MOGS, and a case for winding up of MOGS on the just and equitable ground, would be made out at trial.

56 It is therefore appropriate that a provisional liquidator be appointed to MOGS with specified powers and for the provisional liquidator to report to the Court and to ASIC. Consistent with that current view, it is inappropriate to set aside the orders made on 3 December 2012 made against Mr Stonehouse and Mrs Gore. Of course, if circumstances change, they may renew their respective applications.

I certify that the preceding fifty-six (56) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gordon.

Associate:

Dated: 19 March 2013