FEDERAL COURT OF AUSTRALIA

Australian Securities & Investments Commission In the Matter of Richstar Enterprises Pty Ltd ACN 099 071 968  v Carey (No 18) [2007] FCA 1718

CORPORATIONS  - protective orders – appointment of receiver - freezing orders by way of  alternative – extension of existing orders subject to replacement of receiver by freezing orders – orders unopposed and largely consented to - proposed orders within power and appropriate  

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v NORMAN PHILLIP CAREY, GRAEME JOHN RUNDLE, CEDRIC RICHARD PALMER BECK, JOHN NORMAN DIXON, RICHSTAR ENTERPRISES PTY LTD ACN 099 071 968, WESTPOINT REALTY PTY LTD ACN 050 218 954, BOWESCO PTY LTD ACN 008 915 357, REDCHIME PTY LTD ACN 117 947 805, KEYPOINT DEVELOPMENTS PTY LTD ACN 115 507 232, SILKCHIME PTY LTD ACN 066 358 276 AND HEALTHCARE PROPERTIES PTY LTD ACN 075 401 955

WAD83 OF 2007

FRENCH  J

9 NOVEMBER 2007

PERTH

IN THE MATTER OF

RICHSTAR ENTERPRISES PTY LTD (ACN 099 071 968)

WESTPOINT REALTY PTY LTD (ACN 050 218 954)

BOWESCO PTY LTD (ACN 008 915 357)

REDCHIME PTY LTD (ACN 117 947  805)
KEYPOINT DEVELOPMENTS PTY LTD (ACN 115 507 232)

BY CONSENT THE COURT ORDERS THAT:

1.         Orders 2 to 25 made in these proceedings on 8 June 2006 in relation to the Second Defendant are, as at the date of these orders, replaced by the Orders below.

The Freezing Orders

2.         Other than as permitted by paragraphs 6, 8 and 10 of these Orders, the Second Defendant is hereby restrained from:

            2.1       removing or causing or permitting to be removed from any State of Australia and from Australia; or

            2.2       selling, charging, mortgaging or otherwise dealing with (including making any withdrawal or transfer from any Controlled Bank Account as defined in Order 4 below), disposing of or diminishing the value of; or

            2.3       causing or permitting to be sold, charged, mortgaged or otherwise dealing with (including making any withdrawal or transfer from any Controlled Bank Account), disposing of or diminishing the value of,

            all or any of his property (whether within or outside Australia) (Second Defendant’s Property).

3.         For the purposes of these Orders, the ‘SecondDefendant’s Property’ includes property which falls within any of the following categories:

            3.1       property held in the name of the Second Defendant;

            3.2       property held by the Second Defendant as trustee for a trust or on behalf of or on account of another person;

            3.3       property held jointly in the name of the Second Defendant and one or more persons or entities (Third Party);

            3.4       property held jointly in the name of the Second Defendant and a Third Party for the express purpose of a joint venture;

            3.5       property held by the Second Defendant jointly with a Third Party, where both the Second Defendant and the Third Party hold the property in their capacity as trustees for a trust or on behalf of or on account of another person;

            3.6       property held by a Third Party as trustee of a trust or in its own right where the Second Defendant is or becomes the effective controller or owner of the property;

            3.7       rights to operate the Controlled Bank Accounts (as that term is defined in order 4 below) and any chose in action in relation to such Controlled Bank Accounts; and

            3.8       any future or after acquired property which would, had it been in existence as at the date of these orders, have been ‘Second Defendant’s Property’ because of any other application or applications of this definition;

            but does not include:

            3.9       rights to operate and choses in action in relation to any Excluded Second Defendant’s Bank Account (as that term is defined in Order 4 below).

4.         For the purpose of these Orders, ‘Controlled Bank Accounts’ means accounts with any bank, building society or financial institution (Bank) which fall within any of the following categories:

            4.1       accounts held in the name of the Second Defendant including but not limited to the Rundle Account (as that term is defined in Order 5 below);

            4.2       accounts held by the Second Defendant as trustee for a trust or on behalf of or on account of another person;

            4.3       accounts held jointly in the name of the Second Defendant and a Third Party;

            4.4       accounts held jointly in the name of the Second Defendant and a Third Party for the express purpose of a joint venture;

            4.5       accounts held by the Second Defendant jointly with a Third Party, where both the Second Defendant and the Third Party hold the property in their capacity as trustees for a trust or on behalf of or on account of another person; and

            4.6       accounts held by a Third Party as trustee of a trust or in its own right where the Second Defendant is or becomes the effective controller or owner of the rights to operate or choses in action in relation to the account.   For the avoidance of doubt this includes all accounts held by any entity subject to paragraph 3.6 of these Orders;

            But does not include the following (collectively Excluded Second Defendant’s Bank Accounts):

            4.7       Westpac Banking Corporation Account number 036-155-130-130296 in the name of the Second Defendant; and

            4.8       Westpac Banking Corporation Account number 036-055-130309 in the name of the Second Defendant.

5.         For the purpose of these orders, the ‘Rundle Account’ means Westpac Banking Corporation Account number 736-014-584125 in the name of the Second Defendant.  The Second Defendant must pay forthwith into the Rundle Account:

            5.1       any money held by Mr Brian McMaster in his capacity as the receiver of the Second Defendant under the previous orders referred to in paragraph 1 of these orders;

            5.2       any money held in Westpac Banking Corporation Account number 736-360 520386 in the name of the Second Defendant after which this account is to be closed;

            5.3       any money held in National Australia Bank Account number 086-082 03-589-8009 in the name of the Second Defendant after which this account is to be closed;

            5.4       any money referred to in paragraph 3.8 above;

            5.5       any wages or other remuneration payable to the Second Defendant; and

            5.6       any advances in accordance with paragraph 8 of these Orders.

6.         The Second Defendant is permitted to withdraw from the Rundle Account, and pay on behalf of the Second Defendant only and not for any other Defendant to these proceedings or any other third party:

            6.1       reasonable legal, accounting and/or expert fees and disbursements in:

                        6.1.1    defending the action ASIC v Carey & OrsWAD 83 of 2006, up to a maximum of $43,178, (with liberty to apply to increase that amount if exhausted or in anticipation of it being exhausted); and

                        6.1.2    defending the action McEvoy as Liquidator of Ann Street Mezzanine & Ors v Beck & Ors VID 386 of 2007, up to a maximum of $58,818 (with liberty to apply to increase that amount if exhausted or in anticipation of it being exhausted);

            6.2       reasonable legal or accounting fees to obtain advice in connection with requests, queries or demands made of him personally as a director or officer of a company, up to a maximum of $29,498 in total, (with liberty to apply to increase that amount if exhausted or in anticipation of it being exhausted).

7.         Any application to increase the allowances under one or more of paras 6.1 and 6.2 of these orders:

            7.1       be referred to a Registrar of the Court for determination as to what increased allowance, if any, is reasonable;

            7.2       unless the Registrar requires the attendance of the parties, be determined on the papers.

8.         Subject to paragraph 9 of these Orders, the Second Defendant is permitted to encumber, by way of registered second mortgage or charge, that property being located at Unit 4, 20 Hampden Street, South Perth WA 6151 (being legally described as Lot 4 on Strata Plan No 6451 being the whole of the land contained in Certificate of Title Volume 1521 Folio 659) up to a maximum of $200,000 to obtain advances with:

            8.1       any advance being paid in to the Rundle Account; and

            8.2       any advance being for the sole purpose of an application permitted under one or more of paragraphs 6.1 or 6.2 of these Orders (and being so applied).

9.         At least 10 days prior to entering into any transaction contemplated by paragraph 8 of these Orders the Second Defendant must provide to the Plaintiff a summary of the proposed transaction detailing:

            9.1       the other party or parties to the proposed transaction;

            9.2       whether any other party to the proposed transaction is related to or associated with the Second Defendant or one or more of the other defendants to these proceedings, and if so, in what way;

            9.3       the terms of the proposed transaction (providing a copy of any proposed terms).

10.       The Second Defendant is permitted to withdraw from the Rundle Account, and pay, ordinary living expenses of up to $2,115 per week.

Persons Other than the Plaintiff and the Second Defendant

11.       This Order does not prevent any Bank from exercising any right of set off it has in respect of any facility which it gave the Second Defendant before it was notified of this Order.

12.       For the avoidance of doubt, all of the relevant Bank’s rights are preserved under the relevant facility terms and conditions and any relevant authority.

13.       No Bank need inquire as to the application or proposed application of any money withdrawn by the Second Defendant.

14.       Except as follows the terms of this Order do not affect or concern anyone outside Australia.  The terms of this Order will affect the following persons outside Australia:

            14.1     the Second Defendant and the Second Defendant’s servants, employees and agents (except Banks and financial institutions);

            14.2     any person (including a Bank or financial institution) who:

                        14.2.1  is subject to the jurisdiction of this Court; and

                        14.2.2  has been given written notice of this Order, or has actual knowledge of the substance of the Order and of its requirements; and

                        14.2.3  is able to prevent or impede acts or omissions outside Australia which constitute or assist in disobedience of the terms of this Order; and

            14.3     any other person (including a Bank or financial institution), only to the extent that this Order is declared enforceable by or is enforced by a court in a country or State that has jurisdiction over that person or over any of that person’s assets.

15.       Nothing in this Order shall, in respect of assets located outside Australia, prevent any third party from complying or acting in conformity with what it reasonably believes to be its bona fide and properly incurred legal obligations, whether contractual or pursuant to a court order or otherwise, under the law of the country or State in which those assets are situated or under the proper law of any contract between a third party and the Second Defendant, provided that in the case of any future order of a court of that country or State made on the Second Defendant or the third party’s application, reasonable written notice of the making of the application is given to the Plaintiff.

The ‘Travel Restraint’ Order

16.       Until further order the Second Defendant is restrained from leaving Australia.

‘Reporting’ Orders

17.       The Second Defendant shall provide the Plaintiff and/or its solicitors with monthly bank statements in respect of all Controlled Accounts (including the Rundle Account) within ten (10) days of receipt of such bank statements.

18.       The Second Defendant must keep and maintain a record of all withdrawals and payments in accordance with paragraphs 6 and 10 above.  The record is to list:

            18.1     the amount of money withdrawn or paid;

            18.2     the date of the withdrawal or payment;

            18.3     other than in respect of any living expenses, the person in whose favour the withdrawal or payment was made;

            18.4     the purpose of the withdrawal or payment;

            and is to be kept and maintained so that the record can be produced to the Plaintiff or the Court within 72 hours after an order to do so.

19.       Within ten (10) days after the end of each calendar month the Second Defendant must provide to the Plaintiff’s solicitors a copy of the record kept and maintained in accordance with paragraph 18 for that month.

20.       Within 21 days after each 30 June and 31 December (Relevant Date) the Second Defendant must file and serve an affidavit verifying as at the Relevant Date the Second Defendant’s property and the Second Defendant’s liabilities detailing:

            20.1     as to the Second Defendant’s Property:

                        20.1.1  a description of each asset;

                        20.1.2  the estimated value of the asset;

                        20.1.3  the location of the asset;

            20.2     as to the Second Defendant’s liabilities:

                        20.2.1  a description of the liability;

                        20.2.2  the amount of the liability;

                        20.2.3  the person to whom the Second Defendant is liable.

21.       The Second Defendant must keep and maintain a record of all invoices for any legal, accounting and/or expert fees incurred as provided for in paragraph 6 above.  The Plaintiff may by written notice to the Second Defendant require within ten (10) days of the date of such notice the Second Defendant to produce to the Plaintiff such invoices, and the Second Defendant shall do so (other than information that is privileged).

The ‘General’ Orders

22.       The Plaintiff have leave to give to:

            22.1     the relevant authorities that record, control and regulate the ownership of real property;

            22.2     the relevant authorities that record, control and regulate the ownership of motor vehicles;

            22.3     the relevant authorities that record, control and regulate the ownership of maritime vessels and craft;

            22.4     any Bank with which the Second Defendant operates any Controlled Bank Account;

            22.5     any other person or entity holding or controlling property belonging to the Second Defendant; and

            22.6     any Third Party,

            notice of these Orders by delivering a copy of these Orders to a person apparently in the employ of that entity or person.

23.       All documents produced to the Court’s Registry pursuant to paragraph 18 of these Orders and the Orders previously made in these proceedings in relation to the Second Defendant, together with any affidavits filed pursuant to paragraph 20 of these Orders, and any Orders previously made, shall be held by the Court’s Registry until further order.

24.       The Parties and any third party affected by these Orders have liberty to apply to the  Court on the giving of reasonable notice.

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

IN THE MATTER OF

RICHSTAR ENTERPRISES PTY LTD (ACN 099 071 968)

WESTPOINT REALTY PTY LTD (ACN 050 218 954)

BOWESCO PTY LTD (ACN 008 915 357)

REDCHIME PTY LTD (ACN 117 947  805)
KEYPOINT DEVELOPMENTS PTY LTD (ACN 115 507 232)

REASONS FOR JUDGMENT ON PROPOSED EXTENSION OF ORDERS RELATING TO SECOND DEFENDANT

1                     By a notice of motion filed on 27 June 2007 the Australian Securities and Investments Commission (ASIC) sought the extension of orders previously made under s 1323 of the Corporations Act 2001 (Cth) (the Act) against the various defendants.  For the most part orders have been made pursuant to the motion.  The position of the second defendant is one which remains outstanding.  ASIC seeks to extend orders against the second defendant substantially in terms of an order proposed by Mr Rundle and exhibited to the affidavit of Martina Ana Sedic sworn 29 August 2007.  Submissions in support of the proposed orders were filed by ASIC on 4 October 2007 and by Mr Rundle on 26 October 2007. 

2                     ASIC accepts that it is necessary that the Court be satisfied that the proposed orders are within power and appropriate.  It relies upon various affidavits.  In its submissions ASIC says it is continuing investigations into Mr Rundle’s conduct as chief financial officer of the Westpoint Group.  He is said to be a person of interest in respect of asset stripping and fund raising investigations.  It expects to have the investigations concluded by 31 December 2007.  In this respect, ASIC replies upon affidavits sworn by Ms Jan Redfern.

3                     Ann Street Mezzanine Pty Ltd (In liq) and its liquidators have commenced proceedings against Mr Rundle and other defendants in these proceedings claiming some $27.8 million.  The claims made in the action relate to negligence and default or breach of duty in the raising and application of mezzanine funds by Ann Street Mezzanine.  ASIC has been considering whether to take over the conduct of the proceedings under s 50 of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act).

4                     ASIC also relies upon evidence that the liquidators of other relevant mezzanine companies have identified prospective claims against Mr Rundle for breach of various statutory duties, fiduciary duties and for negligence in relation to the raising and distribution of investor funds.  The liquidators of Westpoint Corporation Pty Ltd (In liq) have also identified prospective claims against Mr Rundle.  ASIC may also consider taking proceedings against him under s 50 of the ASIC Act in respect of those claims.

5                     ASIC contends that there is recent evidence of asset dissipation by Mr Rundle which took place before the commencement of these proceedings but at a time when he was aware of the investigations into the Westpoint Group.  Some of the transactions are said to have occurred after external administrators were appointed to Westpoint Group entities in December 2005 and an application had been brought to wind up Westpoint Corporation Pty Ltd. 

6                     The transactions relied upon by ASIC commence with a transfer dated 13 May 2005 which was registered on 15 August 2005 and by which Mr Rundle transferred his interest in the matrimonial home to his wife for a figure of $200,000.  That sum was not paid until 17 January 2006.  The amount of $200,000 together with a further $199,735 was used to purchase redeemable preference shares in a newly incorporated company, Springtune Investments Pty Ltd (Springtune) on 20 January 2006 and 10 February 2006 respectively.  Mr Rundle evidently does not hold a beneficial interest in the redeemable preference shares.  They carry no voting rights and are only redeemable at the election of the Springtune’s director.  As at 3 May 2006 Mr Rundle valued the shares at $100 as appears from his affidavit of 3 May 2006. 

7                     Mr Rundle’s wife is said to be the sole director and ordinary shareholder in Springtune Investments.  The company was incorporated on 19 December 2005, the month before the initial $200,000 was paid by way of investment.  As at 30 June 2006 its only material asset was a loan of $399,492 to the Rundle Investment Trust.  Mr Rundle’s wife is the trustee of that trust.  It has lent the money to her personally.

8                     ASIC contends that Mr Rundle has effectively transferred his interest in the matrimonial home to his wife.  The consideration for that transfer and a further $199,735 was expended in acquiring redeemable preference shares in a newly incorporated company, which shares were shortly thereafter assessed by Mr Rundle as having a negligible value.  It appears that he may not hold any beneficial interest in them.  The money paid to acquire the shares has been lent to his wife as trustee of the Rundle Investment Trust and on lent to her personally. 

9                     The Court appointed receiver, Mr McMaster, has reported on Mr Rundle’s assets and liabilities and save for one matter since finalised, has reported that investigation of his assets is complete.  It has also reported on the evidence of prior asset dissipation. 

10                  The affidavit of Martina Sedic of Lavan Legal, filed on behalf of Mr Rundle, exhibits the proposed consent orders.  That affidavit is concerned primarily with the amount of legal fees that should be allowed to be expended by Mr Rundle in respect of various proceedings in which he is involved. 

11                  ASIC submits that the case is one in which it would be appropriate to appoint a receiver but that the parties are agreed that a form of freezing order can be sought as a practical lesser alternative.  ASIC is prepared to accept the proposed consent orders by way of freezing orders instead of the appointment of a receiver as:

1.         The receiver has reported that the process of identification of Mr Rundle’s property is complete.

2.         Mr Rundle has been generally cooperative with the receiver and ASIC expects that he will comply with the freezing orders proposed.  They are appropriate to preserve and secure Mr Rundle’s assets so as to protect the interests of aggrieved persons.  

It was submitted that Mr Rundle’s property and affairs generally are relatively simple and well suited to a freezing order regime.  Reporting obligations and monitoring mechanisms are built into the proposed orders.  The risk of non-compliance is said to be obviated by the likelihood of exposure and potential sanction.  The freezing orders avoid the costs and administrative issues associated with the appointment of a receiver. 

12                  Under the proposed orders the property the subject of the freezing order will be all of Mr Rundle’s property, including that held in his name as trustee jointly for a joint venture of which he is the effective controller or owner.  It will also cover his rights to operate bank accounts.  Two bank accounts of which he is a trustee for his minor children will be excluded.  He is to pay available cash into a nominated account referred to in the proposed orders as the “Rundle Account”. 

13                  Permitted carveouts, that is permitted payments, out of the Rundle Account would be:

(a)        Reasonable legal and other professional fees in respect of specified proceedings subject to specified limits with liberty to apply.

(b)        Living expenses of $2,115 per week which is consistent with the current orders in respect of him.

There are reporting and oversight mechanisms including provision of bank statements in respect of the Rundle Account, a monthly expenditure report, a six monthly disclosure affidavit and maintenance and inspection of invoices for the permitted expenditure.  Travel restraints would remain.

14                  Under the proposal Mr Rundle will be permitted to encumber an investment property to borrow up to $200,000 to meet the permitted legal fees.  He proposed to borrow the funds from a company associated with his father, Edenlee Pty Ltd. 

15                  While the parties have agreed in principle that there should be a permitted carveout for reasonable legal and other professional fees subject to specified limits, they have not been able to agree the relevant limits to the extent of a consent by ASIC.  The proposed order 6 contains blanks in which the relevant limits must be inserted.  ASIC took the view that it was for Mr Rundle to adduce evidence to justify the legal expenditure to be permitted.  The affidavits of Martina Ana Sedic sworn 29 and 30 August 2007 are directed to that question.  As appears from those affidavits, Mr Rundle seeks as specified limits for the nominated activities:

16                  ASIC now says it does not oppose the proposed limits and does not wish to make submissions on them.  The permitted carveout in proposed order 6 is only as to “reasonable fees”.  Irrespective of specified limits, Mr Rundle will have an ongoing obligation to ensure that the actual fees paid out are reasonable.

17                  Mr Rundle’s solicitors have filed submissions in response.  They indicate that he is willing to consent to the freezing orders subject to amendments under which ASIC would reserve its right to ensure that actual fees paid by Mr Rundle in relation to the matters set out in order 6 are reasonable and that he remain restrained from leaving Australia.  ASIC also proposes that the order restraining Mr Rundle from coming within 100 metres of an Australian point of overseas departure be omitted.

18                  Having regard to the above matters, I am satisfied that the proposed orders can and should be made.  I propose to adopt the specified limits for legal fees proposed by Mr Rundle. 

Associate:

Dated:         9 November 2007