FEDERAL COURT OF AUSTRALIA

Australian Securities & Investments Commission v McDougall [2006] FCA 427

CORPORATIONS – unregistered managed investment scheme – unlicensed financial services business – whether declarations appropriate – whether scope of injunctive relief appropriate – whether winding up of company necessary

Australian Securities and Investments Commission v Pegasus Leveraged Options Group Pty Ltd (2002) 41 ACSR 561 considered

Australian Securities and Investments Commission v McNamara (2002) 42 ACSR 488 cited

Australian Securities and Investments Commission v Giann & Giann Pty Ltd (2005) 141 FCR 278 cited

Australian Securities and Investments Commission v Manito Pty Ltd (2005) 53 ACSR 56 cited

Australian Securities and Investments Commission v Drury Management Pty Ltd [2004] QSC 068 cited

Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 cited

Australian Softwood Forest Pty Ltd v Attorney-General (NSW) (1981) 148 CLR 121 cited

Corporate Affairs Commission (NSW) v Transphere Pty Ltd (1988) 15 NSWLR 596 cited

Australian Securities and Investments Commission v Sweeney [2001] NSWSC 114 cited

Tobacco Institute of Australia Ltd v Australian Federation of Consumer Organisations Inc (No 2) (1993) 41 FCR 80 cited

OD Transport Pty Ltd v WA Government Railways Commission (1987) 13 FCR 500 cited

ICI Australia Operations Pty Ltd v Trade Practices Commission (1992) 38 FCR 248 considered

Mikasa (NSW) Pty Ltd v Festival Stores (1972) 127 CLR 617 cited

ACCC v Z-Tek Computer Pty Ltd (1997) 78 FCR 197 at 202 cited

ACCC v Real Estate Institute (WA) (1999) 95 FCR 114 cited

Foster v Australian Competition and Consumer Commission [2006] FCAFC 21 discussed

Australian Securities and Investments Commission v Takaran Pty Ltd (No 2) (2003) 194 ALR 743 cited

Australian Securities and Investment Commission v Chase Capital Management Pty Ltd (2001) 36 ACSR 778 cited

IN THE MATTER OF STEPHEN JOHN MCDOUGALL and BTS MANAGEMENT PTY LTD (ACN 084 095 241)

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

v STEPHEN JOHN MCDOUGALL and BTS MANAGEMENT PTY LTD (ACN 084 095 241)

VID 1275 of 2005

YOUNG J

20 APRIL 2006

MELBOURNE

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VID 1275 OF 2005

IN THE MATTER OF STEPHEN JOHN MCDOUGALL and BTS MANAGEMENT PTY LTD (ACN 084 095 241)

BETWEEN:	AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION PLAINTIFF
AND:	STEPHEN JOHN MCDOUGALL FIRST DEFENDANT BTS MANAGEMENT PTY LTD (ACN 084 095 241) SECOND DEFENDANT
JUDGE:	YOUNG J
DATE OF ORDER:	20 APRIL 2006
WHERE MADE:	MELBOURNE

THE COURT DECLARES THAT:

On the basis of the evidence contained in the affidavits and their respective exhibits filed by the Plaintiff:

1. From September 2005 until October 2005 the Defendants contravened s 601ED(5) of the Corporations Act 2001 (Cth) (“the Act”) by operating an unregistered managed investment scheme defined in the Schedule to the Order (“the Scheme”) which required registration as a managed investment scheme but was not so registered.

2. From September 2005 until October 2005 the Defendants contravened s 911A of the Actby carrying on a financial services business in this jurisdiction, by offering interests in the Scheme, without holding an Australian financial services licence.

THE COURT ORDERS BY WAY OF FINAL RELIEF THAT:

3. Pursuant to s 1324(1) of the Act, the Defendants be and hereby are permanently restrained whether by themselves, their servants or agents or otherwise from further operating or promoting the Scheme.

4. Pursuant to ss 1101B and 1324(1) of the Act, the Defendants be and hereby are permanently restrained whether by themselves, their servants or agents or otherwise from carrying on business in relation to financial products or financial services by:

(a) providing financial product advice in respect of the Scheme by recommending it, stating an opinion in respect of it or reporting either of those things;

(b) dealing in financial products by issuing, granting or making available the Scheme or participation in it;

without holding an Australian financial services licence.

5. Pursuant to ss 1101B and 1324(1) of the Act,the Defendants be and hereby are permanently restrained whether by themselves, their servants or agents or otherwise from:

(a) carrying on any business related to, concerning or directed to be a managed investment scheme within the meaning of the Act;

(b) being in any way, directly or indirectly, knowingly concerned in or a party to the promotion or establishment of, or the carrying on of the business of, a managed investment scheme within the meaning of the Act,

that requires, in any case, registration under s 601ED of the Act and has not been so registered.

6. The Scheme be wound up pursuant to s 601EE(1) of the Act.

7. Pursuant to s 601EE(2) of the Act, Adrian Lawrence Brown and James Henry Stewart (who were appointed as the receivers of the property of the second defendant and to investigate and report on the Scheme by the order of Justice Merkel made 25 October 2005) be appointed joint and several liquidators of the Scheme (‘the Liquidators’).

8. The Liquidators have power to do, in Australia and elsewhere, all things necessary or convenient to be done for or in connection with the winding up of the Scheme, or incidental to the attainment of the winding up of the Scheme including the powers identified in s 477 of the Act as if each reference there to a ‘company’ was a reference to the Scheme.

9. The reasonable costs and expenses of the receivers referred to in paragraph 7 above and of the winding up of the Scheme, including the professional costs and expenses of the Liquidators, shall be paid out of the assets of the Scheme.

10. Within 7 days of the making of this Order the Defendants pay to the Liquidators the sum of $80,000.00, such sum to be applied by the Liquidators (together with the Scheme's assets) in accordance with s 556 of the Act as if each reference there to a ‘company’ was a reference to the Scheme.

11. The Liquidators must, within 21 days of completing the winding up of the Scheme, provide to the Court and the parties (verified in writing) a:

(a) report detailing the actions taken by the Liquidators in the winding up of the Scheme and;

(b) report detailing all receipts and payments made in the winding up and in complying with these Orders and the Orders made in this proceeding on 25 October 2005.

12. To the extent that the sum paid to the Liquidators under Order 10 is not sufficient (together with the Scheme’s cash assets) to discharge all the liabilities of the Scheme as determined by the Liquidators, together with the remuneration, costs, fees and expenses of the Liquidators, then the Defendants shall pay such shortfall to the Liquidators within 21 days of receiving a call for payment of such shortfall from the Liquidators.

13. The Defendants pay the Plaintiff's costs of the proceeding.

14. The proceeding otherwise be dismissed without adjudication.

SCHEDULE

“the Scheme” means the managed investment scheme known as the “FullTank” card scheme, conducted by the defendants under the business name “Chargeitcards”, whereby investors were issued, or were to be issued, with a stored value debit card which purportedly enabled them to obtain savings on fuel costs at petrol stations.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VID 1275 OF 2005

IN THE MATTER OF STEPHEN JOHN MCDOUGALL and BTS MANAGEMENT PTY LTD (ACN 084 095 241)

BETWEEN:

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

PLAINTIFF

AND:

STEPHEN JOHN MCDOUGALL

FIRST DEFENDANT

BTS MANAGEMENT PTY LTD (ACN 084 095 241)

SECOND DEFENDANT

JUDGE:	YOUNG J
DATE:	20 APRIL 2006
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

1 This proceeding was commenced by the Australian Securities and Investment Commission (“ASIC”) by originating process filed on 17 October 2005. The proceeding seeks relief in respect of an unregistered managed investment scheme known as “FullTank” (“the Scheme”).

2 The Scheme was conducted by the second defendant, BTS Management Pty Ltd (“BTS”), under and by reference to the business name “Chargeitcards”. The first defendant (“McDougall”) is the sole director of BTS. The business name registration records that both BTS and McDougall carry on business under the name Chargeitcards.

3 The evidence establishes that there are no registered managed investment schemes conducted under the names “BTS Management”, “Chargeitcards” or “FullTank”. Further, neither BTS nor McDougall holds an Australian financial services licence covering the provision of financial services.

4 Merkel J granted interim and interlocutory relief on 18 October and 25 October 2005. The orders made by Merkel J on 25 October 2005 included:

(a) injunctive orders pursuant to ss 1101B and 1324(1) of the Corporations Act 2001 (Cth) (“the Act”) restraining the defendants from operating or promoting the Scheme;

(b) orders pursuant to s 1101B(4)(b)(i) of the Act suspending all internet websites within the power or control of the defendants promoting, advertising or offering the Scheme; and

(c) orders pursuant to ss 601EE and 1323 of the Act appointing receivers of all the property of BTS and directing the receivers to investigate and report on the Scheme.

The receivers subsequently filed a report with the Court on 22 November 2005 detailing the results of their investigation of the Scheme.

5 ASIC now seeks final relief as follows:

“THE COURT DECLARES THAT:

On the basis of the evidence contained in the affidavits and their respective exhibits filed by the Plaintiff:

1. From September 2005 until October 2005 the Defendants contravened section 601ED(5) of the Corporations Act 2001 by operating an unregistered managed investment scheme defined in the Schedule to the Order (‘the Scheme’) which required registration as a managed investment scheme but was not so registered.

2. From September 2005 until October 2005 the Defendants contravened section 911A of the Corporations Act 2001 by carrying on a financial services business in this jurisdiction, by offering interests in the Scheme, without holding an Australian financial services licence.

THE COURT ORDERS BY WAY OF FINAL RELIEF THAT:

3. Pursuant to section 1324(1) of the Corporations Act 2001 the Defendants be and hereby are permanently restrained whether by themselves, their servants or agents or otherwise from further operating or promoting the Scheme.

4. Pursuant to sections 1101B and 1324(1) of the Corporations Act 2001 the Defendants be and hereby are permanently restrained whether by themselves, their servants or agents or otherwise from carrying on business in relation to financial products or financial services by:

(a) providing financial product advice in respect of the Scheme by recommending it, stating an opinion in respect of it or reporting either of those things;

(b) dealing in financial products by issuing, granting or making available the Scheme or participation in it;

without holding an Australian financial services licence.

5. Pursuant to sections 1101B and 1324(1) of the Corporations Act 2001the Defendants be and hereby are permanently restrained whether by themselves, their servants or agents or otherwise from:

(a) carrying on any business related to, concerning or directed to be a managed investment scheme within the meaning of the Corporations Act 2001;

that requires, in any case, registration under section 601ED of the Corporations Act 2001 and has not been so registered.

6. The Scheme be wound up pursuant to section 601EE(1) of the Corporations Act 2001.

7. Pursuant to section 601EE(2) of the Corporations Act 2001 Adrian Lawrence Brown and James Henry Stewart be appointed joint and several liquidators of the Scheme (‘the Liquidators’).

8. The Liquidators have power to do, in Australia and elsewhere, all things necessary or convenient to be done for or in connection with the winding up of the Scheme, or incidental to the attainment of the winding up of the Scheme including the powers identified in section 477 of the Corporations Act 2001 as if each reference there to a ‘company’ was a reference to the Scheme.

9. The reasonable costs and expenses of the Receivers and winding up the Scheme including the professional costs and expenses of the Liquidators shall be paid out of the assets of the Scheme.

10. Within 7 days of the making of this Order the Defendants pay to the Liquidators the sum of $80,000.00, such sum to be applied by the Liquidators (together with the Scheme's assets) in accordance with section 556 of the Corporations Act 2001as if each reference there to a ‘company’ was a reference to the Scheme.

11. The Liquidators must, within 21 days of completing the winding up of the Scheme, provide to the Court and the parties (verified in writing) a:

(a) report detailing the actions taken by the Liquidators in the winding up of the Scheme and;

(b) report detailing all receipts and payments made in the winding up and in complying with these Orders and the Orders made in this proceeding on 25 October 2005.

12. To the extent that the sum paid to the Liquidators under Order 10 is not sufficient (together with the Scheme’s cash assets) to discharge all the liabilities of the Scheme, as determined by the Liquidators, together with the remuneration, costs, fees and expenses of the Liquidators then the Defendants shall pay such shortfall to the Liquidators within 21 days of receiving a call for payment of such shortfall from the Liquidators.

13. The Defendants pay the Plaintiff's costs of the proceeding.

14. The proceeding otherwise be dismissed without adjudication.”

The defendants, BTS and McDougall consent to the orders in paragraphs 3 to 14 above. They do not oppose the making of the declarations referred to in paragraphs 1 and 2.

outline of the fulltank scheme

6 The Scheme was marketed by the defendants as a fuel club which allowed members to purchase fuel at a substantial discount. This was to be achieved by issuing a debit card to each member investing in the Scheme. The debit card could be used to purchase fuel and other goods at fuel retailers through the EFTPOS system. The defendants promised a substantial discount on the cost of fuel, which varied from 80 per cent in September 2005 down to 50 per cent in October 2005.

7 The defendants launched the Scheme and began accepting membership applications on 12 September 2005. The Scheme became operational on 10 October 2005 when the first amounts were uploaded to debit cards issued to the investing members. The debit cards in question were stored value debit cards issued by EMerchants Holdings Pty Ltd.

8 As at 25 October 2005, the Scheme had 134 investors. Of those investors, approximately 107 had paid their full subscription. By 25 October 2005, total funds invested in the Scheme amounted to $93,193.30. The remaining cash balance of the Scheme as at 25 October 2005 was $33,150.22.

the fulltank website

9 The Scheme was marketed by means of a website. The address of the website was http://chargeitcards.com/fulltank. The website represented to the general public that FullTank members could make very substantial savings on their fuel bill over a 20 week period by subscribing to one of FullTank’s fuel plans. For a short time, the Scheme offered benefits over a 52 week period, but this was soon shortened to 20 weeks. The available fuel plans were:

Plan	Membership Fee ($)	Plan Fee ($)	Scheme Benefit
FT 25	140	250	$25 petrol per week for 20 weeks
FT 50	140	500	$50 petrol per week for 20 weeks
FT 75	140	750	$75 petrol per week for 20 weeks
FT 100	140	1000	$100 petrol per week for 20 weeks
FT 150	140	1500	$150 petrol per week for 20 weeks
FT 200	140	2000	$200 petrol per week for 20 weeks
FT 300	140	3000	$300 petrol per week for 20 weeks

Potential investors could select a fuel plan from these options. As the table makes clear, the numeric component of the fuel plan description refers to the dollar amount which would be credited to an investor’s debit card each week for the period of the plan.

10 As it stood on 12 October 2005, the FullTank website made the following representations:

“Never pay full price for fuel again. FullTank offers the worlds first and only fuel club that allows members to save 50% on all their fuel costs. Members are supplied with an easy to use FullTank Debit Card that is loaded each week with their nominated weekly fuel requirement. FullTank Cards can be used at all correctly coded (EFTPOS) fuel outlets across Australia, even if they have never heard of FullTank !

Only 5000 FullTank Cards available! So, if you or anyone you know is considering joining, best to join before we close membership and become a private Fuel Club.

…

Terms

…

chargeitcards.com is owned and operated by BTS Management Pty Ltd. All disputes that may arise and are connected to the operations of chargeitcards.com shall be resolved under Commonwealth of Australia Legislation.

…

chargeitcards.com (herein The Company or Chargeitcards) gives the customer the ability to purchase fuel with the FullTank Debit Card. chargeitcards.com operates independently of other companies or banking institutions. The fees chargeitcards.com charge for it’s services are available from a link on the main page. The company will transfer the weekly amount as chosen by the members plan level. The company will protect its customers’ privacy and will only disclose any customer information if it is seized by the government authorities or requested by court under summons. chargeitcards.com may choose to contact it’s customers at any time while processing and verifying the order information.

…

Chargeitcards guarantees that if for any reason it was NOT able to maintain the weekly payments, then EVERY member affected would receive a FULL REFUND of their membership fee less any payments already made to the members card account.

…

FAQs. Please read the follow information carefully as your questions and concerns should be covered here.

...

Q8: How can FullTank pay for so much of my fuel ?

FullTank cannot disclose this information as doing so would forfeit it’s intellectual property and therefore limit our ability to pass savings onto members.

Q9: What guarantees are there that your program is going to last the full 12 months or beyond? It is a possible scenario that you may take everybody’s money upfront, last say 2-3 months and then disappear with everyone’s fees and not deliver on the fuel.

We have developed this product in conjunction with some very large companies and have strong agreements in place to insure the success of the product.

Q10: Once you have our fees, how long will it take before we get our card and are able to start using it ?

Your card will be dispatched within 3-5 days of receiving your payment with details explaining the first and last loading dates to your account.

…

Q14: What happens if the price of petrol would increase dramatically eg say it went to $2.50 per litre (I know you may think that highly unlikely but say it DID) would you require extra funds within the year of my membership ?

The price of fuel has no affect on FullTank except to say that you will get less fuel for your money when you fill up.”

Similar claims were made on the website at other times. As at 20 September 2005, the website claimed that members would save up to 80 per cent on all their fuel costs by subscribing to FullTank.

11 The website explicitly withholds any information about how members’ funds would be invested and how the fuel savings would be achieved.

the use of subscription monies

12 McDougall was examined by ASIC on 11 October 2005. In the course of his examination, he said that the defendants intended to invest money provided by subscribers to the Scheme in various high yield investments. In fact, the only investment made by the defendants was an investment in a foreign exchange trading account with Forex Capital Markets LLC (“Forex”). Forex is based in New York, USA, and provides an online internet currency trading facility.

13 McDougall apparently believed that he could make sufficient profits from online foreign exchange trading to fund the Scheme’s obligations to its investors. In the course of his examination, he said he expected returns of approximately 30 per cent per month with minimal risk of loss as a result of foreign exchange trading. This implies a return of 360 per cent per annum. In fact, the evidence is that in the first two weeks of online currency trading, the defendants incurred a loss of $2649.87.

14 Foreign exchange trading involves a high level of risk. Some of these risks are referred to on the website maintained by Forex. During the course of his examination by ASIC, McDougall said that he did not have any experience in the foreign currency market. He also conceded that investors in the Scheme were totally unaware that their funds were being used to invest in foreign exchange trading.

15 It is clear that, unless McDougall and BTS made extraordinary profits from currency trading, the only way that the Scheme’s obligations to its investors could be met would be through the use of membership fees paid by new investors. A Scheme which operates in this manner is commonly described as a “Ponzi” scheme. ASIC’s consumer protection website has described a Ponzi scheme in the following terms:

“In these schemes the promoter promises investors a very high return on their investment and says it is secure. Part of the money deposited by early investors is then used to pay their first dividend cheques or interest. So long as the money keeps flowing into the scheme, payments can still come out. However, the burden of future payments also keeps growing. The scheme inevitably collapses once people stop joining.”

16 BTS did not maintain accurate books and records of the transactions conducted under the Scheme. In their report to the Court, the receivers constructed a summary of cash receipts and payments into and out of the Scheme for the period from 12 September 2005 to 25 October 2005, and a table of the Scheme’s available assets as at 25 October 2005. Of the $93,193 invested in the Scheme by investors, $30,000 was paid into a foreign currency trading account with Forex. After accumulated trading losses of $2649 and certain fees charged by Forex, the available balance of $27,303 was recovered from Forex by the receivers. The invested funds were also used to make various private payments on behalf of McDougall and BTS. For instance, McDougall caused $5044 to be paid to a company which provides horse racing software; a laptop computer was purchased for the private use of McDougall’s sister at a cost of $1297; motor vehicle expenses of $2000 were paid in respect of McDougall’s personal motor vehicles; school fees of $1000 were paid to the school attended by McDougall’s children; and $4000 was paid into McDougall’s personal Totaliser Agency Board account. BTS also issued five fuel cards to members of McDougall’s family despite the fact that they had not paid any membership fees. Using the funds invested in the Scheme by other members, each of these cards was subsequently credited with $1000.

the financial position of the scheme

17 After investigating the financial position of the Scheme, the receivers reported to the Court that the Scheme had an estimated deficiency before receivers’ costs of $41,162. Receivers’ costs payable out of the assets under receivership are in the order of $40,000. In large measure, the deficiency in the Scheme is attributable to the fact that total liabilities outstanding to members are $83,370, whereas the total assets available to the Scheme are only $49,423.

18 The receivers concluded that if the Scheme were allowed to continue operating with the limited cash assets available to it, those assets would be dissipated in approximately 5 weeks. In their opinion, the Scheme was fundamentally flawed, particularly given that the implicit rate of return required to refund the outstanding payments to investors was completely unachievable. They recommended that the Scheme not be allowed to continue to operate.

the financial position of bts

19 The receivers also investigated the financial position of BTS. Their evidence was that BTS had an estimated deficiency of liabilities over assets of $118,561.

conduct following the court’s interlocutory orders

20 After the Court made interlocutory orders on 25 October 2005, investors in the Scheme received an email from Mr Rob McMillan (“McMillan”) on the subject of “FullTank Resolution Options”. McMillan is a member of the Scheme and an associate of McDougall.

21 The email to FullTank investors stated, inter alia:

“By now you will have received a letter from Ferrier Hodgson (appointed receivers by ASIC) outlining ASIC’s determination to close down Chargeitcards’ FullTank program. Having read previous emails and perhaps speaking with you over the phone this may come as no surprise to you.

As a result a new structure has formed an alliance with a large membership organisation that plans to take the new program both nationally & internationally. But before this can happen, FullTank is required by ASIC to fully dissolve the original membership, resulting in the closure of the original program.

Most of you have indicated your willingness to continue your involvement in a fuel program & it is FullTank’s intention to honour their obligations however one of two things must happen before they can proceed with the new fuel program:…”

The email went on to state that two options were available to investors: either they could elect to receive a reimbursement from the receivers, or they could elect to cease involvement in the original Scheme and to continue membership under a new structure. The second option required investors to return a letter to BTS which stated that the investor wished to forgive BTS of any debt owed to the investor concerning the FullTank program.

22 McDougall told the receivers that he had caused the email to be sent out because he did not want any of the investors in the FullTank Scheme to lose money. McDougall also said that he realised that the email may be a breach of the Court’s interlocutory orders of 25 October 2005.

23 There is also evidence before me, which I accept, that members of the Scheme received telephone calls from an unknown person who said he was a fellow member who was making the call on behalf of McDougall. The caller told members that there would be new cards issued and not to be discouraged as the Scheme would reopen.

24 McDougall received a large number of letters from investors in the Scheme in response to the email by which those investors agreed to forgive any debts owed to them by BTS in relation to the FullTank program.

25 The evidence also shows that on 17 October 2005 BTS purported to assign the business name “Chargeitcards”, the domain name www.chargeitcards.com, and the product name “FullTank” to Mr Timothy McDougall, who is McDougall’s son.

26 Understandably, ASIC pointed to this material as indicating that there was a substantial risk that the defendants would repeat their contraventions of the Act, unless they were restrained from engaging in similar conduct in the future.

fulltank was an unregistered managed investment scheme

27 Relevantly, s 9 of the Act defines a managed investment scheme as a scheme that has the following features:

“(i) people contribute money or money’s worth as consideration to acquire rights (interests) to benefits produced by the scheme (whether the rights are actual, prospective or contingent and whether they are enforceable or not);

(ii) any of the contributions are to be pooled, or used in a common enterprise, to produce financial benefits, or benefits consisting of rights or interests in property, for the people (the members) who hold interests in the scheme (whether as contributors to the scheme or as people who have acquired interests from holders);

(iii) the members do not have day‑to‑day control over the operation of the scheme (whether or not they have the right to be consulted or to give directions)”.

Section 9 excludes various entities, funds or schemes from the scope of this definition, but none of those exclusions is applicable in this case.

28 Section 601ED(1) provides, inter alia, that a managed investment scheme must be registered under s 601EB if it has more than 20 members. Neither the exemption in subs (2) nor subs (3) of s 601ED is applicable in this case.

29 Section 601ED(5) provides that a person must not operate in this jurisdiction a managed investment scheme that is required to be registered under s 601EB unless the scheme is so registered.

30 Section 601EE(1) provides that if a person operates a managed investment scheme in contravention of s 601ED(5), ASIC may apply to the Court to have the scheme wound up. The Court may make any orders that it considers appropriate for the winding up of the scheme in the event that ASIC makes an application of the kind described in s 601EE(1).

31 On the evidence, the Scheme was a managed investment scheme that required registration, and it was not registered. By 25 October 2005, the Scheme had 134 members. It had approximately 127 members as at 17 October 2005.

32 Investors in the Scheme paid to receive a FullTank debit card and the rights and benefits which came with it. Their subscription monies were pooled in bank accounts held by BTS which were invested by BTS at McDougall’s direction. The object was to produce financial returns which were promoted on the website as a saving on fuel costs.

33 The members of the Scheme had no control over its day to day operation. They had no knowledge that the pooled funds were being partly transferred to a foreign exchange trading account with Forex. Nor did they know that subscription monies were being used by McDougall to pay some of his own personal expenses or those of his family and associates.

34 In Australian Securities and Investments Commission v Pegasus Leveraged Options Group Pty Ltd (2002) 41 ACSR 561 at 574 (“Pegasus”), Davies AJ addressed the question whether the sole director of the company which promoted and operated a managed investment scheme should also be considered to be a person operating the scheme. His Honour said at [55]-[57]:

“The word ‘operate’ is an ordinary word of the English language and, in the context, should be given its meaning in ordinary parlance. The term is not used to refer to ownership or proprietorship but rather to the acts which constitute the management of or the carrying out of the activities which constitute the managed investment scheme. The Oxford English Dictionary gives these relevant meanings:

5. To effect or produce by action or the exertion of force or influence; to bring about, accomplish, work.

6. To cause or actuate the working of; to work (a machine, etc). Chiefly U.S.

7. To direct the working of; to manage, conduct, work (a railway, business, etc); to carry out or through, direct to an end (a principle, an undertaking, etc) orig. U.S.

I have concluded that Mr McKim operated the managed investment scheme. He was the living person who formulated and directed the scheme and he was actively involved in its day to day operations. He supervised others in their performance.

I have also concluded that Mr McKim is not exempted by s601ED(6). He did not ‘merely’ act as agent or employee of Pegasus. He was the directing mind and will of Pegasus and of the scheme.”

35 Mansfield J reached a similar conclusion in Australian Securities and Investments Commission v McNamara (2002) 42 ACSR 488. In that case, the individual in question was one of the directors of the company managing the scheme. His Honour found that the person in question formulated and directed the scheme, and was actively involved in its day to day operations as the directing mind and will of the company managing the scheme. Accordingly, he was operating the scheme in contravention of s 601EB(5). In making these findings, Mansfield J approved the passage in Pegasus to which I have referred.

36 There is no doubt that McDougall was the person who formulated and directed the Scheme, and he was the directing mind and will of BTS in its day to day operations in relation to the Scheme. Accordingly, I find that both McDougall and BTS operated the Scheme.

37 After these proceedings were commenced and after Merkel J had made interlocutory orders on 25 October 2005, McDougall attempted to resuscitate the Scheme in a different form. He procured McMillan to solicit members to forgive existing Scheme debts on the promise of equivalent interests in a new scheme.

38 The defendants were represented at the hearing of this proceeding by Mr Erlich of counsel. On their behalf, he submitted that the evidence before the Court was capable of establishing all of the elements necessary to establish that BTS and McDougall contravened s 601ED(5). I am satisfied that this is so. Mr Erlich did not consent to the making of declarations of contravention, but he did not oppose that course.

the defendants carried on an unlicensed financial services business

39 Section 911A provides that a person who carries on a financial services business in this jurisdiction must hold an Australian financial services licence covering the provision of the financial services. In my opinion, both defendants contravened this provision. They carried on a financial services business without holding an Australian financial services licence covering the provision of the financial services under the Scheme.

40 Section 761A provides that a financial service business is a business of providing financial services. In my opinion, BTS was providing a financial service when it promoted, offered and issued memberships in the Scheme

41 To explain this conclusion, it is necessary to trace through the statutory concepts of “financial investment”, “financial product” and “financial services”.

42 Section 763B provides that:

“For the purposes of this Chapter, a person (the investor) makes a financial investment if:

(a) the investor gives money or money’s worth (the contribution) to another person and any of the following apply:

(i) the other person uses the contribution to generate a financial return, or other benefit, for the investor;

(ii) the investor intends that the other person will use the contribution to generate a financial return, or other benefit, for the investor (even if no return or benefit is in fact generated);

(iii) the other person intends that the contribution will be used to generate a financial return, or other benefit, for the investor (even if no return or benefit is in fact generated); and

(b) the investor has no day‑to‑day control over the use of the contribution to generate the return or benefit.”

43 Investors in the Scheme paid money to BTS who used it to generate a financial return or benefit for the member by providing a return that was applied to generate the fuel discount or saving. Investors intended that BTS would use their contributions to generate a financial return in the form of fuel discounts or savings. The members had no day-to-day control over the use of their contributions to the Scheme. It does not matter that the Scheme failed to generate returns or benefits of the kind, or to the extent, represented. It follows that, by investing in the Scheme, members made a financial investment within the meaning of s 763B.

44 Section 763A(1) provides that a financial product includes a facility through which, or through the acquisition of which, a person makes a financial investment. The FullTank Scheme satisfies this description; it offers or represents a facility through which investors make a financial investment. The Scheme is therefore a financial product within the meaning of s 763A(1).

45 The Scheme also constitutes a financial product within the meaning of s 764A(1)(ba). Under this provision an interest in a managed investment scheme that is not a registered scheme, but which is required to be registered by s 601ED(1), constitutes a financial product for the purposes of ch 7 of the Act.

46 Section 761E(4) provides:

“Subject to this section, the issuer, in relation to a financial product issued to a person (the client), is the person responsible for the obligations owed, under the terms of the facility that is the product:

(a) to, or to a person nominated by, the client; or

(b) if the product has been transferred from the client to another person and is now held by that person or another person to whom it has subsequently been transferred—to, or to a person nominated by, that person or that other person.”

47 In this case, it is plain that BTS qualifies as an issuer of the financial product constituted by the Scheme or interests in it. BTS is a person responsible for the obligations owed under the Scheme. The website states that Chargeitcards is owned and operated by BTS and that Chargeitcards guarantees that if for any reason it was not able to maintain the weekly payments, then every member affected would receive a pro-rata refund of the first 10 weeks membership less any payment made to the members’ card account. By promoting, offering and managing the Scheme, BTS was dealing in a financial product for the purposes of s 766C(1) of the Act.

48 Section 766A(1)(b) provides that a person provides a financial service if they deal in a financial product. Accordingly, by dealing in a financial product BTS was also providing a financial service for the purposes of ch 7.

49 For the foregoing reasons, I am satisfied that BTS was carrying on a financial services business. It required a licence to do so. As BTS did not hold a licence, it contravened s 911A(1).

50 I consider that McDougall, as the sole director and controller of BTS and as one of the registered owners of the business name Chargeitcards, was also carrying on an unlicensed financial services business in contravention of s 911A(1). Further and in any event, McDougall was acting as a representative of BTS in offering and promoting memberships in the Scheme. As such, McDougall was only exempt from the requirement that he hold an Australian financial services licence if BTS itself held such a licence, and it did not.

51 Numerous cases have held that s 911A of the Act extends to a company director who conducts or is involved in a company’s carrying on of a financial services business without an Australian financial services licence: see Australian Securities and Investments Commission v Giann & Giann Pty Ltd (2005) 141 FCR 278; Australian Securities and Investments Commission v Manito Pty Ltd (2005) 53 ACSR 56; Australian Securities and Investments Commission v Drury Management Pty Ltd [2004] QSC 068.

52 In all the circumstances, I am satisfied that BTS and McDougall each contravened the provisions of s 911A by carrying on a financial services business without holding an Australian financial services licence covering the provision of financial services under or in connection with the Scheme.

declaratory relief

53 ASIC has sought declarations that the defendants contravened s 601ED(5) and s 911A of the Act. It is very clear that this Court has power pursuant to ss 21, 22 and 23 of the Federal Court of Australia Act 1976 (Cth) to make the declarations that have been sought.

54 In Ainsworth v Criminal Justice Commission (1992) 175 CLR 564, at 581-582, Mason CJ, Dawson, Toohey and Gaudron JJ said that superior courts have inherent power to grant declaratory relief. Their Honours added that it is a discretionary power which it is neither possible nor desirable to fetter by laying down rules as to the manner of its exercise, although it must be recognised that it is a power confined by the considerations which mark out the boundaries of judicial power. In the same case, Brennan J emphasised that the making of a declaration, and the terms in which it is to be made, are in the court’s discretion: at 596.

55 Since Australian Softwood Forest Pty Ltd v Attorney-General (NSW) (1981) 148 CLR 121, esp at 125, the courts have recognised that the grant of declaratory relief on the application of a statutory body such as ASIC may serve important law enforcement purposes: see Corporate Affairs Commission (NSW) v Transphere Pty Ltd (1988) NSWLR 596 at 603; Australian Securities and Investments Commission v Sweeney [2001] NSWSC 114 at [30]-[31]; and Pegasus at 571. ASIC is charged with the administration and enforcement of the Act, and there will be many cases where it is in the public interest for the courts to make a declaration on ASIC’s application that the Act has been contravened in specified respects. The making of such a declaration does not simply record the outcome of enforcement proceedings; it may also be an appropriate way of marking the court’s disapproval of the contravening conduct: see Tobacco Institute of Australia Ltd v Australian Federation of Consumer Organisations Inc (No 2) (1993) 41 FCR 80 at 97-99, 106 and 110.

56 The contraventions in this case were extremely serious. It is an understatement to say that the Scheme involved extremely high risks. The website promoting the Scheme misrepresented the nature of the investment and withheld vital information from investors. The nature and extent of the risks attending the Scheme were not disclosed in any way to investors. No proper books and records were kept concerning the Scheme. Moreover, the Scheme’s assets were dissipated, in part, on the personal expenses of McDougall and his family.

57 McDougall also attempted to revive the Scheme in another form. In doing so, he was prepared to act in breach of the interlocutory orders made by Merkel J. There is a clear public interest in making declarations that will record the contraventions of the Act, and express the Court’s strong disapproval of the contravening conduct.

58 The defendants do not oppose the making of declaratory orders in the form sought by ASIC, although they stop short of consenting to them. In my opinion, this is an appropriate case for the grant of declaratory relief in the form sought by ASIC. With one minor adjustment, I am satisfied that the terms of the declarations are clear and precise. The adjustment I have made is simply a revision of the definition of the Scheme set out in the schedule to the orders.

injunctive relief

59 ASIC seeks injunctive orders restraining the defendants from further operating or promoting the Scheme, and from further dealing in financial products in connection with the Scheme. These orders are sought pursuant to ss 1101B and 1324(1) of the Act. In my opinion, these orders are entirely appropriate.

60 In addition, ASIC seeks injunctive orders in the somewhat wider form set out in par 5 of the draft orders: see par 5 above. This form of order extends beyond the conduct of the Scheme. In effect, it seeks to restrain the defendants from promoting, establishing or carrying on the business of any managed investment scheme that requires registration but which has not been registered.

61 Although the defendants have consented to injunctive orders in this wider form, I propose to address the question whether ss 1101B and 1324(1) authorise the making of injunctive orders in this wider form. Section 1101B(1) provides:

“(1) The Court may make such order, or orders, as it thinks fit if:

(a) on the application of ASIC, it appears to the Court that a person:

(i) has contravened a provision of this Chapter, or any other law relating to dealing in financial products or providing financial services; or

(ii) …

...

However, the Court can only make such an order if the Court is satisfied that the order would not unfairly prejudice any person.”

62 Section 1101B(4) is also relevant. It provides, inter alia:

“(4) Without limiting subsection (1), some examples of orders the Court may make under subsection (1) include:

(a) an order restraining a person from carrying on a business, or doing an act or classes of acts, in relation to financial products or financial services, if the person has persistently contravened, or is continuing to contravene:

(i) a provision or provisions of this Chapter; or

(ii) a provision or provisions of any other law relating to dealing in financial products or providing financial services; or

…

(f) an order restraining a person from providing any financial services that are specified in the order; and

…

(j) any ancillary order considered to be just and reasonable in consequence of the making of an order under any of the preceding provisions of this subsection.”

It is significant that the orders may extend to orders restraining a person from doing a class of acts in relation to financial products or services if the person has persistently contravened a provision of the Chapter.

63 Section 1324(1) is also expressed in wide terms:

“(1) Where a person has engaged, is engaging or is proposing to engage in conduct that constituted, constitutes or would constitute:

(a) a contravention of this Act; or

(b) attempting to contravene this Act; or

(d) inducing or attempting to induce, whether by threats, promises or otherwise, a person to contravene this Act; or

(e) being in any way, directly or indirectly, knowingly concerned in, or party to, the contravention by a person of this Act; or

(f) conspiring with others to contravene this Act;

the Court may, on the application of ASIC, or of a person whose interests have been, are or would be affected by the conduct, grant an injunction, on such terms as the Court thinks appropriate, restraining the first‑mentioned person from engaging in the conduct and, if in the opinion of the Court it is desirable to do so, requiring that person to do any act or thing.”

64 Section 1324 permits the Court to grant an injunction “on such terms as the court thinks appropriate”. These words echo the concluding words of s 80(1) of the Trade Practices Act 1974 (“TPA”) which state that the Court may grant an injunction in such terms as the Court determines to be appropriate. These words were introduced into s 80(1) by a 1983 amendment to the TPA, which, to adapt the language used by French J in OD Transport Pty Ltd v WA Government Railways Commission (1987) 13 FCR 500 at 508, freed the power conferred by s 80 from the previous constraint that the injunction granted under it must restrain a person from engaging in conduct that constitutes or would constitute a contravention of Part IV of Part V of the TPA or one of the species of accessorial participation there listed.

65 The operation of s 80(1) of the TPA was canvassed by the Full Court of this Court in ICI Australia Operations Pty Ltd v Trade Practices Commission (1992) 38 FCR 248 (“ICI”). Lockhart J described s 80(1) as a public interest provision which attracts special considerations; it represents a primary means of ensuring compliance with commercial regulation legislation: at 254-255. After referring to subss 80(4) and (5), Lockhart J said:

“Injunctions are traditionally employed to restrain repetition of conduct. A statutory provision that enables an injunction to be granted to prevent the commission of conduct that has never been done before and is not likely to be done again is a statutory enlargement of traditional equitable principles. But this is because traditional doctrine surrounding the grant of injunctive relief was developed primarily for the protection of private proprietary rights. Public interest injunctions are different. Parts IV and V of the Act involve matters of high public policy. Parts IV and V relate to practices and conduct that legislatures throughout the world in different forms and to different degrees, have decided are contrary to the public interest (contracts, arrangements or understandings affecting competition adversely (s 45)), the misuse of market power (s 46), the practice of exclusive dealing (s 47), resale price maintenance (s 48), price discrimination (s 49), anti-competitive mergers (s 50) and unfair practices with respect to consumers (Pt V). These are legislative enactments of matters vital to the presence of free competition and enterprise and a just society.”

In his Honour’s view, the section would in an appropriate case authorise the Court to grant an injunction against a respondent preventing him in engaging in conduct which is similar to the conduct which constituted, or would constitute, a contravention of the Act: at 261. Lockhart J also agreed (at 261) with the reasoning of Barwick CJ in Mikasa (NSW) Pty Ltd v Festival Stores (1972) 127 CLR 617 at 632 that in an appropriate case the court may grant an injunction to restrain the respondent from engaging in the practice of resale price maintenance notwithstanding that only some of the acts falling within s 96(3) were found to have been so committed.

66 Gummow J said at 267:

“Section 80(1) confers upon the court the power to grant an injunction where it is satisfied that a person has engaged or is proposing to engage in conduct that constitutes or would constitute conduct of the description in pars (a)-(f). The power of the court to grant an injunction is controlled by the words ‘in such terms as the Court determines to be appropriate’.

Thus, the terms of the injunction will not be ‘appropriate’ if, on its face, it operates upon a range of conduct some of which does, but some of which does not, have the relationship required by s 80 with contravention of the Act. The injunction should not prohibit conduct falling outside the boundaries drawn by s 80: see Thomson Australian Holdings Pty Ltd v Trade Practices Commission (1981) 148 CLR 150 at 161. The same limitation applies to mandatory injunctive relief. It is, in my view, no support for the grant of an injunction which, from the outset, has an operation outside the boundaries of s 80, to say that it is open for the party enjoined to apply under s 80(3) to vary the injunction so as to bring its operation wholly within proper limits. The party in question should not be placed under any such obligation in the first place.”

The statement that the terms of an injunction will not be appropriate if it “operates upon a range of conduct some of which does, but some of which does not, have the relationship required by s 80 with contravention of the Act” is somewhat ambiguous. However, at first blush at least, it suggests a narrower approach to s 80 than that described by Lockhart J.

67 French J said that s 80 was a widely drawn remedial provision which was available to restrain conduct which may infringe upon the public interest by contravening the provisions of the TPA in Part IV and Part V. His Honour added at 268:

“There is room within the statutory framework and the policy that underlies it for an injunction which is intended not to restrain an apprehended repetition of contravening conduct but to deter an offender from repeating the offence. That deterrence is effected by attaching to the repetition of the contravention the range of sanctions available for contempt of court. The possibility remains open, by virtue of s 80(3), that after a suitable period unmarked by further contravention the party restrained may apply to the court to rescind the order.

The remedy is flexible and may be applied in service of a variety of functions to support the policy of the Act. This was a proper case for the grant of that relief.”

68 In ACCC v Z-Tek Computer Pty Ltd (1997) 78 FCR 197 at 202 at [D]-[E], after referring to these passages in ICI, Merkel J said:

“The width of the power conferred by s 80 and its public interest character obviously give the Court greatamplitude in determining appropriate injunctive orders in a particular case. However there are limitations on the Court's power under the section. Confinement of the power by reference to the scope and purpose of the TPA, and in particular s 80, is one limitation on the power. However, there are at least two further limitations. The power to make orders under s 80 is only enlivened in a proceeding which alleges that there has been a contravention of a provision of Pt IV, IVA or V of the TPA. As was said by Gummow J in ICI at 267, the terms of an injunction granted under s 80 must, on their face, operate upon a range of conduct which has ‘the relationship required by s 80 with contravention of the Act. Irrespective of whether the injunction is sought or granted under s 80(1) or 80(1AA) there must be a nexus between the conduct alleged or found to constitute the relevant contraventions and the injunctions granted.”

69 It is implicit in Merkel J’s judgment that an injunction under s 80 may extend beyond the specific conduct proven to constitute a contravention by s 80 and may, in appropriate cases, extend to conduct of the same kind or class. There must, however, be a sufficient nexus or relationship between the conduct that is the subject of the restraint and the conduct that was alleged to constitute a contravention of the Act. As French J pointed out in ACCC v Real Estate Institute (WA) (1999) 95 FCR 114 at 131, the question whether there is a sufficient nexus between the orders sought and the contraventions alleged involves an evaluative judgment by the Court which will depend heavily upon the circumstances of the particular case.

70 Most recently, in Foster v Australian Competition and Consumer Commission [2006] FCAFC 21, a Full Court (comprising Ryan, Finn and Allsop JJ) noted the apparent tension between the view expressed by Lockhart and Gummow JJ in ICI. Their Honours said at [30]-[31]:

“His Honour’s reference to terms having ‘an operation outside the boundaries of s 80’ is no more than a paraphrase of the actual words of the subsection ‘such terms as the Court determines to be appropriate.’ That paraphrase, we consider with respect, does not illuminate the amplitude which should be given, as a matter of construction, to the grant of power. In our view, a more helpful guide to resolving the question of construction is afforded by this observation, also from ICI v Trade Practices Commission, of Lockhart J (with whom French J agreed) at 256;

‘In my opinion subss (4) and (5) are designed to ensure that once the condition precedent to the exercise of injunctive relief has been satisfied (ie contraventions or proposed contraventions of Pt IV or V of the Act), the court should be given the widest possible injunctive powers, devoid of traditional constraints, though the power must be exercised judicially and sensibly.’

This approach of Lochkhart J accords with the view often expressed by the High Court that discretions or powers entrusted to Courts should be read liberally for the relevant statutory purpose, without making implications or imposing limitations not found in the express words: Australian Memory Pty Ltd v Brien (2000) 200 CLR 270 at [77] and see generally for the cases Hewlett Packard v GE Capital (2003) 203 ALR 51 at [187].”

Thus, the Full Court preferred the wider view described by Lockhart and French JJ in ICI to the narrower view which the appellant in Foster sought to found upon the judgment of Gummow J.

71 The issue in Foster was whether an injunction that restrained the fourth respondent from being directly or indirectly knowingly concerned in the promotion or conduct of a business of a specified kind for a period of five years went beyond the power conferred by s 80 of the TPA. As the Full Court explained, this turned on the existence of a sufficient nexus between a contravention that enlivened the Court’s power under s 80 and the conduct that was restrained by the injunction:

“In our view, the need, suggested by the authorities, for a nexus between the contravention of the Act which the Court has found and the terms of the restraint which it then decides to impose is a specific reflection of Lockhart J’s insistence that the power be exercised ‘judicially and sensibly’. It goes to the appropriateness of the relief contemplated by the concluding words of s 80(1), not to the extent of the power to grant it. If the Court considers that a complete prohibition, whether permanently or for a specified period, on a respondent’s engaging in a particular field of commercial activity or industry is required to protect the public from conduct of the kind which constituted the contravention, s 80 is wide enough to support such a prohibition as a matter of power. This analysis of s 80 conforms, we consider, with that recently undertaken by Goldberg J in Australian Competition and Consumer Commission v DermalogicaPty Ltd (2005) 215 ALR 482 at 504 [110].”

The Full Court held that there was an appropriate nexus, as the evidence and the trial judge’s findings at first instance gave rise to a real fear that the fourth respondentwould, unless restrained, commit further conduct of the same general kind. In these circumstances, it was appropriate to cast the injunction more widely in order to catch conduct which was similar to the established contravention: at [34] and [38].

72 In the present case, I consider that the wider form of injunctive relief is appropriate, especially given the evidence that McDougall attempted to resuscitate the Scheme in another form. The evidence demonstrates, in my view, that the defendants are susceptible to repeating their contraventions of the managed investment provisions of the Act. There is, in my opinion, a sufficient nexus between the wider form of injunctive order sought by ASIC in par 5 of the draft orders, and the contraventions of the Act which were established by the evidence in this case. The wider form of injunction is consented to by the defendants. In all the circumstances, I consider that the wider form of injunction is warranted, and that it will serve the public interest.

winding up the scheme

73 ASIC seeks orders that the Scheme be wound up pursuant to s 601EE(1) of the Act. A number of ancillary orders are sought, including an order appointing the existing Court appointed receivers as joint and several liquidators of the Scheme. The defendants consent to these orders being made. I have made two minor alterations to the form of the draft orders for the winding up of the Scheme. The first alteration, in par 7, identifies Adrian Lawrence Brown and James Henry Stewart as the receivers appointed by order of Merkel J on 25 October 2005. The second alteration clarifies that the receivers referred to in par 9 are the individuals identified in the above par 7 of the orders.

74 In ASIC v Takaran Pty Ltd (No 2) (2003) 194 ALR 743 at 747-748, at [15], Barrett J made the following observation, with which I agree:

“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).”

75 In this case, it makes eminent good sense that the existing Court appointed receivers be appointed as the joint and several liquidators of the Scheme.

76 The defendants have also consented to orders which are designed to ensure that the liquidation does not result in any shortfall to investors in the Scheme. Specifically, the defendants have consented to orders that they will pay to the liquidators the sum of $80,000.00 to be applied by the liquidators in accordance with s 556 of the Act as if references to the company were a reference to the Scheme. To guard against the risk that the sum of $80,000.00 is not sufficient to ensure that there is no shortfall in discharging all of the liabilities of the Scheme, the defendants have consented to a further order that they will pay any such shortfall to the liquidators within 21 days of receiving a call for payment.

77 ASIC does not seek an order that BTS be wound up, even though there is some evidence that it might be insolvent. In many cases, it may be appropriate, and it may further investor protection, to make winding up orders in respect of both the unregistered managed investment scheme and the company which administered the scheme: see Pegasus at 579-580, at [95] – [98]. Indeed, in Australian Securities and Investment Commission v Chase Capital Management Pty Ltd (2001) 36 ACSR 778 at 796, Owen J said at [93] that if an unregistered scheme is to be wound up, the case for a liquidation of the company that conducted it is compelling.

78 In the present case, I must bear in mind that the defendants have been prepared to consent to orders that will ensure that there is no shortfall in the winding up of the Scheme. I also recognise that the solvency of BTS depends, ultimately, on the availability of support from McDougall. In these circumstances, and given that ASIC has not sought a winding up order in respect of BTS, I have concluded that there it is not necessary to make a winding up order in respect of BTS. This is not a case in which ASIC has suggested that the recovery for investors will be maximised by ordering a winding up of both the Scheme and the company which administered the Scheme.

the receiver’s costs

79 On 6 December 2005, I made an order by consent that the costs and expenses of the receivers were determined to be $30,831.00 and that this sum be paid to them from the funds received by them in the course of the receivership. The receivers have filed an affidavit which indicates that this figure was mistakenly calculated in that it did not make full allowance for all of the outstanding costs and expenses of the receivers at that time. Further receivership costs have been incurred since 6 December 2005.

80 The receivers’ costs are addressed in par 9 of the orders I propose to make. Paragraph 9 provides that the reasonable costs and expenses of the receivers (referred to in par 7) and of the winding up of the Scheme, including the professional costs and expenses of the liquidators, shall be paid out of the assets of the Scheme. Paragraph 7 of the orders identifies the receivers as Adrian Lawrence Brown and James Henry Stewart and appoints them as joint and several liquidators of the Scheme. I am satisfied that this form of order is appropriate.

costs

81 The defendants have consented to an order that they pay ASIC’s costs of the proceedings, and I will so order.

I certify that the preceding eighty-one (81) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Young J.

Associate:

Dated: 20 April 2006

Counsel for the Applicant:	M R Scott

Solicitor for the Applicant:	Australian Securities & Investments Commission

Counsel for the Respondents:	P Ehrlich

Solicitor for the Respondents:	Schetzer Brott & Appel

Solicitor for the Receivors:	N Fryde

Counsel for the Receivors:	Dibbs Abbott Stillman

Date of Hearing:	3 April 2006

Date of Judgment:	20 April 2006

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