FEDERAL COURT OF AUSTRALIA

Australian Securities and Investments Commission v CME Capital Australia Pty Ltd, in the matter of CME Capital Australia Pty Ltd (No 3) [2016] FCA 545

ORDERS

THE COURT ORDERS THAT:

1.    The orders made on 17 November 2015 as varied on 7 December 2015, 10 December 2015, 21 December 2015 and 23 December 2015 are vacated and the following orders are made in substitution.

Asset restraint

2.    Pursuant to subsections 1323(1) and (3) of the Corporations Act 2001 (Cth) (the Act), the Sixth, Seventh and Ninth Defendants, by themselves, their agents, employees or associates (as defined in Part 1.2, Division 2 of the Act) are restrained until 16 June 2016 from:

(a)    removing, or causing or permitting to be removed, any property (as defined in s 9 of the Act) of the First, Second, Third, Fourth and Fifth Defendants (the Companies), including, but not limited to, funds in bank accounts held by the Companies (Bank Accounts);

(b)    selling, charging, mortgaging or otherwise dealing with, disposing of or diminishing the value of all or any of the property of the Companies, including, but not limited to, the monies in the Bank Accounts;

(c)    without limiting the terms of sub-paragraphs (a) and (b) above, incurring new liabilities for the Companies, including, without limitation, liabilities incurred either directly or indirectly, through the use of a credit card, a credit facility, a drawdown facility or a re-draw facility; and

(d)    without limiting the terms of sub-paragraphs (a) to (c) above, withdrawing, transferring or otherwise disposing of or dealing with, any monies available to the Companies in any account with any bank, building society or other financial institution in which the Companies have any legal or equitable interest including, but not limited to, the monies standing to the credit of the Bank Accounts.

3.    Pursuant to subsections 1323(1) and (3) of the Act, the Eighth Defendant (Loma Estate Pty Ltd), and the Ninth Defendant (Berkshire NWI Invest LLC), by themselves, their agents, employees or associates are each restrained until 16 June 2016 from:

(a)    paying in part or in whole any debt it owes to any of the Companies to or at the direction or request of the Company to which it owes the debt;

(b)    paying or transferring in whole or in part, or otherwise parting with possession of, any money, financial product (as defined in s 763A of the Act) or property it holds on behalf of any of the Companies to or at the direction or request of the Company on whose behalf it holds the money, financial product or property;

(c)    taking or sending out of Australia any money of any of the Companies or an associate of any of them; and

(d)    taking, sending or transferring out of Australia any financial product or other property of any of the Companies, or an associate of any of them.

4.    Pursuant to subsections 1323(1)(d) and 1323(3) of the Act, the Tenth Defendant (Australia and New Zealand Banking Group Limited), by itself, its agents, employees or associates is restrained until 16 June 2016 from transferring any funds out of the following bank accounts:

(a)    013257 - 267273817 - ANZ Business Advantage - Boston Pacific Consulting Pty Ltd;

(b)    013287 - 496249124 - Business Classic - Limos Online Australia Pty Ltd;

(c)    5468279037216284 - ANZ Low Rate - Michael Charles Petrou; and

(d)    5468279037262551 - ANZ Low Rate - Michael Charles Petrou.

5.    Pursuant to subsections 1323(1)(d) and 1323(3) of the Act, the Eleventh Defendant (Commonwealth Bank of Australia Limited), by itself, its agents, employees or associates be restrained until 16 June 2016 from transferring any funds out of the following bank accounts:

(a)    3149 10374644 - Branislav Grujicic - Personal Transaction Account

(b)    3149 10374919 - Branislav Grujicic - Personal Saver Account

(c)    5353161310069473 - Branislav Grujicic - Low Fee MasterCard

(d)    5353171300494003 - Branislav Grujicic - Business Credit Card.

6.    Pursuant to subsections 1323(1)(d) and 1323(3) of the Act, the Twelfth Defendant (Saxo Capital Markets (Australia) Pty Ltd), by itself, its agents, employees or associates is restrained until 16 June 2016 from transferring any funds out of the following accounts:

(a)    Account 36000/104533

(b)    Account 36000/104533USD

(c)    Account 36000/104533USD2.

7.    Pursuant to subsections 1323(1)(d) and 1323(3) of the Act, the Thirteenth Defendant (IG Markets Limited), by itself, its agents, employees or associates is restrained until 16 June 2016 from transferring any funds out of the following accounts:

(a)    GR951 - Branislav Grujicic

(b)    GZUQD - Branislav Grujicic

(c)    AEVTA - Georgina Andrews (Power of Attorney - Branislav Grujicic)

(d)    AZSMA - Georgina Andrews

(e)    GDG98 - Bozidar Grujicic (Power of Attorney - Branislav Grujicic).

Travel restriction

8.    Subject to paragraph 10 below, pursuant to subsections 1323(1)(j), 1323(1)(k) and 1323(3) of the Act, the Sixth and Seventh Defendants deliver up all passports in their name which are in their possession, custody or control and any tickets for international travel by them to the Melbourne Registry of this Court to be retained by the Court until 16 August 2016.

9.    Subject to paragraph 10 below, pursuant to subsections 1323(1)(j), 1323(1)(k) and 1323(3) of the Act, the Sixth and Seventh Defendants are restrained until 16 August 2016 from leaving Australia without the consent of the Court.

10.    The Sixth Defendant is permitted to travel overseas from 5 June to 19 June 2016 in accordance with the travel proposal and arrangements set out in paragraphs 54(f) and 56-58 of his affidavit dated 13 May 2016. He must return his passports to the Court within two working days of his return.

Notification order

11.    The Plaintiff has leave to give to:

(a)    the relevant authorities that record, control and regulate the ownership of real property, motor vehicles and maritime vessels and craft; and

(b)    any bank, building society or other financial institution through which, to the best of the Plaintiff's belief, the Defendants operate any account; and

(c)    any other person or entity, holding or controlling property, which, to the best of the Plaintiff's belief, belongs to the Defendants

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

Other orders

12.    The further amended originating process be adjourned to a date to be fixed.

13.    The parties’ costs of the Plaintiff’s application to wind up the First to Fifth Defendants and of the hearing on 16 May 2016 be reserved.

14.    The parties have liberty to apply at any time to vary or discharge this order or so much of it as affects the party.

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

REASONS FOR JUDGMENT

MOSHINSKY J:

Introduction

1    The Plaintiff (ASIC) applies for an extension for a period of three months of interim orders imposing travel restrictions on the sixth defendant (Mr Petrou) and the seventh defendant (Mr Grujicic). ASIC also seeks an extension for a period of one month of interim orders relating to the property of the defendants, including orders restraining the transfer of funds from certain bank accounts. The applications are opposed.

2    For the reasons that follow, I will extend the travel restriction orders for a period of three months, but ‘carve out’ an exception to permit Mr Petrou to travel overseas during the dates and for the purposes set out in his affidavit. I will also extend the orders relating to the property of the defendants for one month.

Travel restriction orders

3    Interim orders imposing travel restrictions on Mr Petrou and Mr Grujicic were first made in this proceeding on 17 November 2015. Those orders, which were made pursuant to ss 1323(1)(j), 1323(1)(k) and 1323(3) of the Corporations Act 2001 (Cth) (the Act), operated until 4.00 pm on 10 December 2015.

4    The travel restriction orders were subsequently extended. On 7 December 2015, the orders were extended to 4.00 pm on 21 December 2015. On 21 December 2015, the orders were varied so that they operated until further order. Those orders are currently in place. The orders are in the following terms:

Pursuant to subsections 1323(1)(j), 1323(1)(k) and 1323(3) of the Act, the Sixth and Seventh Defendants deliver up all passports in their name which are in their possession, custody or control and any tickets for international travel by them to the Melbourne Registry of this Court to be retained by the Court until further order.

Pursuant to subsections 1323(1)(j), 1323(1)(k) and 1323(3) of the Act, the Sixth and Seventh Defendants until further order are restrained from leaving Australia without the consent of the Court.

5    By way of context, I note that on 21 December 2015, orders were made for the appointment of provisional liquidators to the first, second, third, fourth and fifth defendants (the Companies): see Australian Securities and Investments Commission v CME Capital Australia Pty Ltd [2015] FCA 1489. On 16 May 2016, orders were made that the Companies be wound up pursuant to s 461(l)(k) of the Act: see Australian Securities and Investments Commission v CME Capital Australia Pty Ltd (No 2) [2016] FCA 544.

6    ASIC seeks the continuation of the travel restriction orders for a period of three months from 16 May 2016, pursuant to s 1323 of the Act, which relevantly provides as follows:

1323    Power of Court to prohibit payment or transfer of money, financial products or other property

(1)    Where:

(a)    an investigation is being carried out under the ASIC Act or this Act in relation to an act or omission by a person, being an act or omission that constitutes or may constitute a contravention of this Act; or

(b)    a prosecution has been begun against a person for a contravention of this Act; or

(c)    a civil proceeding has been begun against a person under this Act;

and the Court considers it necessary or desirable to do so for the purpose of protecting the interests of a person (in this section called an aggrieved person) to whom the person referred to in paragraph (a), (b) or (c), as the case may be, (in this section called the relevant person), is liable, or may be or become liable, to pay money, whether in respect of a debt, by way of damages or compensation or otherwise, or to account for financial products or other property, the Court may, on application by ASIC or by an aggrieved person, make one or more of the following orders:

…

(j)    if the relevant person is a natural person—an order requiring that person to deliver up to the Court his or her passport and such other documents as the Court thinks fit;

(k)    if the relevant person is a natural person—an order prohibiting that person from leaving this jurisdiction, or Australia, without the consent of the Court.

…

(3)    Where an application is made to the Court for an order under subsection (1), the Court may, if in the opinion of the Court it is desirable to do so, before considering the application, grant an interim order, being an order of the kind applied for that is expressed to have effect pending the determination of the application.

…

(6)    An order made under subsection (1) or (2) may be expressed to operate for a specified period or until the order is discharged by a further order under this section.

…

7    The power in s 1323(1) is enlivened when one of the three matters in subsections (a)-(c) is present and the requisite opinion set out in the central paragraph is formed by the Court: Australian Securities and Investments Commission v Hawley (2008) 250 ALR 57 at [4] per Perram J. The function to be performed under s 1323(1) has been described as involving an element of risk assessment and management: see Australian Securities and Investments Commission v Carey (No 3) (2006) 232 ALR 577 at [26], [30] per French J (as his Honour then was). It involves balancing the interests, on the one hand, of the aggrieved persons referred to in s 1323(1) and, on the other hand, the interests of a respondent in avoiding undue interference in his or her affairs: Australian Securities and Investments Commission v Hawley (2008) 250 ALR 57 at [8]. Where it is sought to interfere with a person’s freedom of movement, it is to be borne in mind that such a step is not lightly to be undertaken: Australian Securities and Investments Commission; Re Richstar Enterprises Pty Ltd v Carey (No 19) (2008) 65 ACSR 421 at [32] per French J, and the authorities there cited. See also Australian Securities and Investments Commission v ActiveSuper Pty Ltd (No 4) [2013] FCA 318 at [32] per Gordon J; Australian Securities and Investments Commission v Ostrava Equities Pty Ltd [2015] FCA 543 at [5]-[6] per Davies J.

8    In the present case, an investigation is being carried out by ASIC in relation to acts or omissions by Mr Petrou and Mr Grujicic, being acts or omissions that may constitute a contravention of the Act. The first condition referred to in s 1323(1) is therefore present.

9    The question then is whether it is necessary or desirable to make (or continue) the travel restriction orders for the purpose of protecting the interests of a person (referred to as an ‘aggrieved person’ in the provision) to whom Mr Petrou or Mr Grujicic is liable, or may be or become liable, to pay money, whether in respect of a debt, by way of damages or compensation or otherwise, or to account for financial products or other property. In order to consider this, it is necessary to say something about the background facts and what the evidence currently before the Court indicates.

10    The first to fourth defendants (the Fundraising Companies) raised approximately $13.55 million from investors. Mr Petrou is the sole director of the Fundraising Companies.

11    The funds raised from investors by the Fundraising Companies were lent to three other entities:

(a)    The eighth Defendant (Loma). Mr Petrou has a long-standing relationship with the controller of Loma.

(b)    The ninth defendant (Berkshire). Berkshire is a foreign company controlled by Mr Petrou and of which he is the ultimate beneficiary.

(c)    The fifth defendant (IMCG). Mr Grujicic is identified in the records lodged with ASIC as the sole director of IMCG, although the evidence suggests that he may have acted at the direction of Mr Petrou.

12    The evidence suggests that the funds were lent on unreasonable and uncommercial terms.

13    No funds have been repaid by Loma or Berkshire to the Fundraising Companies. Although IMCG had paid some money to the Fundraising Companies at Mr Petrou’s direction, the repayments were recorded by IMCG as accrued expenses.

14    As noted in my judgment on the winding up application:

(a)    The evidence shows that the Companies are insolvent, that their books and records are in an unsatisfactory state, and that the Companies and their directors may have engaged, or been involved, in numerous contraventions of the Act.

(b)    The Companies have been operating an investment scheme which on the evidence currently before the Court involves a serious mismatch between short-term liabilities and long-term returns. As a result, earnings on the investments made by the Companies did not generate sufficient funds to pay interest owing to investors with the Fundraising Companies. The Fundraising Companies were reliant on new investments to meet those liabilities.

(c)    The evidence may also support a conclusion that the Companies are operating an unregistered managed investment scheme in contravention of s 601ED(5) of the Act, but it was unnecessary to reach a concluded view on this.

(d)    The evidence suggests that the Fundraising Companies may have contravened ss 113, 911A and 1041H of the Act. It also appears, on the basis of the current evidence, that offers were made to persons who were not professional investors and thus there may have been a contravention of s 727, as no prospectus has been lodged with ASIC.

(e)    The evidence also suggests that IMCG may have been involved in the Fundraising Companies’ contraventions of ss 113, 727, 911A and 1041H. IMCG received the funds raised from investors. It appears that Mr Petrou (who may have been a de facto director of IMCG) had knowledge of the essential facts giving rise to any primary contraventions.

(f)    The provisional liquidators have calculated that the estimated value of the combined assets of the Fundraising Companies is between $4 and $13 million. The estimated value of their combined liabilities is between $14.3 and $15.1 million. The Fundraising Companies are insolvent on a balance sheet and cash flow analysis, according to the provisional liquidators.

(g)    The provisional liquidators have also concluded that IMCG is insolvent.

(h)    Mr Petrou and Mr Grujicic accept that the Companies are now insolvent.

(i)    The provisional liquidators consider that the Fundraising Companies had poor internal controls and made investment decisions without appropriate documentation and consideration of risk.

(j)    The evidence indicates that the Fundraising Companies failed (among other things) to undertake appropriate due diligence in relation to a number of matters, failed to obtain security to support loans made to other entities, failed to document investment decisions and lent funds in circumstances where there was a conflict of interest and on uncommercial terms.

(k)    The evidence indicates that the books and records of the Companies have not been kept in a satisfactory state. The Fundraising Companies failed to keep proper records and the financial accounts of the Fundraising Companies contained errors in their preparation. The books and records of IMCG are incomplete and are said by Mr Grujicic to be incorrect. IMCG has not been able to produce accurate financial information.

(l)    In the circumstances outlined above, it appears that the affairs of the Companies may not have been carried out by the directors with due regard to legal requirements. Moreover, Mr Petrou and Mr Grujicic appear to lack the necessary expertise and experience to operate a securities trading business. These are matters of serious concern, particularly in light of the representations made to investors by the Fundraising Companies.

15    ASIC submits that it is important for its investigation in relation to Mr Petrou and Mr Grujicic that they remain in Australia. Although ASIC has already examined each of them once pursuant to s 19 of the Australian Securities and Investments Commission Act 2001 (Cth), it says that it may need to do so again. It may also need to contact them to seek assistance.

16    The facts and matters set out above make clear that there are persons – namely, investors in the Fundraising Companies – who may have claims for compensation against Mr Petrou and Mr Grujicic. Hence, they are ‘aggrieved persons’ for the purposes of s 1323(1).

17    In my view, in the circumstances, it would be desirable for the purpose of protecting the interests of such persons for the travel restriction orders to remain in place for three months from 16 May 2016, as this will ensure that Mr Petrou and Mr Grujicic are available to be examined by, and to assist, ASIC in its investigation.

18    However, as indicated in the cases referred to above, in considering whether to make an order, and the terms of the order, it is necessary to balance, on the one hand, the interests of the aggrieved persons and, on the other, the interests of Mr Petrou and Mr Grujicic in avoiding undue interference with their affairs. It is also important to keep in mind that such a step (namely, imposing travel restrictions) is not lightly to be undertaken.

19    Mr Petrou submits that the travel restrictions should be brought to an end now. He notes that the restrictions have already been in place for six months, ostensibly to ensure Mr Petrou’s assistance with ASIC’s investigation, yet ASIC has sought no such assistance from him for the last five and a half months. He submits that he has deep roots in Australia and legitimate reasons to travel. He submits that the continuation of restrictions on him is unjustified. In an affidavit dated 13 May 2016, Mr Petrou states:

(a)    He offers an undertaking to continue to lend all possible assistance to the ongoing investigations.

(b)    He has no intention of removing himself permanently from Australia.

(c)    He has legitimate business reasons for short-term travel out of Australia and is prepared to give full particulars in advance of relevant travel arrangements and overseas contact details while he is away, enabling direct telephone and email communications.

(d)    He was born in Australia and has lived here all his life apart from a stint of three to four years living and working in ‘Silicon Valley’ in the United States during the tech boom of the early 2000s; he has family resident here with him in Australia, namely his wife and their nine-year-old daughter, who are both Australian citizens and who are engaged respectively in permanent employment and schooling.

(e)    There is no outstanding request from either ASIC or the provisional liquidators to which they await his response. ASIC has not made any request of him for any information or assistance with its investigation since his s 19 examination on 1 December 2015.

(f)    He now has short-term needs to travel outside Australia for business purposes from 5 June to 19 June 2016 and will suffer loss and damage if he is not allowed to travel.

20    In view of these submissions and this evidence, I consider that it would be unreasonable to prevent Mr Petrou from travelling overseas for business purposes for a period of two weeks. In the event that ASIC needs to contact him during this time, this should be possible as he has offered to ensure that he can be contacted by telephone and email. Although ASIC submitted that there was a risk that Mr Petrou would not return, there is no evidence before the Court which suggests that he is a flight risk. I do not think the holding of a foreign passport or the fact that he has business ventures overseas is sufficient to infer that he is a flight risk.

21    In the circumstances, I consider that an appropriate balance is struck by extending the travel restriction orders by three months from 16 May 2016, that is, to 16 August 2016, but with a ‘carve out’ such that Mr Petrou is permitted to travel overseas from 5 June to 19 June 2016 in accordance with the travel proposal and arrangements set out in paragraphs 54(f) and 56-58 of his affidavit dated 13 May 2016.

Asset restraint

22    As noted above, ASIC also applies for an extension for a period of one month of interim orders relating to the property of the defendants, including orders restraining the transfer of funds from certain bank accounts. The bank accounts include accounts in the name of Mr Petrou or Mr Grujicic. The evidence indicates that the liquidators consider it necessary for the asset preservation orders currently in place to be maintained for a period of one month from 16 May 2016, to enable the liquidators to consider and take any necessary steps in relation to the accounts the subject of those orders. In the circumstances, in my view it is necessary or desirable for the purpose of protecting the interests of investors for the orders relating to the property of the defendants to be extended for a period of one month from 16 May 2016, that is, to 16 June 2016.

Associate:

Dated:    31 May 2016

SCHEDULE OF PARTIES