FEDERAL COURT OF AUSTRALIA

Australian Securities and Investments Commission v Linchpin Capital Group Ltd (No 2) [2019] FCA 398

ORDERS

THE COURT ORDERS THAT:

1.    Paragraphs 6, 7, 8, 9 and 10 of the Orders made on 7 August 2018 in this proceeding are vacated.

Declarations

2.    It is declared that the First Defendant has acted in contravention of:

(a)    s 601ED(5) of the Corporations Act 2001 (Cth) (the Act) because on and from 6 August 2014, the First Defendant failed to register the unregistered managed investment scheme known as the Investport Income Opportunity Fund of which the First Defendant is the trustee (Unregistered Fund) and thereby operated a managed investment scheme contrary to s 601ED(5) of the Act;

(b)    s 911A of the Act because it issued interests in the Unregistered Fund from 6 August 2014, when it did not hold an Australian Financial Services Licence (AFSL);

(c)    s 911B of the Act because it purported to issue interests in the Unregistered Fund pursuant to an AFSL held by The Financiallink Group Pty Ltd, when it was not authorised by that AFSL to do so;

(d)    s 1041H(1) of the Act and section 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) in respect of representations made to potential investors in the Information Memorandum issued 23 January 2014.

3.    It is declared that the Second Defendant has acted in contravention of:

(a)    S 208 (as modified by s 601LC) of the Act by engaging in related party transactions without member approval;

(b)    s 601FC(1)(b) of the Act because it failed to exercise reasonable care and skill as responsible entity of the registered managed investment scheme known as Investport Income Opportunity Fund of which the Second Defendant is the responsible entity (Registered Fund);

(c)    s 601FC(1)(c) of the Act because it did not act in the best interests of the members of the Registered Fund;

(d)    s 601FC(1)(h) of the Act because it failed to comply with its compliance plan;

(e)    s 601FC(1)(j) of the Act because it failed to ensure that the property of the registered fund was valued at regular intervals;

(f)    s 601FC(1)(k) of the Act because it contravened the requirement to ensure that payments were made out of scheme property in accordance with the Act;

(g)    s 912A(1)(a) of the Act because it failed to ensure that the financial services it provided in respect of the Registered Fund were provided efficiently and fairly;

(h)    s 912A(1)(aa) of the Act because it did not have in place adequate arrangements for the management of conflicts of interest;

(i)    ss 1013D(1)(f) and 1013E of the Act because it did not identify in the second and the third Product Disclosure Statements (PDS) dated 1 October 2015 and 24 June 2016 respectively that it issued to potential investors, the nature of the related party transactions which had been entered into prior to issuing those PDS;

(j)    s 1017B(1) of the Act because it failed to identify to the Registered Fund members the nature and extent of the related party transactions that were entered into following the issue of the first, second and third PDS (the first PDS being dated 27 April 2015).

The First Defendant — Linchpin Capital Group Ltd

4.    Pursuant to s 461(1)(k) of the Act, the First Defendant be wound up.

5.    Jason Tracy and David Orr of Deloitte (Liquidators) be appointed as joint and several liquidators of the First Defendant.

Linchpin Capital Group Ltd as trustee of the Investport Income Opportunity Fund

6.    The Unregistered Fund be wound up pursuant to s 601EE(2) of the Act.

7.    Pursuant to s 601EE(2) of the Act:

(a)    the Liquidators be appointed to be take responsibility for ensuring that the Unregistered Fund is wound up in accordance with its Constitution and subject to these orders;

(b)    the Unregistered Fund be wound up as if:

(i)    the Unregistered Fund were a corporation; and

(ii)    the provisions of parts 5.4B, 5.6 and 5.7B of the Act applied to the winding up.

The Second Defendant — Endeavour Securities (Australia) Ltd

8.    Pursuant to s 461(1)(k) of the Act, the Second Defendant be wound up.

9.    Jason Tracy and David Orr of Deloitte (Liquidators) be appointed as joint and several liquidators of the Second Defendant.

Endeavour Securities (Australia) Ltd as responsible entity of the Investport Income Opportunity Fund

10.    The Registered Fund be wound up pursuant to s 601ND(1)(a) of the Act.

11.    Pursuant to s 601NF(1) of the Act, the Liquidators be appointed to be take responsibility for ensuring that the Registered Fund is wound up in accordance with its Constitution and subject to these orders.

12.    Pursuant to s 601NF(2) of the Act, the Registered Fund be wound up as if:

(a)    the Registered Fund were a corporation; and

(b)    the provisions of parts 5.4B, 5.6 and 5.7B of the Act applied to the winding up.

Costs

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

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

REASONS FOR JUDGMENT

DERRINGTON J:

1    This is an action brought by the Australian Securities and Investment Commission (ASIC) against Linchpin Capital Group Limited (Linchpin) and Endeavour Securities (Australia) Limited (Endeavour). It concerns the operation of two managed investment schemes conducted by the two defendants. One scheme was unregistered, the other registered. ASIC commenced an investigation into the operation of the managed investment schemes and subsequently commenced this action, obtaining interlocutory relief in relation to their further operation.

2    The proceeding, the hearing of which commenced yesterday, was for final relief in the form of declarations, injunctions and for the winding up of both the defendants and their managed investment schemes. To this point in the hearing, ASIC has finalised its case and adduced the evidence on which it has sought to rely. Some of it has been tested in cross-examination. The defendants have not opened their case. However, the parties have agreed, to the extent to which that is possible, on a form of orders which dispose of the whole of the proceedings. Those orders include the making of declarations in respect of non-compliance with the Corporations Act 2001 (Cth) (the Act) in multiple respects, the winding up of the two defendants and the winding up of the schemes.

3    On the basis of the evidence which has been filed to date, I am satisfied that the declarations sought are appropriate. ASIC has established, at least on its material, that the events supporting the declarations occurred, that it has a good arguable claim in respect of the causes of action which it advances and that the declaration ought to be made. Given that both parties are represented by experienced solicitors and Counsel, there is no need for me to set out in any detail the underlying facts on which each of the multiple declarations are based. It suffices to say that the evidence shows that the schemes were operated outside of the requirements of the Act. In particular, those operating the schemes did not hold any valid authorisation to do so.

4    Further, ASIC seeks orders that the schemes be wound up. That was not contested by the date of the commencement of the trial and it is appropriate that those winding up orders be made. It is also appropriate that Mr Tracy and David Orr, who were appointed as the receivers of the funds on an interlocutory basis, be the liquidators of those funds. They have substantial knowledge of the funds and, indeed, now of the transactions which occurred. In his evidence given during the course of the hearing, Mr Tracy showed a remarkable knowledge of the detail of the transactions which had occurred and of the manner in which they were recorded in the company and fund accounts.

5    ASIC also sought the winding up of the two defendant companies. There is no opposition by the defendant companies in those orders. The winding up was sought on the just and equitable grounds. Given the length and breadth of the non-compliances with the Act, there is more than sufficient justification for the winding up of both companies.

6    The question of costs was also agreed upon by the parties. Whilst that is not necessarily the matter of discretion in the present case, the costs orders agreed to are appropriate in the circumstances.

7    The orders handed up to the Court with slight variations should be made.

Associate:

Dated:    15 March 2019