FEDERAL COURT OF AUSTRALIA

Australian Securities and Investments Commission v Letten (No 24)

[2014] FCA 1322

FOR THE PURPOSES OF THIS ORDER:

Receivers has the meaning ascribed in the Orders of Justice Gordon made in this proceeding on 25 February 2010, 4 March 2010 and Order Two made on 30 July 2010.

Receivership Entities means each of the corporate defendants in this proceeding to which the Receivers have been appointed.

THE COURT ORDERS THAT:

1.    The Receivers are justified in causing the Receivership Entities to enter into and perform their obligations under the settlement deed as described in the 52nd affidavit of Damian John Templeton sworn on 18 November 2014 (Settlement Deed).

2.    The Receivers be granted the power to dispose of the assets of the Mount Hutt Project (as defined in Order Two made on 30 July 2010) including without limitation the 14 shares in Tosswill Limited (NZBN 9429035560500) registered in the name of Mark Ronald Letten by causing the Receivership Entities to enter into and perform their obligations under the Settlement Deed.

3.    Pursuant to s 37AF of the Federal Court of Australia Act 1976 (Cth) and on the ground that the order is necessary to prevent prejudice to the proper administration of justice, Confidential Exhibit DJT-304 to the affidavit of Damian John Templeton sworn on 18 November 2014 is to remain confidential on the court file and is not to be disclosed to any other parties or persons without the express consent of the Receivers or order of this Court.

4.    The Receivers are justified in treating the costs of costs of this interlocutory application as costs of the receivership.

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

REASONS FOR JUDGMENT

1    This is the 24th judgment in a series about unregistered managed investment schemes in which Mr Mark Ronald Letten (Mr Letten), the first defendant, was involved. The history was summarised in Australian Securities and Investments Commission v Letten (No 7) (2010) 190 FCR 59 at [7]-[12]. The same terms and abbreviations are adopted in these reasons for judgment.

BACKGROUND FACTS

2    The Mount Hutt Project is one of the Additional Schemes as defined in paragraph 1 of Order Two made on 30 July 2010 (the Additional Schemes Appointment Order). Paragraph 9(c) of the Additional Schemes Appointment Order gives the Receivers the powers set out in ss 420(1) and (2) of the Corporations Act 2001 (Cth) (the Act), provided that the Receivers may not exercise the power to dispose of any Property (as defined) of the Additional Schemes, subject to any further or other order of the Court. Paragraph 9(d) of the Additional Schemes Appointment Order gives the Receivers the power to apply to the Court for directions or further orders, including orders varying the terms of the Additional Schemes Appointment Order.

3    Mr Templeton, one of the Receivers, gave sworn evidence that Mr Letten held a 70 per cent shareholding in Tosswill Limited (NZBN 9429035560500) (Tosswill), a New Zealand registered company which is the registered proprietor of two properties in New Zealand (Mount Hutt Properties). The other shareholder is Mr Salmon as trustee for the Samfer Family Trust. Mr Salmon is the sole director of Tosswill. The Receivers asserted a proprietary claim in relation to approximately NZD$1.42 million of Investor funds that were raised and contributed to the purchase of the Mount Hutt Properties by the Tenth Defendant, LGH Administration Pty Ltd (receivers & managers appointed) (in liquidation) (LGHA). The net equity of the monies advanced by LGHA on behalf of Investors is NZD$973,273.21. Mr Letten claims no beneficial interest in the shares and has confirmed this by deed poll.

4    Mr Salmon contends that the facts of this case, as deposed to by Mr Templeton, bear similarities to Australian Securities and Investments Commission v Letten (No 5) [2010] FCA 1047. In that case, Mr Letten owned 50 per cent of the shares of SY21 Retail Pty Ltd (SY21) and Mr Bate held the remaining 50 per cent. Mr Bate, and not Mr Letten, acted on behalf of SY21 in managing a property owned by SY21. The Court held, inter alia, in the absence of evidence that Mr Bate was aware that that Investor funds were being raised and deployed for the purposes of that property, the property itself did not constitute scheme property of the SY21 Scheme or the Schemes. Rather, the Investors’ interest was confined to the shares in SY21 itself.

5    Mr Salmon has also asserted competing claims including, inter alia, a proprietary claim on the Mount Hutt Properties in respect of approximately NZD$449,000 paid by companies associated with Mr Salmon in order to service the mortgage and other costs associated with those properties, and a shareholder loan to Tosswill from Mr Salmon as trustee for the Samfer Family Trust for NZD$409,000. The Receivers do not dispute the shareholder loan and Mr Templeton has deposed to evidence the Receivers have sighted in relation to Mr Salmon’s other claims which, at the very least, have satisfied the Receivers that they are reasonably arguable and, on their face, have some substance.

6    The Receivers have informed the Court that they apprehend that any step to assert a proprietary claim over the whole of the property owned by Tosswill through the New Zealand courts will be opposed by Mr Salmon and result in costly and uncertain proceedings in a foreign jurisdiction which will delay the completion of the receiverships. This would appear to be a reasonable concern. The Receivers have also informed the Court that they are unable to cause a liquidator to be appointed to Tosswill to resolve the deadlock, not that such appointment would necessarily advance a resolution of the matter in the Investors’ favour in any event as the liquidator would still be faced with the competing proprietary claims. Similarly, the Receivers have informed the Court that they apprehend that appointing directors to Tosswill in order to realise the Investors’ equity interest in the property (assuming directors can be found who would accept such an appointment) would also lead to litigation with Mr Salmon.

7    For those reasons, pursuant to ss 1323(1)(h) and 601EE(2) of the Act, s 23 of the Federal Court of Australia Act 1976 (Cth) and the liberty to apply provided by the Additional Schemes Appointment Order (see [2] above), the Receivers sought orders and directions:

(a)    That the Receivers are justified in causing the Receivership Entities to enter into and perform their obligations under a settlement deed dated 12 September 2014 (Settlement Deed); and

(b)    That the Receivers be granted the power to dispose of the assets of the Mount Hutt Project (as defined in the Additional Schemes Appointment Order) including without limitation the 14 shares in Tosswill now registered in the name of Mr Letten by causing the Receivership Entities to enter into and perform their obligations under the Settlement Deed.

8    The Applicant (ASIC), Westpac and Mr Letten have been served with the application. Mr Salmon has been given notice of the application and the Investors have also been given notice of the application and the hearing date.

9    The Receivers submit that the settlement is commercially justifiable. The settlement avoids the costs of litigation in a foreign jurisdiction and the inevitable delays associated with resolving the disputes through the Courts. It also avoids the additional costs of a liquidator. The Receivers also submitted that, assuming the validity of Mr Salmon’s priority claim, the best realisation outcome would be approximately NZD$333,000, which does not factor in the likely legal and other expenses of realising this amount.

10    Looking at the compromise from Mr Salmon’s perspective demonstrates the extent of the compromise on both sides. Mr Salmon’s alleged proprietary claim is for NZD$449,000. His “other claims” total approximately NZD$543,000 as against the Receivers’ claim on behalf of Investors of approximately NZD$973,000. Those “other claims” comprise 35.8 per cent of the total claims in respect of Tosswill and the Mount Hutt Properties (totalling approximately NZD$1,516,000) while the Receivers’ claim on behalf of Investors comprise 64.2 per cent of the total claims. Assuming a sale of the Mount Hutt Properties for NZD$1.28 million, the amount to be divided would only be NZD$240,000, after paying costs of sale incurred by the Receivers and lawyers (approximately NZD$76,000), repaying a bank debt (NZD$515,000) and paying the Salmon priority claim (NZD$449,000)). The Investors’ interest of approximately 64.2 per cent would equate to about NZD$154,000.

11    Under the Settlement Deed, the Investors would receive NZD$220,000, which is about halfway between the Receivers’ best case of NZD$333,000 and their position under Mr Salmon’s claim of NZD$154,000.

APPLICABLE LEGAL PRINCIPLES

12    By analogy with the Court’s power under ss 477(2A) and 477(2B) of the Act, the Court’s assessment of whether to grant approval of a receiver’s entry into a settlement agreement must be made in light of the purposes for which a receiver’s powers exist: Re HIH Insurance Ltd [2004] NSWSC 5 at [15].

13    An overriding purpose is to serve the interests of those concerned in the receivership: Re Spedley Securities Ltd (in liq) (1992) 9 ACSR 83 at 85. Another purpose is to do whatever needs to be done for the proper realisation of the assets of the company or to assist the receivership: Re G A Listing & Maintenance Pty Ltd (1994) 15 ACSR 308 at 311.

14    The factors relevant to the Court’s consideration of liquidators entering into a settlement deed set out in Re Bell Group Ltd (in liq); Ex parte Woodings (2013) 97 ACSR 117 at [32] have been made out in this case. First, the compromise of the claims at this stage involves a legal as well as a commercial assessment, the Receivers having obtained legal advice prior to entering into the Settlement Deed. Second, while not all creditors have seen and approved the proposed settlement, the Investors have been given notice of the application. Third, the Receivers have properly considered the best interests of the Investors, including whether the settlement is more likely to expedite rather than delay the receivership. Mr Templeton gave sworn evidence that he believed that the acceptance of the offer is in the best interests of the Investors as it represents the best price that is reasonably attainable in the circumstances. Further, the only other alternatives would be to commence legal proceedings to wind up Tosswill or to compel the sale of the Mount Hutt Properties, and either course would be vigorously defended and costly.

CONCLUSION

15    For those reasons, orders and directions will be made substantially in the terms sought by the Receivers.

Associate:

Dated:    4 December 2014

SCHEDULE OF PARTIES

LGH HOLDINGS LIMITED (ACN 007 191 943)

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

WILHELMUS ANTONIUS JOANNES BOERKAMP

Fifty-Fifth Defendant

AUSTPAC FUNDS MANAGEMENT LIMITED

Fifty-Sixth Defendant

GOLDEN HERITAGE GOLF PTY LTD

Fifty-Seventh Defendant