FEDERAL COURT OF AUSTRALIA

Australian Securities and Investments Commission v Letten (No 11)

[2011] FCA 499

NOTE: For the purpose of this order, “Receivers” has the meaning ascribed to it in the Orders of Justice Gordon made in this proceeding on 25 February 2010, 4 March 2010 and 30 July 2010.

THE COURT ORDERS THAT:

1.    The Receivers are justified in settling the contract of sale entered into by the Receivers on 8 April 2011 in relation to the land, buildings and fixtures located at:

(A)    128-136 Low Head Road, George Town, Tasmania; and

(B)    the Low Head Tourist Park business located at 136 Low Head Road, George Town, Tasmania;

exhibited at exhibit DJT-101 to the Twenty-Fourth Affidavit of Damian John Templeton, sworn 11 April 2011.

2.    The Receivers are justified in allowing the entry into possession of the property at 40 Gunn Parade, Low Head Tasmania, by the secured lender, Tasmanian Perpetual Trustees Limited.

3.    Until further order, Confidential Exhibit DJT-95 and Exhibit DJT-96 to the Twenty-Fourth Affidavit of Damian John Templeton, sworn 11 April 2011, and any transcript which was made of the hearing which took place in this proceeding at 10:15am on Friday 13 May 2011 be placed in a sealed envelope and marked “Confidential: No access without leave of a judge of the Court.”

4.    Until further order, pursuant to s 50 of the Federal Court of Australia Act 1976 (Cth), there be no publication of Confidential Exhibit DJT-95 and Exhibit DJT-96 to the Twenty-Fourth Affidavit of Damian John Templeton sworn 11 April 2011 or any transcript which was made of the hearing which took place in this proceeding at 10:15am on Friday 13 May 2011 other than to the Plaintiff and its legal representatives, the legal representatives of the defendants, legal representatives of the non-parties heard on the application, judges of the Court, judges’ associates and executive assistants and the Receivers and their legal representatives and staff.

5.    The proceedings be adjourned to a date to be fixed.

6.    Costs reserved.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court’s website.

REASONS FOR JUDGMENT

introduction

1    On 25 February 2010, the schemes numbered 1, 4 to 9 and 13 to 16 in Annexure A to these reasons for decision were wound up pursuant to s 601EE(1) of the Corporations Act 2001 (Cth) (the Corporations Act). Also on 25 February 2010, Mr Damian Templeton and Mr Phillip Hennessy of KPMG (the Receivers) were appointed as joint and several receivers and managers of certain property of each of the second to sixteenth and eighteenth to forty-fifth defendants (the Corporate Defendants) and as joint and several receivers and managers of identified property of each of the schemes listed in Annexure A (the Schemes), except for the scheme numbered 12: Australian Securities and Investments Commission v Letten [2010] FCA 140 (the 25 February Orders).

2    The 25 February Orders required the Receivers to file and serve a report in respect of, inter alia, the nature and identity of the property of each Scheme, any claims by third parties in relation to the property of the Scheme, the identities of investors and the nature of their investment (the Disclosure Reports).

3    On 13 April 2010, the Receivers filed Disclosure Reports in relation to each Scheme listed in Annexure A except for schemes numbered 6, 15 and 16. The Disclosure Reports for schemes numbered 6, 15 and 16 were filed on 28 April 2010.

4    This judgment concerns Scheme No 8 – the Low Head Joint Venture (the Low Head Scheme) – which also involves one of the entities included in the 25 February Orders, Low Head Pty Ltd, the twelfth defendant (Low Head). On that day, pursuant to s 1323(1)(h)(ii) of the Corporations Act the Receivers were appointed to the property of Low Head other than property which constitutes property of a Scheme as defined in Annexure A to the 25 February Orders, the Low Head Scheme was wound up pursuant to s 601EE(1) of the Corporations Act and the Receivers were appointed as receivers and managers of the Property of the Low Head Scheme.

5    In his disclosure report in relation to the Low Head Scheme and Low Head, Mr Templeton (one of the Receivers) provided a diagrammatic and descriptive overview of the scheme structure and the relationships between key stakeholders (the Overview). A copy of the Overview is attached as Annexure B to these reasons for decision. As that overview records, as at 25 February 2010, Low Head had a loan payable to Tasmanian Perpetual Trustees Limited (TPTL) of $1.6 million, secured by registered mortgages over three properties constituting the Low Head Properties. As at 31 March 2011, the balance owing by Low Head to TPTL was $1.85 million, with interest accruing at a penalty rate of 11.70%.

6    On 25 May 2010, the Receivers were authorised to sell:

(1)    the land, buildings and fixtures located at:

(a)    128-136 Low Head Road, George Town, Tasmania;

(b)    142 Low Head Road, George Town, Tasmania; and

(c)    40 Gunn Parade, Low Head, Tasmania; and

(2)    the Low Head Tourist Park business located at 136 Low Head Road, George Town, Tasmania;

(collectively the Low Head Properties) subject to the directions set out in paragraphs 10 to 12 of those Orders (the Low Head Orders).

7    Since the Court made the Low Head Orders, the Receivers’ enquiries revealed that:

1.    prior to the appointment of the Receivers, the twelfth defendant sold a portion of the property referred to in paragraph 6(1)(b) above (of approximately 0.550 ha);

2.    that portion of land sold retained the street address of 142 Low Head Road, George Town, Tasmania; and

3.    the remainder of the land at 142 Low Head Road, George Town, Tasmania (approximately 0.6994 ha) was added to the street address at 128-136 Low Head Road, George Town, Tasmania.

8    On 8 April 2011, the Receivers entered into a contract of sale of the Low Head Tourist Park (the Low Head Agreement). A copy of the Low Head Agreement was provided to the Court. The property the subject of the sale is 128-136 Low Head Road, George Town, Tasmania, in its amended form.

9    The sale price obtained under the Low Head Agreement is not sufficient to pay the realisation costs and discharge the debt owed to TPTL in full. The Receivers obtained the consent of TPTL to the Low Head Agreement on the condition that the Receivers allow TPTL to take possession of the third of the Low Head Properties, 40 Gunn Parade, Low Head (40 Gunn Parade), pursuant to securities held over this property, that the receivership in respect of this property cease, and that the Receivers allow TPTL to hold the property for an indefinite period to assist in minimising any further losses.

10    On 12 April 2011, the Receivers filed an interlocutory process which, pursuant to ss 1323(5) and 601EE of the Corporations Act and paragraph 29 of the 25 February Orders, sought approval of the Receivers:

1.    entering into the Low Head Agreement; and

2.    permitting the secured lender, Tasmanian Perpetual Trustees Limited, to enter into possession of the property at 40 Gunn Parade, Low Head, Tasmania.

The interlocutory process was supported by an affidavit sworn by Damian John Templeton on 11 April 2011 (the Twenty-Fourth Templeton Affidavit).

11    On 13 May, the interlocutory process came on for hearing. In addition to Counsel for the Receivers, a number of other parties appeared including Counsel for the Australian Securities and Investment Commission (ASIC) and the first defendant, Mr Letten. ASIC and Mr Letten did not oppose the orders sought by the Receivers.

Applicable Principles

12    The applicable principles were not in dispute.

13    The power to authorise the sale of the Low Head Properties is derived from various sources – s 601EE of the Corporations Act to the extent that the Properties are property of the Scheme and otherwise the Court’s inherent power to authorise the sale consequent upon the appointment of the Receivers by the Court: Australian Securities and Investment Commission v Letten (No 7) [2010] FCA 1231 at [269] to [271]; Australian Securities and Investments Commission v Letten (No 8) [2010] FCA 1458 at [10]; AIDC v Co-operative Farmers and Graziers Direct Meat Supply Ltd. [1978] VR 633 at 643.

14    The Receivers submitted (and I accept) that although the Court has a broad unfettered discretion (Letten (No 8) at [11] and AIDC at 647-8), the Court may take into account the interests of all creditors and other stakeholders. Letten (No 8) at [11].

15    As was stated in Letten (No 8) at [11], one way of approaching the current issue (but not the sole way) was to enquire whether the Receivers had discharged the duty imposed on them by s 420A of the Corporations Act. That section provides:

In exercising a power of sale in respect of property of a corporation, a controller must take all reasonable care to sell the property for:

(a)    if, when it is sold, it has a market value – not less than the market value; or

(b)    otherwise – the best price that is reasonably obtainable, having regard to the circumstances existing when the property is sold.

16    In ascertaining whether a controller has taken all reasonable care in the sale of a property pursuant to s 420A of the Corporations Act, the section necessitates an assessment or enquiry into the process adopted by the Receivers in selling the property: Florgale Uniforms Pty Ltd v Orders (2004) 11 VR 54 at [442] – [443] and Artistic Builders Pty Ltd v Elliot & Tuthill (Mortgages) Pty Ltd (2002) 10 BPR 19,565 at [126]. The actions of the controller in selling the property (in this case the Receivers) is of course a human endeavour which requires “the exercise of judgment, taking into account all the relevant variables and circumstances of the particular case”: Letten (No. 8) at [12] also referring to Florgale Uniforms Pty Ltd v Orders (2004) 11 VR 54 at [442] – [443] and Artistic Builders Pty Ltd at [126].

17    The Receivers must act in good faith and not in a manner which is unconscionable. So, for example, the Court may refuse to authorise a sale if another course of action can be pursued to the benefit of all parties concerned: AIDC at 649 and 652 and see also Re Buenos Aires Port and City Tramways Limited (1920) 123 LT 748 at 750. However, a Court will usually sanction an immediate sale if the only alternative is for the Receiver to continue his or her management of the company indefinitely: see Company Receivers and Administrators by O’Donovan (Thomson Reuters) at [23.3510]. In the present case, the proposed course does not necessarily involve a sale but such a course will be permitted by the Court if that course is one which is sound in the all the circumstances.

18    A mortgagee in exercising a power of sale must act in good faith: Kennedy v De Trafford [1896] 1 Ch 762 at 772; MBF Investments Pty Ltd v Nolan [2011] VSCA 114 at [65] – [66]. That duty is, by analogy, very close to the exercise of a power of sale by a receiver: AIDC at 647. It is when a mortgagee’s conduct in a sale departs from such reasonable standards as to be unconscionable that the mortgagee’s power of sale may be impugned: Hawkesbury Valley Developments Pty Ltd v Custom Credit Corporation [1995] NSW Conv. R. 55-731 at 55,650.

sale process

19    Against that background, I turn to the sale process undertaken by the Receivers. It involved the sale of the Low Head Tourist Park and 40 Gunn Parade.

20    Valuations were obtained on 12 April 2010. The sale process undertaken by the Receivers was rigorous, mandating, in the case of the Low Head Tourist Park, a tender process. The Receivers engaged experienced estate agents to conduct the sale process. Both the Low Head Tourist Park and 40 Gunn Parade were advertised for sale in an open market. Limited success was achieved and these properties proved extremely difficult to sell other than at very low prices. The complexities and nuances in the negotiations and the great degree of care performed by the Receivers in the conduct of the sale was provided to the Court in a confidential exhibit.

21    The Receivers submitted and I accept that the properties have proved difficult to sell, in part due to the monies owed to TPTL. The absence of strong buyer activity for the property securing the TPTL debt has created an impediment to sale and any subsequent reduction of the debt. That impediment is removed if the sale of the Low Head Tourist Park is allowed and the appointment of the Receivers in relation to 40 Gunn Parade ceases.

22    The current application before the Court creates no disadvantage to investors because, even if both properties were sold, there would not expected to be a distribution to unsecured creditors or an increase in the pool of funds available for investors in respect of the Low Head Scheme. Further, the remaining debt owed to TPTL after the sale of the Low Head Tourist Park still exceeds the value of the property of 40 Gunn Parade. These facts combined with the accruing penalty interest rate charges and the ongoing receivership costs in respect of the Low Head Properties, satisfy me that it is appropriate to approve the proposed sale of the Low Head Tourist Park.

23    The ultimate result was disappointing. It was below the estimated market value of the Properties obtained in April 2010. However, in the present case, the sale at a price below the estimated market value does not itself mean that the Receivers’ duty to take all reasonable care has not been satisfied: Florgale at [410] and Investec Bank (Australia) Ltd v Glodale Pty Ltd (2009) 256 ALR 104. As noted earlier, the sale process was consistent with the 25 May Orders. The Properties were advertised for sale on the open market resulting in arm’s length dealings between the Receivers and potential purchasers. In my view, the Receivers took all reasonable care in obtaining the market value of the Low Head Tourist Park and 40 Gunn Parade, being the price that a willing purchaser would have to pay a vendor willing but not anxious to sell in order to obtain the property.

24    Notwithstanding the disappointing result, I am satisfied that taking into account all the relevant variables and circumstances of this particular case, the Receivers have taken reasonable care to achieve, and have achieved, an acceptable sale of the Low Head Tourist Park, and that the course suggested by TPTL as agreed to by the Receivers, in allowing TPTL to take possession of 40 Gunn Parade is, in the total context of the receivership, a course which should be approved by the Court.

25    I will therefore make the following orders:

1.    The Receivers are justified in settling the contract of sale entered into by the Receivers on 8 April 2011 in relation to the land, buildings and fixtures located at:

1.1    128-136 Low Head Road, George Town, Tasmania; and

1.2    the Low Head Tourist Park business located at 136 Low Head Road, George Town, Tasmania;

exhibited at exhibit DJT-101 to the Twenty-Fourth Affidavit of Damian John Templeton, sworn 11 April 2011.

2.    The Receivers are justified in allowing the entry into possession of the property at 40 Gunn Parade, Low Head Tasmania, by the secured lender, Tasmanian Perpetual Trustees Limited.

3.    Until further order, Confidential Exhibit DJT-95 and Exhibit DJT-96 to the Twenty-Fourth Affidavit of Damian John Templeton, sworn 11 April 2011, and any transcript which was made of the hearing which took place in this proceeding at 10:15am on Friday 13 May 2011 be placed in a sealed envelope and marked “Confidential: No access without leave of a judge of the Court.”

4.    Until further order, pursuant to s 50 of the Federal Court of Australia Act 1976 (Cth), there be no publication of Confidential Exhibit DJT-95 and Exhibit DJT-96 to the Twenty-Fourth Affidavit of Damian John Templeton sworn 11 April 2011 or any transcript which was made of the hearing which took place in this proceeding at 10:15am on Friday 13 May 2011 other than to the Plaintiff and its legal representatives, the legal representatives of the defendants, legal representatives of the non-parties heard on the application, judges of the Court, judges’ associates and executive assistants and the Receivers and their legal representatives and staff.

Associate:

Dated:    13 May 2011

ANNEXURE A

ANNEXURE B

SCHEDULE OF PARTIES

LGH HOLDINGS LIMITED (ACN 077 191 943)

Second Defendant

211 WELLINGTON ROAD PTY LTD (ACN 092 663 860)

Third Defendant

BLUEMIST HOLDINGS PTY LTD (ACN 097 306 922)

Fourth Defendant

DELLWOOD HOLDINGS PTY LTD (ACN 098 505 803)

Fifth Defendant

ENMORE ENTERPRISES PTY LTD (ACN 082 158 487)

Sixth Defendant

FIRBANK ARCH PTY LTD (ACN 059 464 381)

Seventh Defendant

GLENLINE PTY LTD (ACN 098 532 364)

Eighth Defendant

GERLING HOLDINGS PTY LTD (ACN 091 726 457)

Ninth Defendant

LGH ADMINISTRATION PTY LTD (ACN 007 165 069)

Tenth Defendant

LGH FINANCE PTY LTD (ACN 078 859 248)

Eleventh Defendant

LOW HEAD VILLAGE PTY LTD (ACN 091 731 958)

Twelfth Defendant

NICHOLSON STREET PTY LTD (ACN 069 104 089)

Thirteenth Defendant

HOLLOWAY CREST PTY LTD (ACN 091 731 967)

Fourteenth Defendant

ROSEBERY ENTERPRISES PTY LTD (ACN 091 826 229)

Fifteenth Defendant

SIMMS INVESTMENTS PTY LTD (ACN 093 504 511)

Sixteenth Defendant

SY21 RETAIL PTY LTD (ACN 107 874 564)

Seventeenth Defendant

THE GLEN CENTRE HAWTHORN PTY LTD (ACN 089 906 543)

Eighteenth Defendant

CASTELLO HOLDINGS PTY LTD (ACN 088 204 175)

Nineteenth Defendant

TWINVIEW NOMINEES PTY LTD (ACN 097 307 278)

Twentieth Defendant

YARRA VALLEY GOLF PTY LTD (ACN 066 632 479)

Twenty-First Defendant

ADINA RISE PTY LTD (ACN 083 181 122)

Twenty-Second Defendant

ALBRIGHT INVESTMENTS PTY LTD (ACN 088 204 166)

Twenty-Third Defendant

ASHFIELD RISE PTY LTD (ACN 093 504 806)

Twenty-Fourth Defendant

BRADFIELD CORPORATION PTY LTD (ACN 088 204 371)

Twenty-Fifth Defendant

COPELAND ENTERPRISES PTY LTD (ACN 093 504 824)

Twenty-Sixth Defendant

DEVLIN WAY PTY LTD (ACN 088 264 813)

Twenty-Seventh Defendant

FIRST HAZELWOOD PTY LTD (ACN 093 505 303)

Twenty-Eighth Defendant

GLENBELLE PTY LTD (ACN 097 306 646)

Twenty-Ninth Defendant

GLENVALE WAY PTY LTD (ACN 088 287 021)

Thirtieth Defendant

GREENVIEW LANE PTY LTD (ACN 093 505 312)

Thirty-First Defendant

HALLMARK CORPORATION PTY LTD (ACN 093 505 312)

Thirty-Second Defendant

MOORLEIGH HOLDINGS PTY LTD (ACN 088 287 058)

Thirty-Third Defendant

NORTON RIDGE PTY LTD (ACN 078 821 066)

Thirty-Fourth Defendant

RALEIGH GLEN PTY LTD (ACN 088 204 380)

Thirty-Fifth Defendant

REDCREST HOLDINGS PTY LTD (ACN 100 836 486)

Thirty-Sixth Defendant

SURI CORPORATION PTY LTD (ACN 093 505 321)

Thirty-Seventh Defendant

SUTTON RISE PTY LTD (ACN 088 204 399)

Thirty-Eighth Defendant

THE VIRTUAL MLMER PTY LTD (ACN 065 374 665)

Thirty-Ninth Defendant

TIVENDALE PTY LTD (ACN 093 505 349)

Fortieth Defendant

TULLOCH DOWNES PTY LTD (ACN 078 895 048)

Forty-First Defendant

MAINKING PTY LTD (ACN 100 790 485)

Forty-Second Defendant

TOPGLEN PTY LTD (ACN 096 857 564)

Forty-Third Defendant

ALLBLUE PTY LTD (ACN 100 836 388)

Forty-Fourth Defendant

ARANBAY PTY LTD (ACN 098 532 319)

Forty-Fifth Defendant

MELVILLE CORPORATION PTY LTD (ACN 091 911 045)

Forty-Sixth Defendant

TILLEY LANE PTY LTD (ACN 086 136 361)

Forty-Seventh Defendant

HPSC PTY LTD (ACN 059 930 139

Forty-Eighth Defendant

JENSDALE PTY LTD (ACN 098 367 974)

Forty-Ninth Defendant

OAKDALE RISE PTY LTD (ACN 091 598 908)

Fiftieth Defendant

MAYWOOD INVESTMENTS PTY LTD (ACN 091 599 218)

Fifty-First Defendant

ACETRAIN PTY LTD (ACN 100 820 282)

Fifty-Second Defendant

SAGE BAY PTY LTD (ACN 097 306 628)

Fifty-Third Defendant

TOBAGO HOLDINGS PTY LTD (ACN 093 504 520)

Fifty-Fourth Defendant