FEDERAL COURT OF AUSTRALIA

Australian Securities and Investments Commission v MyWealth Manager Financial Services Pty Ltd (No 2) [2019] FCA 2107

ORDERS

For the purpose of this Order:

“Corporations Act” means Corporations Act 2001 (Cth).

“Dealing” includes:

(a)    Removing, causing, procuring, assisting or permitting any Property in the possession or under the control of the defendants (as applicable) to be removed from Australia or from the jurisdiction of this Court; and/or

(b)    Selling, charging, mortgaging, encumbering, securing, diminishing, disposing of, parting with possession, making any declaration of trust in relation to, exercising any power to vary or modify any trust deed or any interest under any trust in relation to the defendants’ Property.

“Property” means all real or personal property, assets or interests in property of any kind, within or outside Australia including, by virtue of subs 1323(2A) of the Corporations Act, any property held otherwise than as sole beneficial owner.

“Unregistered Scheme” means all activities and arrangements whereby the first, third, fifth, sixth and seventh defendants and others associated with the said defendants, elicited or obtained funds from investors for the ostensible purpose of reinvesting, trading with and/or otherwise dealing with such funds for the purpose of providing a return to investors on the funds invested.

“Investor Funds” means monies provided to the defendants, whether directly, or through any of the other defendants, or the defendants’ authorised agents, servants and/or representatives for the ostensible purpose of reinvesting, trading with and/or otherwise dealing with such funds for the purpose of providing a return to the investors on the funds invested.

THE COURT ORDERS THAT:

Receiver orders — first and third defendants

1.    Until the completion of the trial of this action or further earlier order, pursuant to s 1323(1)(h)(ii) of the Corporations Act, Timothy Bryce Norman and Robert Scott Woods of Deloitte Financial Advisory Pty Ltd (the Receivers), continue to be appointed as Receivers and Managers to the Property of the first and third defendants for the purpose of:

(a)    identifying, collecting and securing the Property of the first and third defendants held for the purposes of the Unregistered Scheme;

(b)    ascertaining the amount of the Investor Funds received by the first and third defendants;

(c)    identifying any dealings with, payments of, or distributions by or uses made of the Investor Funds by the first and third defendants;

(d)    identifying any Property purchased or acquired with Investor Funds;

(e)    recovering the Investor Funds; and

(f)    providing a report to the Court, by close of business on 31 January 2020, in relation to the matters referred to in paragraphs 1(a)-(e) of these orders.

2.    For the purpose of attaining the objectives for which the Receivers are appointed, the Receivers shall have the following powers:

(a)    the powers set out in subs 420(1) and 420(2)(a), (e), (f), (k), (o), (p), (q) and (u) of the Corporations Act; and

(b)    the power to apply to the Court for directions or further orders.

Receiver orders — fifth, sixth and seventh defendants

3.    Until the completion of the trial of this action or further earlier order, pursuant to s 1323(1)(h)(i) of the Corporations Act, Timothy Bryce Norman and Robert Scott Woods of Deloitte Financial Advisory Pty Ltd (the Receivers), be appointed as Receivers and Managers to the Property of the fifth, sixth and seventh defendants for the purpose of:

(a)    identifying, collecting and securing the Property of the fifth, sixth and seventh defendants held for the purposes of the Unregistered Scheme;

(b)    ascertaining the amount of the Investor Funds received by the fifth, sixth and seventh defendants;

(c)    identifying any dealings with, payments of, or distributions by or uses made of the Investor Funds by the fifth, sixth and seventh defendants;

(d)    identifying any Property purchased or acquired with Investor Funds;

(e)    recovering the Investor Funds; and

(f)    providing a report to the Court, by the close of business on 31 January 2020, in relation to the matters referred to in paragraphs 3(a)-(e) of these orders.

4.    For the purpose of attaining the objectives for which the Receivers are appointed, the Receivers shall have the following powers:

(a)    the powers set out in subs 420(1) and 420(2)(a), (e), (f), (k), (o), (p), (q) and (u) of the Corporations Act; and

(b)    the power to apply to the Court for directions or further orders.

Restraint — first, third, fifth, sixth and seventh defendants

5.    Until the completion of the trial of this action or further earlier order, pursuant to ss 1101B(1) and 1324 of the Corporations Act, the first, third, fifth, sixth and seventh defendants, by themselves and their officers, servants, agents and employees be restrained from:

(a)    further promoting or operating the Unregistered Scheme;

(b)    promoting or carrying on any financial services business in Australia;

(c)    doing any act in furtherance of or in connection with the Unregistered Scheme;

(d)    receiving, soliciting, transferring or disposing of Investor Funds received in connection with the Unregistered Scheme;

(e)    providing financial product advice;

(f)    dealing in financial products;

(g)    promoting financial products; and

(h)    otherwise carrying on a financial services business within the meaning of Chapter 7 of the Corporations Act.

6.    Until the completion of the trial of this action or further earlier order, pursuant to ss 1101B(1) and 1324 of the Corporations Act that, until further order, the first, third, fifth, sixth and seventh defendants, by themselves and their officers, servants, agents and employees be restrained from:

(a)    holding out or representing that they are permitted or authorised to:

(i)    provide financial product advice;

(ii)    deal in financial products;

(iii)    promote financial products; and/or

(iv)    otherwise carry on a financial services business within the meaning of Chapter 7 of the Corporations Act;

(b)    holding out or representing that they are an authorised representative of an Australian Financial Services Licence holder.

Books and records

7.    The first and third defendants shall immediately deliver up to the Receivers all the books, records and other papers including, but not limited to, all files, computer records and data in their possession, custody or control which relate to the Unregistered Scheme and to the Property of the said defendants.

8.    The fifth, sixth and seventh defendants shall immediately deliver up to the Receivers all the books, records and other papers including, but not limited to, all files, computer records and data in their possession, custody or control which relate to the Unregistered Scheme and to the Property of the said defendants.

9.    The plaintiff shall, upon the request of the Receivers, deliver up to the Receivers all documents and books concerning the defendants which have been obtained by the applicant under Part 3, Division 3 of the Australian Securities and Investments Act 2001 (Cth).

Travel restraint orders

10.    Until further order, pursuant to s 1323(1)(k) of the Corporations Act, upon the return of the fifth, sixth and seventh defendants to Australia, they be restrained from further leaving or attempting to leave Australia without the consent of the Court.

General orders

11.    The application as against the second and fourth defendants be dismissed.

12.    The question of the costs of the interlocutory application be reserved for determination at the next case management hearing.

13.    The parties have liberty to apply on five business days’ notice in writing.

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

REASONS FOR JUDGMENT

DERRINGTON J:

Introduction

1    The Australian Securities and Investments Commission (ASIC) seeks interlocutory relief against the seven defendants in the action. Specifically, orders are sought pursuant to s 1323 of the Corporations Act 2001 (Cth) (the Act) in the nature of asset preservation orders and for the appointment of receivers and managers to the property of each of the defendants. Injunctions are also sought pursuant to s 1101B(1) and s 1324 of the Act restraining the first, third, fifth, sixth and seventh defendants from engaging in operating an unregistered managed investment scheme or engaging in, promoting, or carrying on any financial service.

2    On 14 November 2019, ASIC commenced this action against the seven defendants. The final relief sought in the originating proceedings are permanent orders in a form similar to the interlocutory relief now sought.

3    On 21 November 2019, his Honour Justice Reeves made a number of interim orders appointing receivers and managers to the first and third defendants, freezing orders preventing the second, fourth, fifth, sixth and seventh defendants from disposing of assets pending determination of this application, and orders restraining the first, third, fifth, sixth and seventh defendants from engaging in financial services.

Background

4    The substantive evidence relating to this application appears in the affidavits of Mr Jarrah Nicholson (Mr Nicholson) who is an investigator in the Financial Services Enforcement Team with ASIC. He commenced a formal investigation on 17 June 2019, pursuant to s 13 of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) in relation to suspected contraventions of s 1041G of the Act and s 82 of the Crimes Act 1958 (Vic) (Crimes Act), from the period 1 July 2014 and continuing, by the following persons and entities:

(a)    MyWealth Manager Financial Services Pty Ltd (MyWealth Manager), which is the first defendant;

(b)    Mustafa Mohammed (Mustafa), who is the fifth defendant and the husband of the sixth defendant. He is the director of MyWealth Manager and MyWealth Protection; and

(c)    Mahek Mustafa (Mahek), who is the sixth defendant and the wife of the fifth defendant. Mahek is the director of 3M Financial Planning;

(d)    3M Financial Planning Pty Ltd (3M Financial Planning) trading as Mcube Planners, which is the third defendant;

(e)    Mubashir Mohammed (Mubashir), who is the seventh defendant. He was previously a director of 3M Financial Planning;

5    There are other defendants to these proceedings, being:

(a)    MyWealth Protection Pty Ltd (MyWealth Protection), which is the second defendant. Its sole director is Mustafa; and

(b)    Secure Investments Pty Ltd (Secure Investments), which is the fourth defendant.

6    In an affidavit lodged late on 9 December 2019, and apparently in response to the submissions of the fourth defendant filed for the purposes of this hearing, Mr Nicholson has deposed in relation to Secure Investments that he was not initially aware of that company or its involvement in any of the financial services provided by the business conducted by the first, third, fifth, sixth and seventh defendants. During the course of the initial investigation, attention turned to investments made by a Mr and Mrs Soler. They were clients of 3M Financial Planning and, on the advice of Mubashir (as its employee), money from their self-managed super fund was transferred to MyWealth Manager as an investment. Those funds were then transferred to Secure Investments. In total the sum of $240,000 was transferred. Mr and Mrs Soler had no understanding or awareness of Secure Investments. In the course of the examinations which ASIC conducted pursuant to s 19 of the ASIC Act, Mubashir gave evidence that his brother was involved with Secure Investments but he had no understanding as to how the investor money had been received by that company. Following that evidence, Mr Nicholson undertook an investigation into the involvement of Secure Investments in the scheme. In his latest affidavit he identifies that he formed the view that Secure Investments was likely to be involved in the unregistered managed investment scheme the other defendants were operating. Forensic analysis was undertaken in relation to Secure Investments’ bank accounts, and that included issuing notices to the Commonwealth Bank of Australia and Westpac for updated bank account statements for the Secure Investments’ accounts and tracing details of transactions from those accounts.

7    It follows that, although a formal investigation was not originally commenced in relation to Secure Investments, such an investigation commenced as a result of the initial investigations and is continuing. The nature of that investigation and, in particular, whether it triggered the power of this Court in s 1323, is discussed in more detail below.

8    In his latest affidavit Mr Nicholson also identifies that he did not originally commence an investigation into the second defendant, MyWealth Protection, because it was at that time deregistered. However, during the course of ASIC’s investigation, he became aware from the bank statements of MyWealth Manager that $1.5 million had been transferred to that entity. The investigations continued in relation to the transaction and the signatory of the MyWealth Protection account, being Mustafa.

9    As Mr Nicholson deposes, MyWealth Protection was reinstated on 24 October 2019, and from then ASIC commenced an investigation into it.

Background facts

10    ASIC has filed substantial evidence in support of its application for interlocutory relief. No evidence has been filed to contradict it. It follows that the factual background to the matter is relatively straightforward.

11    In general terms, the concern of Mr Nicholson, and therefore of ASIC, is that the defendants or some of them appear to have been promoting and operating an illegal, unregistered managed investment scheme.

12    It appears that one of the main promoters of that scheme was Mustafa, who was the director and secretary of both MyWealth Manager and MyWealth Protection. Although a differently named person is identified in the ASIC records as being MyWealth Manager’s director, that person had no understanding that he had been so appointed and had not had any involvement in the running of that company.

13    Mahek is the current director and secretary of 3M Financial Planning, which trades as Mcube Planners. She is the wife of Mustafa. ASIC contends that in the ordinary course of the scheme, clients of 3M Financial Planning were induced to set up self-managed superannuation funds and transfer to them funds from established public superannuation funds. The moneys so received were then transferred, by way of a loan, to MyWealth Manager which was, supposedly, to use it for “general investment and related purposes”.

14    Mubashir is presently an employee of 3M Financial Planning in the capacity of a financial planner. He was formerly a director and secretary of that company and he is also the brother of the director of Secure Investments, which is the fourth defendant.

15    The evidence before the Court discloses that none of the defendants have ever held an Australian Financial Services Licence (AFSL). That said, a number have been appointed as authorised representatives of various AFSL holders. However, none of the authorisations, pursuant to which the defendants were authorised representatives, permitted them to operate or to issue units in a managed investment scheme.

16    At present not all of the evidence relating to this matter has been collated. The investigation is far from the preliminary stage but it is also far from completion. However, there is at least a prima facie case arising from the materials gained to date to indicate that the defendants have been raising money from investors and pooling it in the entity, MyWealth Manager. Clients of 3M Financial Planning were advised to establish their own self-managed superannuation fund (an SMSF). That would involve them removing their superannuation from existing funds and transferring it to the newly created SMSF. The funds would be placed into a Macquarie Bank cash management account. It appears that Mustafa had some control over that account, and one of his several phone numbers was recorded as part of the contact details. The clients were advised by Mubashir or some other person at 3M Financial Planning who induced them to invest their money with MyWealth Manager. They were led to believe that the money advanced would be invested in profit returning investments. Some were told that the proposed investment related to a property development opportunity. It appears that the investors may have been given falsified account statements with misleading information as to the return on their “investments”. Presently, ASIC’s investigation suggests that there were no investments, such that the statements to the investors were fictitious.

17    It is apparent that more than 50 clients invested in the above manner, and slightly more than $8 million was received by MyWealth Manager. ASIC has ascertained that none of the funds invested have been used to make any investments and indeed, they have been dissipated to the individuals standing behind the various companies or to related companies and persons. ASIC’s case is that the funds have been misapplied or misappropriated by the defendants, hence the investigation into whether any offence has been committed under s 82 of the Crimes Act.

18    Presently the disposition of funds from the investors’ superannuation accounts is not entirely clear. However, in the case of Mr and Mrs Soler, $240,000 was transferred to Secure Investments. This was also the case with some other investors, and it appears that it has received approximately $500,000. Otherwise the funds were initially transferred to MyWealth Manager and dispersed from there.

19    ASIC has produced the bank account statements of MyWealth Manager. They reveal that it transferred about $8 million to MyWealth Protection, a company of which Mustafa is also the director and secretary. The funds in that account have been disbursed to various entities including Sarin Pty Ltd trading as 361 Degrees Real Estate. Approximately $1.2 million has been transferred to overseas accounts. Other funds have been transferred to persons involved in the entities which are the first four defendants. The sum of $950,000 is unaccounted for. An amount slightly in excess of $600,000 has been paid to 3M Financial Planning’s account. Mubashir received approximately $2 million into his account, although the whereabouts of the funds from that account is unclear. Similarly, Mahek received approximately $1 million, and Mustafa $2.5 million.

20    As mentioned above, at present ASIC has been unable to identify any investments made by MyWealth Manager. Nor has it identified any returns to investors on their loans.

21    It is to be recalled that the defendants have had the opportunity to provide evidence in response to ASIC’s claims. None of them have chosen to do so, and no explanation has been given as to why they have not done so. The second to seventh defendants were all legally represented. It can be assumed that they are not able to provide evidence or documents which might advance their case: Jones v Dunkel (1959) 101 CLR 298.

Legislative framework

22    The primary source of power relied upon by ASIC in this application is s 1323 of the Act. It relevantly provides:

(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;.

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) … (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:

…

(e)    an order prohibiting a person holding money, financial products or other property, on behalf of the relevant person, or on behalf of an associate of the relevant person, from paying all or any of the money, transferring, or otherwise parting with possession of, the financial products or other property to, or to another person at the direction or request of, the person on whose behalf the money, financial products or other property, is or are held;

(f)    an order prohibiting the taking or sending our of this jurisdiction, or out of Australia, by a person of money of the relevant person or of an associate of the relevant person;

(g)    an order prohibiting the taking, sending or transfer by a person of financial products or other property of the relevant person, or of an associate of the relevant person:

(i)    from a place in this jurisdiction to a place outside this jurisdiction (including the transfer of financial products from a register in this jurisdiction to a register outside this jurisdiction); or

(ii)    from a place in Australia to a place outside Australia (including the transfer of financial products from a register in Australia to a register outside Australia);

(h)    an order appointing:

(i)    of the relevant person is a natural person—a receiver or trustee, having such powers as the Court orders, of the property or part of the property of that person; or

(ii)    if the relevant person is a body corporate—a receiver and manager, having such powers as the Court orders, of the property or of part of the property of that person;

(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.

23    It can be accepted that, when the power is enlivened, this section affords the Court a broad power to protect the interests of persons to whom other persons, who may have contravened the Act, may become liable. It does so by providing a means by which the property of persons engaged in contravening conduct may be preserved such that, in the fullness of time, it will provide a source of the vindication of the rights of persons aggrieved by the conduct. Australian Securities and Investments Commission v Burnard (2007) 64 ACSR 360, [14]. There is no requirement for the demonstration of a prima facie case of liability against the persons whom are the subject of an investigation, and nor is there any requirement for ASIC to establish a threatened disposition of assets: Australian Securities and Investments Commission v Carey (No 3) (2006) 232 ALR 577, [26]. This section effectively preserves the status quo pending the completion of the investigation, and that necessarily assumes the power will exist even though the evidence necessary to establish liability has not been collected and the liability has not been established: Carey (No 3), [26].

24    The section enables ASIC to obtain orders, in the absence of a significant risk of dissipation, where it seeks asset preservation in the pursuit of its public interest role and the wider public interest considerations of protecting the interests of creditors, contributories and the public: Australian Securities and Investments Commission v Adler (2001) 38 ACSR 266, [7(c)].

25    Although the nature of the relief which the Court might grant is discretionary, a principled approach to its exercise necessitates that the severity or intrusiveness of the orders made is appropriate and proportionate to the risks which the evidence identifies. Whilst, the appointment of receivers may well be necessary for the protection of assets for the benefit of aggrieved persons who might subsequently have recourse to them: Australian Securities and Investments Commission v Burke [2000] NSWSC 694, [6]; generally a Court would only make such orders where the circumstances warrant such a drastic imposition on the rights of the parties. If restraining orders can be seen to be an adequate protection of the assets in question then there would appear to be no justification for the appointment of receivers and managers. That is a reflection of the requirement that the power may only be exercised if the orders to be made are considered to be necessary or desirable: Australian Securities and Investments Commission v Krecichwost (2007) 64 ACSR 411, [32]; and Australian Securities and Investments Commission v CFS Private Wealth Pty Ltd (2018) 129 ACSR 171, [39].

26    Nevertheless, the overriding concern is the protection of assets for those who might have recourse to them, and where there has been misappropriation of property, some inclination towards the appointment of a receiver and manager must exist: ASIC v Adler, [7(b)]. Similarly, where those in possession of the funds of other persons are shown to have acted incompetently or with an underdeveloped sense of trusteeship or fiduciary duty, the appointment of receivers and managers may be appropriate to protect the loss of assets from incompetence.

27    ASIC also relies upon s 1101B of the Act, which authorises the Court to make orders on an application for ASIC if it appears that a person has contravened a provision of Chapter 7 of the Act or any other law relating to dealings in financial products or providing financial services. The orders which the Court may make under that section are identified in subs (4), which includes:

(a)    an order restraining a person from carrying on a business, or doing an act or classes of acts in relation to financial products or services, if the person has persistently contravened or is continuing to contravene a provision or provisions of Chapter 7 or any other law relating to dealing in financial products or providing financial services (see s 1101B(4)(a));

(b)    an order restraining a person from acquiring, disposing of or otherwise dealing with any financial products that are specified in the order (see s 1101B(4)(e));

(c)    an order restraining a person from providing any financial services that are specified in the order (see s 1101B(4)(f));

(d)    an order appointing a receiver or property of a financial services licensee (see s 1101B(4)(g)).

28    ASIC further relies upon s 1324(1) of the Act, which provides:

(1)    Where a person has engaged, is engaging or is proposing to engage in conduct that constituted, constitutes or would constitute:

   (a)    a contravention of this Act; or

   (b)    attempting to contravene this Act; or

(c)    aiding, abetting, counselling or procuring a person to contravene this Act; or

(d)    inducing or attempting to induce, whether by threats, promises or otherwise, a person to contravene this Act; or

(e)    being in any way, directly or indirectly, knowingly concerned in, or party to, the contravention by a person of this Act; or

   (f)    conspiring with others to contravene this Act;

the Court may, on the application of ASIC, or of a person whose interests have been, are or would be affected by the conduct, grant an injunction, on such terms as the Court thinks appropriate, restraining the first‑mentioned person from engaging in the conduct and, if in the opinion of the Court it is desirable to do so, requiring that person to do any act or thing.

29    Under subs (4), the Court may grant an interim injunction pending the determination of the application. Under subs (3), a Court may grant an interim injunction where the parties consent even though the Court is not, itself, satisfied that the power exists.

30    The power to enjoin conduct granted under s 1324 is not constrained by the considerations applicable to the equitable power of the Court. However, those principles will necessarily inform the Court in reaching a state of satisfaction that the interests of justice require that the restrictions be imposed at a point in time prior to the opportunity of the Court to examine all of the evidence available.

Consideration

The appointment of receivers

31    On the day of the hearing of the application, 10 December 2019, the solicitors for the second, third, fifth, sixth and seventh defendants indicated that the third, fifth, sixth and seventh defendants did not oppose the making of the orders sought by ASIC. Nevertheless, the Court must be satisfied that it ought to exercise the power in the circumstances arising on the material before it.

32    Secure Investments opposed the making of the orders sought against it, which were the appointment of receivers to its property or, alternatively, asset preservation orders. The second defendant, MyWealth Protection, adopted Secure Investments’ submissions, to the extent to which they applied, mutatis mutandis, to it. The substance of those submissions was essentially that there are no investigations into those entities which enliven the Court’s power to make orders under s 1323. In this respect, one difficulty which faced MyWealth Protection and Secure Investments was that, subsequent to the filing of written submissions by Secure Investments, Mr Nicholson made his further affidavit deposing as to the conducting of an investigation in relation to the activities of the two companies. There was no application by Ms Folie for Secure Investments to cross-examine Mr Nicholson, and his evidence must be accepted for what it says. Ms Folie’s submission was, somewhat astutely, that, even if Mr Nicholson’s evidence is fully accepted, it does not satisfy the requirements which enlivens s 1323.

Is s 1323(1) satisfied?

33    At paragraph 5 of his affidavit affirmed on 13 November 2019, Mr Nicholson deposed that, on 17 June 2019, ASIC commenced formal investigations into the activities of Mustafa, Mahek, Mubashir, MyWealth Manager and 3M Financial Planning. The activities into which the investigation is being conducted, prima facie, constitute contraventions of the Act, including operating an unregistered managed investments scheme contrary to s 601ED and engaging in the provision of financial services without being authorised to do so, contrary to s 911A. At the very least there is a reasonable suspicion or reasonable probability that the activities can be characterised as contravening conduct. The power has been enlivened in relation to those entities.

34    As previously mentioned, MyWealth Protection and Secure Investments were, at the time of the commencement of the initial investigation, not identified as entities involved in the apparent managed investment scheme. In his latest affidavit, Mr Nicholson deposed to the facts which show that ASIC is now investigating certain acts of Secure Investments and MyWealth Protection in relation to the unregistered managed investment scheme.

35    It was ascertained that, between 12 December 2016 and 28 February 2017, Secure Investments had received into its account numerous deposits from the SMSF of Mr and Mrs Soler totalling $240,000. Mr and Mrs Soler were not aware of the transfers to the company. It was also ascertained that it received other sums from the SMSFs of other clients of 3M Financial Planning. Mr Nicholson gave evidence in relation to the circumstances in the following terms:

6. At this stage, being late July 2019, I formed a suspicion that Secure Investments might be involved in the financial services provided by, and/or the business conducted, by the other Defendants.

36    His suspicion as to the level of involvement of Secure Investments was further enhanced by evidence given in the examination of Mubashir, the brother of the company’s director, who did not understand why that company was receiving investors’ funds. Mr Nicholson said that he later asked other persons about the involvement of Secure Investments and, in relation to that, he deposed:

9. I did so because I had by this stage formed the view that Secure Investments was likely involved in the unregistered managed investment scheme that I believed the other Defendants were operating.

37    As part of his investigation Mr Nicholson caused an investigator to undertake an analysis of the account statements of Secure Investments bank account and issued notices to the Commonwealth Bank for updated statements.

38    Mr Nicholson did not specify the acts of Secure Investments from which he formed the view that it was “involved in” the financial planning activities of the other defendants, nor the acts through which Secure Investments was involved in the managed investment scheme he believed the others were operating. He also did not specify the nature of any such involvement.

39    The circumstances surrounding ASIC’s concerns in relation to MyWealth Protection and the consideration of its involvement have been referred to above, however, Mr Nicholson also did not specify the nature of the acts of MyWealth Protection into which he investigated and nor how they related to the contravening conduct of the other defendants.

Have the preconditions to the exercise of the discretion been satisfied?

40    The first issue requiring consideration is whether the preconditions, on which the power of the court to appoint receivers and managers depends, have been satisfied. There are surprisingly few authorities which have considered this topic, and the researches of counsel were only able to identify the two discussed below.

41    It would appear that there are three preconditions which must all be satisfied before the court can exercise the power to grant relief under s 1323. The first is that one of the matters in sub-paragraphs (a), (b) or (c) is satisfied. The second, in adumbrated terms, is that the court “considers it necessary or desirable” to make an order under the section for the purposes of protecting the interests of an aggrieved person to whom the relevant person is, or may be or become, liable. There is little doubt that the matters which the court considers in ascertaining whether it has reached the required state of mind and the matters which are the subject of the discretion will overlap to a not inconsiderable degree. The third is that ASIC or an aggrieved person has made the relevant application.

42    In this matter, attention was focused upon the first of the above conditions and, in particular, sub-paragraph (1)(a) of s 1323. That subsection requires that:

(a)    an investigation is being carried out under the ASIC Act or the Act;

(b)    which is in relation to an act or omission by the “relevant person”; and

(c)    the act or omission is one that constitutes or may constitute a contravention of this Act;

43    It was not suggested that the act or omission on which the first precondition is founded need necessarily be the event on which the liability will arise as relevant to the second precondition, either solely or with other acts or omissions. That is an open and interesting question, but it does not need not be considered in this matter.

44    Although some attention was given to the statements of Mr Nicholson as to the direction of ASIC’s investigations and his suspicions, the relevant precondition is objective, in the sense that it is not one founded upon ASIC’s state of mind or belief. The answer to the question of whether an investigation is being carried out “in relation to” a relevant act or omission may no doubt be assisted by evidence of ASIC’s intention or purpose, but such evidence is not determinative. The question must always be answered by a consideration of all of the available evidence which demonstrates the circumstances of the investigation.

45    It should also be observed that s 1323 does not require ASIC to have a suspicion or belief or other state of mind as to whether the act or omission “constitutes or may constitute a contravention” of the Act or of the ASIC Act. Although s 13 of the latter Act requires that ASIC have a suspicion that, inter alia, a contravention of the corporations legislation has occurred before undertaking an investigation, once that state of satisfaction is reached ASIC may make any investigation which it considers expedient. Here it suspected a contravention of Part 5C and, with that foundation, it was entitled to investigate the conduct of the defendants, including Secure Investment and MyWealth Protection. Relevantly, the question is whether the investigation into those entities enlivens the powers in s 1323.

46    In her very able submissions Ms Folie, for Secure Investments, referred to the decision of the Full Court of the Western Australian Supreme Court in Connell v National Companies and Securities Commission (1989) 1 ACSR 193, which considered the progenitor provision of s 1323(1), being s 573(1) of the Companies (WA) Code. There, the scope of the earlier provision’s similar introductory words was examined. Malcolm CJ rejected the proposition that the power granted by the section could be enlivened where an investigation had been commenced in relation to an alleged or a suspected act or omission. His Honour, at 200, opined that the section required more than an investigation into whether the entity in question had done the act or made the omission. Ms Folie relied on the passage from 200 to 201 which reads:

The purpose of s 573(1) would seem to be to enable interim and substantive orders to be made for the protection of creditors or shareholders to whom the relevant person may be or become liable. Paragraph (b) or (c) may be invoked where criminal or civil proceedings have been instituted. Paragraph (a) may be invoked before proceedings have been instituted, but where matters have reached the stage where a particular person may be shown to have done an act or made an admission that constituted or may constitute an offence under the Code. Hence it may be established that company director X has signed a cheque in favour of company Y on the account of company Z. If the circumstances surrounding the doing of that act might create reasonable grounds for suspecting a breach of s 229 of the Code, there are circumstances in which the doing of that may constitute an offence. Until the investigations have reached that stage, there is no justification for invoking the wide power in s 573(1) to ensure that the status quo is preserved. The adoption of this approach to the construction of para (a) gives some purpose to the use of the word “being”. If that word merely meant “which”, it could be argued that it was not necessary to establish by evidence, even on a prima facie basis, the existence of an act or omission.

47    In his reasons, Kennedy J (at 211) focused attention on the requirement in sub-paragraph (a) to establish that the act or omission had actually occurred. It was not enough for an investigation to have been commenced to ascertain whether a person had committed an act or omission:

In my opinion, it is not sufficient to satisfy s 573(1)(a) that an investigation is being undertaken in order to ascertain whether any offence has been committed against the Code. Such an investigation is not, in terms of s 573(1)(a), “an investigation … in relation to any act or omission by a person, being an act or omission that constitutes or may constitute an offence against this Code”. Had that been the intention of the provision, it would have been a simple matter to have said so in terms. It appears to me that, in order to fall within para (a), the investigation in question must relate to identifiable acts or omissions which constitute, or which may constitute, an offence against the Code. This is made sufficiently clear, in my view, by the words “in relation to any act or omission by a person, being an act or omission that constitutes or may constitute an offence against this Code” and, in particular, by the use of the words “being an act or omission”. In paras (b) and (c), the relevant acts and omissions will inevitably be identified, and, as it seems to me, they should also be identified under para (a) if the very wide powers under the section are to be invoked.

48    The import of the Chief Justice’s reasons concerned the essential requirement that there had be an act or omission which “constitutes or may constitute a relevant contravention”. The expression “may” was identified as meaning that, in the circumstances surrounding the act or omission, it could be reasonably suspected that a relevant contravention had occurred. In other words, his Honour construed the section such that it did not apply where there was only a mere possibility that the act or omission in question constituted a contravention. The Court was not required to be satisfied that the act or omission amounted to a contravention, but the circumstances had to be such that there was something of a realistic possibility that it would do so.

49    This construction is coherent with the serious consequences which flow from the satisfaction of the preconditions to the exercise of power. Orders which might have a singularly severe impact on a person or company can be made, and the power should only be enlivened when an appropriate level of satisfaction has been reached that contravening misconduct has occurred. This is also consistent with the alternative requirements in sub-paragraphs (1)(b) and (c), which require the commencement of a prosecution or civil proceedings for the satisfaction of the precondition. Where either of those matters has occurred it can be expected that a sufficient degree of evidence has been amassed in support of the acts or omissions of which complaint is made.

50    Ms Folie also relied upon the decision of Jessup J in Australian Securities and Investments Commission v Wong [2010] FCA 649. There ASIC had commenced an investigation into a Mr Wong, who was a director of a company, Wintech Group Ltd (Wintech), in relation to alleged contraventions of the Act. The investigations concerned the director’s management of Wintech. ASIC also sought orders under s 1323 against a Ms Choi, who was described as Mr Wong’s girlfriend. It was alleged that she had assisted him in the management of the company and had received payments of company money from him. Jessup J held (at [13]) that an order could only be made under the section “with respect to the person whose act or omission (being one that constitutes or may constitute a contravention of the Corporations Act) is the subject of the plaintiff’s investigation”. His Honour added (at [15]):

[15] Although it seems, from the terms of s 13 of the ASIC Act, that the plaintiff may commence an investigation with relatively little formality, nonetheless such a step must be a considered one, and may be taken only where the plaintiff has reason to suspect that a contravention of certain legislation may have been committed. The existence of an investigation has certain important consequences under the ASIC Act, such as the activation of the examination provisions of Div 2 of Part 3. I must assume that the plaintiff’s decision of 7 December 2009 to commence the subject investigation was a considered one, and that, consistently with s 13 of the ASIC Act, attention was given to those provisions of the Corporations Act, in relation to possible contraventions of which the investigation was appropriate. Those provisions did not include s 181.

51    If what is intended to be said there is that, in order for a person to be the subject of an order under s 1323, ASIC must have commenced an investigation under s 13 with respect to their contravention, I would not necessarily agree. Section 13 provides the entitlement of ASIC to commence investigations where there exists a suspicion that a relevant contravention has occurred. However, that does not mean that only persons who may have committed the breach which triggered the investigation can be the subject of an order under s 1323 and then only in relation to that breach.

52    Nevertheless, s 1323 requires that ASIC is investigating an act or omission by the relevant person which constitutes or may constitute a contravention of the Act. In the matter before Jessup J, ASIC was not able to identify the act or omission of Ms Choi which had that character. Primarily, that was because the contraventions related to the management and control of Wintech and there was nothing to suggest that Ms Choi was in a position to engage in such activities.

The circumstances of the present case.

53    In support of its claim against Secure Investments and MyWealth Protection, ASIC relied upon the receipt of the significant funds by those companies from the clients of Mcube Planners or from MyWealth Manager and, in the case of Secure Investments, the subsequent dissipation of those funds to Mustafa.

54    In the course of submissions, Ms Freeman for ASIC was unable to identify any contravention of the Act which the actions of the two companies may have constituted. Reference was vaguely made to s 601ED and the requirement for the registration of managed investment schemes. It seemed to be suggested that the scheme identified by ASIC was not registered and, therefore, anyone who operated it was contravened s 601ED(5). However, even assuming that there exists a managed investment scheme of the type articulated, there is nothing to suggest that Secure Investments or MyWealth Protection had any involvement in it. Certainly it was not suggested that the transfer of “investor” funds to the two companies was part of the scheme. To the extent to which a scheme existed, the accumulated funds were for investment purposes and not for being given away to third parties. Rather than being a constituent part of the operation of the scheme, the receipt of money by Secure Investments or MyWealth Protection was conduct inconsistent with it. In this sense the circumstances surrounding the receipt of funds by the Secure Investments or MyWealth Protection do not establish that the receipt may have constituted a contravention of s 601ED. Insufficient facts have been established to show that there exists a reasonable probability or reasonable suspicion that the receipt of funds amounted to or could amount to the operation of the unregistered managed investment scheme.

55    Reference was also made to an alleged contravention of s 911A of the Act, on the basis that neither Secure Investments nor MyWealth Protection held a relevant AFSL and nor were they authorized representatives with authority to operate or deal with interests in a managed investment scheme. However, the same difficulties confront ASIC in relation to this alleged contravention. There is no suggestion arising from the evidence that either company operated the alleged managed investment scheme or dealt in interests in it. There was no suggestion that it provided any financial services to any of the alleged members of the scheme. Again, the circumstances do not warrant the conclusion that the receipt of funds by either company or the subsequent disposal of them may have constituted a contravention of the Act. Just how it might be said that either company contravened s 911A was left unexplained.

56    Ms Freeman then sought to rely upon s 79 of the Act, on the basis that Secure Investments or MyWealth Protection were somehow knowingly involved in the contraventions of the other entities in the operation of the managed investment scheme or, perhaps, engaging in the provision of financial services without an authorising AFSL. However, no attempt was made to identify any evidence which suggested that Secure Investments had any knowledge of the acts constituting the operation of the managed investment scheme or the provision of financial services. Establishing such knowledge would be essential for the making of a successful claim that it had been “concerned” in the alleged contravention: Yorke v Lucas (1985) 158 CLR 661; Gore v Australian Securities and Investments Commission (2017) 249 FCR 167. The absence of such evidence renders the acts of Secure Investments, on which ASIC rely, sterile in the context of s 1323(1)(a).

57    As Mustafa was the sole director of MyWealth Protection it should be accepted as being probable that was aware of the facts constituting the contravening conduct of the other defendants. However, there is nothing to suggest that its actions in receiving funds from MyWealth Manager was part of or related to the contraventions on which ASIC relied.

Section 1323 does not apply to Secure Investments or MyWealth Protection

58    It follows that ASIC has not established that the precondition in s 1323(1)(a) has been satisfied in relation to the relief sought against Secure Investments or MyWealth Protection. In those circumstances, to the extent to which relief is sought under s 1323 against those parties, the interlocutory application must be dismissed.

59    In relation to Secure Investments, no other relief was sought and the interlocutory application must be dismissed against it. Relief was sought against MyWealth Protection under s 1101B(1) and s 1324 in relation to the alleged contraventions concerning the operation of a managed investment scheme and the provision of financial services. However, as is indicated above, there is a paucity of evidence suggesting that it had any involvement in those activities. It follows that the application must be dismissed against it as well.

60    It should be mentioned that whilst the power of the Court sought to be invoked against Secure Investments or MyWealth Protection was not available, it does not follow that ASIC might not be entitled to advance other remedies against those two companies. It is apparent that they were the recipients of a large amounts of money which had been derived from investors in the scheme who were clients of 3M Financial Planning. The evidence now establishes a strong prima facie case that the funds were being misappropriated by those operating the financial planning business and the scheme. Neither entity has adduced any evidence whatsoever to explain the receipt by them of those funds. There is no suggestion that either lacked the opportunity to adduce evidence as to the circumstances of its receipt of the funds. They produced no witness to depose to those circumstances. They produced no document which evidences the reasons for the transfers. It can be inferred that there was no document or witness which would throw light on the circumstances. On the present evidence before the Court they appear to be, at least, the unauthorised repositories of the investors’ funds.

61    Despite what appears to be concerning conduct by Secure Investments or MyWealth Protection, albeit not yet explained, the Court lacks the power to appoint receivers or to grant any lesser remedy on the present application.

Application of s 1323 with respect to the other defendants

62    The first defendant did not appear at the hearing of the application, although orders continue to be sought against it. The third, fifth, sixth and seventh defendants did not oppose the making of the orders sought by ASIC in the interlocutory application. That is not surprising, as the position of other defendants is quite different to that of Secure Investments or MyWealth Protection.

63    ASIC has established, through the latest affidavit of Mr Nicholson, that it is currently carrying out investigations in relation to the acts of MyWealth Manager, 3M Financial Planning, Mustafa, Mahek and Mubashir, which may constitute a contravention of the Act by their involvement in the operation of an unregistered managed investment scheme and by the conduct of unauthorised dealing in interests in a managed investment scheme.

64    On the evidence before the Court, there are special or exceptional circumstances which warrant the making of orders appointing receivers and managers to the assets of the defendants. Those factors include:

(a)    The apparent existence of a managed investment scheme whereby investor funds are aggregated for the purposes of investment so as to provide a return to them. The number of investors apparently exceeds 20. Indeed, there appear to be more than 50 persons involved.

(b)    The managed investment scheme appears to have been promoted by Mustafa, Mahek and Mubashir through their associated entities, MyWealth Manager and 3M Financial Planning. Although the evidence at present is somewhat thin in parts, there is sufficient to establish a reasonable probability or suspicion that the arrangement or scheme which was put in place meets the requirements of the definition of managed investment scheme. In broad terms, the clients of 3M Financial Planning were induced to establish SMSF’s which would then advance money to MyWealth Manager for investment in, inter alia, property, for returns, and they were not to have day-to-day control over the operation of the scheme.

(c)    The evidence suggests that those involved in the scheme have targeted the more vulnerable people in society based upon their circumstances, faith or ethnicity.

(d)    The evidence also establishes that significant funds have been amassed by the promoters and operators of the scheme but that none of it appears to have been invested in accordance with the objects of the scheme.

(e)    The managed investment scheme was not registered and its operation was unlawful under s 601ED(5).

(f)    None of the defendants are authorised, either under an AFSL or as an authorised representative, to operate a managed investment scheme or to deal in interests in one.

(g)    More concerning, it appears that vast amounts of the funds amassed have been disbursed in a manner not contemplated by the scheme. Significant funds have been transferred overseas. Some has been dissipated and there is no accounting for it. Substantial funds have been received by Mustafa, Mahek and Mubashir for no apparent reason. In general terms there appears to have been substantial misappropriation of the funds.

(h)    It also appears that the scheme has provided fictitious statements to the investors indicating that returns were being received on their investments even though no such return had occurred.

(i)    Mustafa, Mahek and Mubashir seemingly caused substantial funds to be paid to Secure Investments or MyWealth Protection for no apparent reason other than to misappropriate them for their own benefit. Despite the opportunity to do so, the defendants have not sought to adduce any evidence seeking to dispel the inferences which arise from ASIC’s evidence.

(j)    The transfer of money through related companies such as Secure Investments and MyWealth Protection is suggestive of an attempt to conceal the identity of the ultimate recipients.

(k)    It is not irrelevant that Mustafa, Mahek and Mubashir have left Australia. Mubashir departed Australia, with no return ticket, on the day before the first return date of this application. None of them have indicated when or if they will return to this country. Information has been sought from those persons or some of them and it has not been forthcoming. It is possible to draw the inference that they will not assist ASIC’s investigations. They are all citizens of India and have previously held Indian passports. That is relevant to the injunction sought by ASIC restraining them from leaving Australia, if and when they return.

65    The above matters satisfy the requirement that the making of an order appointing receivers and managers to the property of the several defendants (other than Secure Investments or MyWealth Protection) is necessary or desirable for the purposes of protecting the interests of the investors to whom the several defendant are or may be or become liable. It can be readily accepted that the appointment of receivers is a drastic step and the power to do so ought to only be exercised in special or exceptional circumstances, in the sense that something out of the ordinary has occurred. However, here the appointment is appropriate. The major factor supporting this conclusion is the existence of a strong prima facie case that the persons and entities have been engaged in securing funds from persons by promoting an unregistered managed investment scheme, and that rather than using the funds collected to make investments, they have dissipated them in a manner not contemplated by the scheme. Indeed, on the material presently available, there is more than a reasonable argument that the funds have been misappropriated by the individuals operating the scheme. This necessarily gives rise to a well-established concern that, were the defendants’ assets to remain in their hands, there would be a real risk that they would be dissipated so as to defeat the interests of the investors: Australian Securities and Investments Commission v Banovec (No 2) [2007] NSWSC 961, [38].

66    It is also not irrelevant that the investors were clients of 3M Financial Planning and, it might be assumed they relied upon the advice given by it and its servants or agents. In particular, Mubashir provided the advice to the clients to establish SMSFs and to “invest” funds in MyWealth Manager. Although Mubashir owed his clients fiduciary duties, amongst other duties, the evidence presently indicates that he breached those obligations by advising them to invest in a scheme through which he would personally profit. The evidence also strongly suggests that the scheme was promoted and advanced by Mustafa, Mahek and Mahek for their own benefit.

67    ASIC has established that the appointment of receivers to the property of the first, third, fifth, sixth and seventh defendants on an interlocutory basis is appropriate, and none of them made any submission to the effect that such orders should not be made. The third, fifth, sixth and seventh defendants did not oppose the making of the orders.

68    The actual or real directors of the company are out of the country, and it is not known if they will return. That is a further substantial reason for appointing receivers to the companies’ property, such that it can be protected and conserved.

Asset preservation orders

69    ASIC sought asset preservation orders under s 1323 as an alternative to the appointment of receivers. There is no express power under that section to make such orders, but the combination of the power granted by that section and s 23 of the Federal Court of Australia Act 1976 (Cth) operating as an aid of it establishes a jurisdictional foundation for making them. Such orders are, however, derivative upon the court being satisfied that a basis exists for making orders in s 1323. Once so satisfied, it can make the less invasive order which may be more appropriate: Australian Securities and Investments Commission v Carey (No 14) [2007] FCA 310, [31].

70    However, as it has been determined that the appointment of receivers is appropriate in respect of the first, third, fifth, sixth and seventh defendants it is not necessary to consider whether asset preservation orders should be made. In any event, given the seriousness of the conduct in question, no lesser orders ought to be made.

71    As the foundation for orders against the second and fourth defendants was not established, there is no ability to rely upon s 23 as an independent source of power to make asset protection orders.

Books and records

72    The evidence adduced by ASIC establishes that the receivers appointed pursuant to the orders of Reeves J on 21 November 2019 have had substantial difficulties in accessing the books and records of the first, third, fifth, sixth and seventh defendants. The receivers are entitled to require a person to report to him or her regarding the affairs of the corporation and also to inspect the books of the corporation: ss 430 and 431 of the Act. In these circumstances orders are sought obliging the defendants to deliver up their books and records insofar as they relate to the alleged managed investment scheme. Such an order is ancillary and in aid of the orders appointing the receivers on an interlocutory basis under s 1323, such that s 23 of the Federal Court Act authorises the making of such an order.

73    There is no reason why these orders should not be made and no submission was made to the contrary. It is appropriate that the orders be made to facilitate the objectives of the receivers in preserving the assets of the defendants for the future.

Restraints against engaging in financial services

74    ASIC also seeks orders restraining the first, third, fifth, sixth and seventh defendants from engaging in the provision of financial services. In this respect reliance is placed on s 1101B of the Act, which is set out above.

75    The above discussion reveals that the evidence on which ASIC relies is sufficient to establish a prima facie case that the identified defendants have engaged in a contravention of s 911A, in that they carried on a financial services business without holding an AFSL covering the provision of the financial services. It was also submitted that there is a prima facie case that the defendants engaged in dishonest conduct in the course of carrying on a financial services business, in contravention of s 1041G. On the evidence which has been set out above, that submission should be accepted. Although the defendants promoted and operated the identified scheme, it appears that they engaged in large-scale misappropriation of the funds.

76    Both s 911A and s 1041G are within Chapter 7 of the Act, and therefore the power under s 1101B is enlivened. The risk to members of the public which would arise if the defendants continued to engage in the provision of financial services is obvious. On the material before the Court the scheme was still receiving funds from investors as late as October 2019, and that indicates that the defendants are continuing to operate it.

77    In the result, orders ought to be made restraining the defendants from engaging in the provision of financial services or promoting the scheme pending the final hearing of this matter. The orders sought by ASIC in this respect are appropriate.

78    Again, it is to be recalled that the relevant defendants made no submissions in opposition to these orders.

Travel restrictions

79    ASIC seeks interlocutory orders pursuant to s 1323(1)(k) restraining the seventh defendant from leaving Australia. However, as mentioned earlier, Mubashir departed Australia on the day prior the urgent hearing before Reeves J. He has not returned since and his solicitor adduced no evidence that he would be returning.

80    It is apparent from the submissions filed in this action that ASIC seeks to restrain the fifth, sixth and seventh defendants from departing Australia once they have returned here. Ordinarily, it can be accepted that such orders ought to be made with caution, as they restrict a person’s freedom to travel. However, these defendants did not oppose the making of the orders, and that is significant.

81    Those orders are appropriate. The allegations against the three individuals are very serious and they are being investigated under the Crimes Act. To date they have been singularly unhelpful to the interim receivers which is, perhaps, indicative of their attitude towards the investigation. The books and records of the scheme and the company businesses are inadequate and the receivers will require assistance in recovering any assets and restoring the books and records to an appropriate state. It is also relevant that these defendants have dual citizenship and have previously travelled regularly abroad.

82    In these circumstances it is appropriate that the orders sought by ASIC in this regard be made.

Conclusion

83    From the above it follows that orders should be made appointing receivers to the property of the first, third, fifth, sixth and seventh defendants and that those persons and entities be restrained from engaging in the provision of financial services or conducting a managed investment scheme. These defendants should also be required to deliver up all relevant books and records to the receivers. On their return to this country the fifth, sixth and seventh defendants should be restrained from departing until after the trial of the action or further earlier order.

84    The form of the orders against the first, third, fifth, sixth and seventh defendants are set out at the commencement of these reasons.

85    Otherwise, the interlocutory application against the second and fourth defendants must be dismissed.

Associate:    

Dated:    13 December 2019

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