FEDERAL COURT OF AUSTRALIA

Australian Securities and Investments Commission v Marco (No 6) [2020] FCA 1781

ORDERS

THE COURT NOTES THAT:

A.    For the purposes of these orders, ‘the Scheme’ means the managed investment scheme operated by the each of the defendants, whereby between 1 January 2014 and 31 October 2018:

(a)    the first defendant obtained moneys from investors;

(b)    the first defendant pooled the moneys in bank accounts, including the following accounts:

(i)    Westpac Banking Corporation – BSB 036406, Account number 239817;

(ii)    Westpac Banking Corporation – BSB 037131 Account number 684106;

(iii)    Westpac Banking Corporation – BSB 037 131 Account number 693360;

(iv)    Westpac Banking Corporation – BSB 037 165 Account number 857175; and

(v)    Westpac Banking Corporation – BSB 736 053 Account number 654708;

(c)    the first defendant represented and/or agreed with investors that the moneys were to be used as a proof of funds for investments and/or to fund investments;

(d)    the first defendant represented and/or agreed with investors that in return for advancing funds, investors would receive a right to interest payments;

(e)    the first defendant was to use the moneys as proof of funds for investments and/or to fund investments, with a view to generating a profit out of which interest payments were to be paid to investors;

(f)    the first defendant transferred moneys to the second and/or third defendants with a view to purchasing real and/or personal property;

(g)    the real and/or personal property of the second and/or third defendants purchased with the moneys that were transferred was to be available to meet liabilities to investors;

(h)    the first defendant, second defendant and/or third defendant transferred, or expended moneys obtained from investors for private gain and/or for the private gain of related parties or associates; and

(i)    the investors did not have day to day control over the use of the moneys.

THE COURT DECLARES THAT:

1.    Each of the defendants, by investing client funds with the intention of generating a financial return, contravened the provisions of section 911A of the Corporations Act 2001 (Cth) (the Corporations Act) in that each carried on a financial services business without holding an Australian Financial Services Licence in the period between at least 1 January 2014 and 31 October 2018.

2.    Each of the defendants operated the Scheme in contravention of section 601ED(5) of the Corporations Act, in circumstances where the Scheme was required to be registered under section 601EB of the Corporations Act in the period between at least 1 January 2014 and 31 October 2018.

THE COURT ORDERS THAT:

Receivership appointment orders

1.    Pursuant to section 1101B(1) of the Corporations Act, Mr Robert Michael Kirman and Mr Robert Conry Brauer of McGrathNicol, Level 19, 2 The Esplanade, Perth, Western Australia, be appointed as joint and several receivers and managers (Receivers), without security, of all property (as defined in the Corporations Act), whether within or outside the State of Western Australia, of:

(a)    the first defendant and second defendant;

(b)    the third defendant immediately prior to the appointment of voluntary administrators to the third defendant; and

(c)    the Scheme,

together, the Property.

2.    To the extent that it has not already occurred, each of the first defendant, the second defendant and the third defendant are to immediately give over possession of all their property (as defined in the Corporations Act), whether within or outside the State of Western Australia, together with all books and records relating to that property, to the Receivers.

3.    The Receivers have the following powers:

(a)    the power to do all things necessary or convenient to be done, in Australia and elsewhere, for or in connection with, or as incidental to the attainment of the objectives for which the Receivers are appointed including, without limitation, for the identification, preservation and securing of all of the Property for the benefit of creditors;

(b)    the powers under section 1101B(8) of the Corporations Act;

(c)    the powers set out in section 420 of the Corporations Act provided that wherever in that section the word ‘corporation’ appears, it shall be taken to refer to the first defendant, the second defendant, the third defendant and the Scheme; and

(d)    the power to require, by request in writing, the first defendant and any employee, agent, banker, solicitor, stockbroker, accountant, consultant or other professionally qualified person who has provided services or advice to the first defendant, the second defendant or the third defendant to provide such reasonable assistance (including access to any documents, books or records to which the first defendant has a right of access or control) to the Receivers as may be required from time to time.

4.    Upon being called upon to do so, the Receivers must deliver up that part of the Property that is property of the Scheme to the liquidators appointed under order 14 below.

Receivership remuneration and indemnity orders

5.    The Receivers shall be entitled to reasonable remuneration properly incurred in the performance of their duties arising in connection with their appointment and in the exercise of their powers as may be approved by the Court on the application of the Receivers, together with all costs, expenses and disbursements.

6.    The Receivers’ remuneration is to be calculated on the basis of time reasonably spent by the Receivers and any partner or employee of the firm to which the Receivers are attached, at the standard rates of the Receivers’ firm from time to time for work of that nature.

7.    The Receivers’ remuneration, costs, expenses and disbursements are to be paid from the Property.

8.    The Receivers be indemnified from the Property against any claim, liability, proceedings, cost, charge or expense however arising and whether past, present or future, fixed or ascertained, actual or contingent, known (actually or contingently) or unknown which they may incur or be subject to as a result of or in connection with their appointment.

9.    The above orders are not to affect the rights of any prior encumbrances over the Property, including the rights of any secured creditor.

10.    For the avoidance of doubt, the entitlement of the Receivers to be paid or indemnified from the Property under orders 7 and 8 is not restricted or in any way limited by whether they are acting as receivers of property of the first defendant, the second defendant, the third defendant or the Scheme and they are entitled to treat the Property as a single combined pool of property for those purposes.

Termination of Interim Receivership

11.    Immediately upon order 1 taking effect, the appointment of Mr Kirman and Mr Brauer as ‘Individual Receivers’ and as ‘Corporate Receivers’ pursuant to section 1101B(5) of the Corporations Act under orders 2 and 7 of the orders made on 27 May 2020 (the Interim Receivers) be terminated.

Windup up orders

12.    Pursuant to section 601EE(2) of the Corporations Act, the Scheme be wound up.

13.    Pursuant to sections 467B, 459B and 461(1)(k) of the Corporations Act, AMS Holdings (WA) Pty Ltd (ACN 164 700 485) be wound up.

14.    If and to the extent required, pursuant to section 532 of the Corporations Act, leave be granted for Mr Kirman and Mr Brauer be appointed as joint and several liquidators (the Liquidators) of:

(a)    the Scheme; and

(b)    AMS Holdings (WA) Pty Ltd (ACN 164 700 485).

15.    Upon the appointment of the Liquidators in accordance with order 14 above, the appointment of Cameron Shaw, Richard Albarran and Marcus Watters of Hall Chadwick as liquidators of the Second Defendant be terminated.

16.    The asset preservation orders made on 1 November 2018 be vacated on the later of the appointment of the Liquidators pursuant to order 14 and the appointment of Receivers pursuant to order 1.

17.    Pursuant to section 601EE(2) of the Corporations Act, and subject to any further orders of the Court:

(a)    the winding up of the Scheme be conducted as if the Scheme were a ‘company’ or ‘corporation’ for the purposes of the Corporations Act and the provisions of Parts 5.4B, 5.6, 5.7B and 5.9 of the Corporations Act and Schedule 2 to the Corporations Act (Insolvency Practice Schedule (Corporations)) applied to the winding up (with such modifications as are reasonably necessary in the circumstances);

(b)    the Liquidators of the Scheme have power to do, in Australia and elsewhere, all things necessary or convenient to be done for or in connection with the winding up of the Scheme, or incidental to the attainment of the winding up of the Scheme, including the functions and powers set out in Chapter 5 of the Corporations Act (as applicable) as if each reference there to a ‘company’ or ‘corporation’ was a reference to the Scheme (with such modifications as are reasonably necessary in the circumstances); and

(c)    without limiting the above, the Liquidators of the Scheme shall have the power to investigate or cause to be investigated any deficiency in the Scheme and to exercise the powers under Part 5.9 Division 1 of the Corporations Act as if the Scheme were a ‘corporation’ being wound up.

Liquidation remuneration and indemnity orders

18.    The Liquidators shall be entitled to reasonable remuneration properly incurred in the performance of their duties arising in connection with their appointment and in the exercise of their powers as may be approved by the Court on the application of the Liquidators, together with all costs, expenses and disbursements.

19.    The Liquidators’ remuneration is to be calculated on the basis of time reasonably spent by the Liquidators and any partner or employee of the firm to which the Liquidators are attached, at the standard rates of the Liquidators’ firm from time to time for work of that nature.

20.    The Liquidators’ remuneration, costs, expenses and disbursements are to be paid out of the assets of the Scheme.

21.    The Liquidators be indemnified from the assets of the Scheme (including the Property) against any claim, liability, proceedings, cost, charge or expense however arising and whether past, present or future, fixed or ascertained, actual or contingent, known (actually or contingently) or unknown which they may incur or be subject to as a result of or in connection with their appointment.

22.    The above orders are not to affect the rights of any prior encumbrances over the assets of the Scheme, including the rights of any secured creditor.

23.    For the avoidance of doubt, the entitlement of the Liquidators to be paid or indemnified from the assets of the Scheme under orders 19 and 20 is not restricted or in any way limited by whether they are acting as liquidators of the Scheme or AMS Holdings (WA) Pty Ltd (ACN 164 700 485) and they are entitled to treat the assets of the Scheme as a single combined pool of assets for those purposes.

Injunctive relief

24.    Pursuant to section 1324 of the Corporations Act, the first defendant be permanently restrained from:

(a)    carrying on a financial services business in Australia without holding an Australian financial services licence covering the provision of the financial services; and

(b)    operating an unregistered managed investment scheme in contravention of section 601ED(5) of the Corporations Act.

Costs

25.    The defendants pay the plaintiff’s costs of the proceedings, including the costs of the plaintiff’s interlocutory application filed on 12 December 2019 and ruled on in Australian Securities and Investments Commission v Marco (No 3) [2020] FCA 719, as taxed or agreed.

Miscellaneous

26.    The Receivers and/or Liquidators and other parties have liberty to apply on short notice, including as to termination of the Receivers appointed under order 1 above.

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

REASONS FOR JUDGMENT

TABLE OF CONTENTS

MCKERRACHER J:

OVERVIEW

1    By an amended originating process filed on 28 May 2020 (the Application), the plaintiff (ASIC) seeks certain orders against the first defendant (Mr Marco) and the second and third defendants (AMS) to address asserted contraventions of:

(a)    section 601ED(5) of the Corporations Act 2001 (Cth), which prohibits a person from operating a managed investment scheme that s 601ED(1) requires to be registered under s 601EB unless the scheme is so registered; and

(b)    section 911A of the Corporations Act, which requires a person who carries on a financial services business to hold an Australian Financial Services Licence (AFSL) covering the provision of the financial services.

2    Ultimately after many hearings, the liability issues were not seriously in dispute. The main debate on this hearing was in relation to the appropriate relief.

3    It is clear that one or more of the defendants have contravened each of s 601ED and s 911A of the Corporations Act.

4    ASIC initially contended that the Court should grant the relief sought in prayers 17 to 32 of the Application, which broadly consists of:

(a)    declaratory relief in respect of the contraventions outlined above (at [1]) pursuant to s 21 of the Federal Court of Australia Act 1976 (Cth);

(b)    orders for the appointment of receivers or trustees to the property of the defendants on a final basis pursuant to s 1101B(1) of the Corporations Act;

(c)    orders providing for the winding up of the unregistered managed investment scheme operated by the defendants and the appointment of liquidators pursuant to ss 601EE and 461(1)(k) of the Corporations Act;

(d)    an order pursuant to s 1324 of the Corporations Act providing for refunds to be made to investors;

(e)    final injunctions against Mr Marco pursuant to s 1324 of the Corporations Act restraining conduct in contravention of the provisions above (at [1]); and

(f)    publication orders pursuant to s 1324B of the Corporations Act.

5    There has been considerable debate (mostly but not exclusively from the defendants) as to the appropriate relief. Some concessions have been made by ASIC and the relief at [4(d)] is no longer pursued.

BACKGROUND

6    On 29 October 2018, ASIC commenced proceedings against the defendants and sought interim relief including asset preservation and disclosure orders. The Court made orders against the defendants pursuant to s 1323 of the Corporations Act on 1 November 2018, and ASIC’s investigations into the affairs of the defendants continued for the next 12 months.

7    On 12 December 2019, ASIC filed an interlocutory process seeking an order for the appointment of interim receivers over the property of the defendants and leave to file an amended originating process in the form of the Application.

8    On 27 May 2020, I made orders appointing Mr Robert Michael Kirman and Mr Robert Conry Brauer of McGrathNicol as Interim Receivers and granting ASIC leave to file the Application. I also ordered the Interim Receivers to provide a report to the Court that addressed a number of issues, including the identification of the assets and liabilities of the defendants, an opinion as to the solvency of the defendants, the likely return to creditors (including investors) in the event that any scheme operated by the defendants were to be wound up, and any other information necessary to enable the financial position of the defendants to be assessed. My reasons were published as Australian Securities and Investments Commission v Marco (No 3) [2020] FCA 719.

9    On 24 July 2020, the Interim Receivers filed an affidavit of Mr Brauer annexing a substantial and concerning report addressing the matters that were the subject of the 27 May 2020 orders (the Interim Receivers’ Report). That affidavit is currently before the Court.

10    On 7 August 2020, orders were made by consent to facilitate the provision of the Interim Receivers’ Report to the defendants’ investors. Those orders also established a timetable for the hearing of this Application for final relief.

11    In summary form, ASIC alleges that each of the defendants operated a Scheme whereby investors would execute a Declaration of Trust with Mr Marco by which he guaranteed very attractive returns on maturity of the investment. Mr Marco is said to have represented that his ability to generate high returns was due to his access to, and participation in, overseas ‘Private Placement Programmes’. In addition, the evidence to date has revealed that investor funds were used to purchase real estate and vintage cars by both Mr Marco and AMS, as well as in numerous related party transactions: Marco (No 3) (at [36]-[71]). At the time of delivering Marco (No 3), the evidence suggest that the result of these activities was that as many as 132 investors were owed at least $240 million: Marco (No 3) (at [113]). Since then, significant work has been undertaken by the Interim Receivers, and recently the Voluntary Administrators of AMS. While the precise figures have varied across the different analyses, they all confirm a significant shortfall in the hundreds of millions of dollars now owing to investors.

12    Due to the nature of the defendants’ submissions on the appropriate form of final relief, it is necessary to briefly address the position with respect to AMS. Mr Marco and his son, Mr Damon Marco are the Directors of AMS and Mr Marco is the sole shareholder. By a Trust Deed executed in July 2013, AMS became the trustee of the AMS Holdings Trust. It is in its capacity as trustee of the AMS Trust that AMS is also named as third defendant. The specified beneficiaries of the AMS Trust are Mr Marco and his wife. Mr Marco is also the appointor of the AMS Trust. On 24 September 2020, the Directors resolved to place AMS into voluntary administration. By operation of cl 16 of the Trust Deed, AMS ceased to be the trustee of the AMS Trust on the day it entered administration. As appointor, Mr Marco does not appear to have named a new trustee. As will be seen, much of the dispute about the final relief concerns AMS’ role in the contraventions that have been established essentially unopposed against Mr Marco. The interaction between ASIC’s Application and the administration of AMS has also raised additional issues.

13    At an adjourned second creditors meeting on 26 November 2020, AMS’ creditors resolved that AMS should be wound up, despite the recommendation of the Voluntary Administrators that a further amended Deed of Company Arrangement (DOCA) propounded by Mr Marco be approved. A significant contention for ASIC on the Application is that the Scheme and AMS be wound up and the Interim Receivers appointed as the liquidators. Upon the appointment of the Voluntary Administrators as Voluntary Liquidators of AMS only, ASIC filed an interlocutory application to the effect that, if successful in achieving the relief sought in the Application, that the Interim Receivers replace the Voluntary Liquidators as Court-Appointed Liquidators of AMS. In light of this, and further concerns on the part of ASIC that unnecessary expense would be incurred in the voluntary liquidation of AMS, I informed the parties that I would pronounce orders on the Application on 7 December 2020 and publish these reasons in due course. For convenience, and given the timing of events, the Voluntary Liquidators are referred to in these reasons primarily by their previous appointment as the Voluntary Administrators.

14    On 3 December 2020, a further application was filed by the defendants seeking variations to the asset preservation orders to permit payments by Mr Marco of significant sums for various legal fees and vehicle repairs. Over the course of the litigation, it has become a routine practice for variations to the asset preservation orders to be made by consent. It is clear that ASIC opposes this particular variation. In light of my decision to pronounce orders on ASIC’s Application on 7 December 2020 which terminate the asset preservation orders, it is unnecessary to deal with the substance of the dispute. The questions as to the appropriateness of expenses incurred by the defendants is now a matter for the liquidators of the Scheme.

THE EVIDENCE

ASIC’s evidence

15    In support of its Application, ASIC relies upon evidence provided by ASIC officers, four sample investors who contributed funds to Mr Marco, and forensic accounting experts employed by KPMG. It also tenders a number of business records. Certain objections were taken and resolved by consent, with ASIC making a number of concessions.

16    ASIC relies upon the affidavit evidence of three of its officers:

(a)    the affidavit of Ms Whee-Jong Michelle Lim (a senior lawyer employed by ASIC who was the project manager of the civil aspect of ASIC’s investigation) dated 24 August 2020 (the Lim Affidavit). Ms Lim’s evidence addresses investigations and enquiries undertaken by ASIC and the provenance of documents upon which ASIC relies, many of which are the subject of summaries provided in the Gomm Affidavit and Howman-Giles Report (referred to below);

(b)    the affidavit of Mr Richard Warren Gomm (a senior investigator employed by ASIC) dated 25 August 2020 (the Gomm Affidavit). Mr Gomm summarises the contents of voluminous documents obtained by ASIC, particularly bank statements. The summary addresses payments and receipts into and out of bank accounts associated with Mr Marco and AMS. Mr Gomm’s evidence also addresses in detail the process that he undertook in order to prepare his summary; and

(c)    the affidavit of Ms Kylie Lorraine Lethorn (an Analyst employed by ASIC) dated 21 August 2020. Ms Lethorn gives evidence regarding the preparation of a document titled ‘List of investors for KPMG’. That document was among the materials briefed to KPMG.

17    Additionally, ASIC reads the affidavits of four investor witnesses who give evidence about the circumstances in which they came to invest money with Mr Marco and the steps that were taken in order to formalise the investment. They are:

(a)    the affidavit of Mr Ross Edward Martin (a 69 year old self-employed homeopath who invested funds with Mr Marco) dated 15 August 2020 (the Martin Affidavit);

(b)    the affidavit of Mrs Lorraine Morrison (a 65 year old check-out operator and former teacher who invested funds with Mr Marco together with her husband Peter) dated 17 August 2020 (the Lorraine Morrison Affidavit);

(c)    the affidavit of Mr Peter John Morrison (a 67 year old compliance officer with the City of Bunbury who invested funds with Mr Marco together with his wife Lorraine) dated 15 October 2020 (the Peter Morrison Affidavit); and

(d)    the affidavit of Mr Michele Raffaele de Marte (a 53-year-old café and restaurant owner who invested funds with Mr Marco) dated 21 August 2020 (the de Marte Affidavit).

18    Those lay witnesses were not cross-examined once various objections were resolved.

19    ASIC also relies upon evidence provided by independent forensic accounting experts employed by KPMG. In particular, it read and relied upon:

(a)    an affidavit of Mr Luke Howman-Giles (a partner in the forensic division of KPMG) dated 24 August 2020. Mr Howman-Giles annexes an expert report (the Howman-Giles Report), which addresses a series of questions regarding the number of investors who provided funds to Mr Marco, how much money was contributed by investors individually and as a group, how much money was received by each investor, how much money is still owed to each investor, and how much money was paid to and from bank accounts associated with related parties. Mr Howman-Giles also prepared tables for a number of calendar years, and a particular period from 11 April 2017 to 10 April 2018, which identify investors, the amounts they invested, the dates they contributed funds, the interest rate that applied to the investment, the term of the investment and whether the investor contributed money to Mr Marco directly or on behalf of a third party; and

(b)    the affidavit of Mr Shaun Milligan (a former associate director in the forensic division of KPMG) dated 22 October 2020. Mr Milligan gives evidence about the conduct of certain data entry activities which informed the preparation of the Howman-Giles Report.

20    As is evident from the Lim Affidavit, many of the documents exhibited were obtained from the business records of Mr Marco or third-party financial institutions in response to compulsory notices issued pursuant to ss 19, 30 and 33 of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act). The material gives a proper basis for the Gomm Affidavit and Howman-Giles Report.

The Interim Receivers’ evidence

21    Various investors have contacted the Interim Receivers as a result of which they confirm the correctness of the substance of the Howman-Giles Report which concluded that there are 311 investors. The Interim Receivers did not undertake a complete reconciliation of all amounts which would be carried out by a court-appointed liquidator before any amount was formally admitted as a debt or until any distribution methodology was determined.

22    The Interim Receivers also otherwise confirm the conclusions in their Report as addressed in Australian Securities and Investments Commission v Marco (No 5) [2020] FCA 1512 where I said (at [8]):

On 24 July 2020, the Interim Receivers provided their report to the Court pursuant to the orders made on 27 May 2020 (the Interim Receivers’ Report). The Interim Receivers’ Report is annexed to the 2 October Lim Affidavit. Among other matters, the Interim Receivers’ Report made the following salient observations:

(a)    ‘Mr Marco has consistently stated in the Proceedings and in his dealings with the receivers that, in his view, he and AMS are in effect one and the same and should be viewed collectively as a representation of his business dealings. Mr Marco admits that all of AMS’ assets were purchased from investor funds provided to him’;

(b)    ‘with the exception of a $0.6 million business loan from Westpac (secured against a property located on McDonald Street West, West Osborne Park, Western Australia), all of AMS’ funding was via an undocumented, related party loan of investor monies from Mr Marco’;

(c)    ‘Mr Marco has informed the Receivers that there has been comingling of personal, investor and AMS funds in the bank accounts and that reconstructing separate accounts is unlikely to be possible’;

(d)    ‘The Receivers have not identified any evidence to suggest that AMS traded in its own capacity … Mr Marco has also stated that AMS undertook no activities in its own right’;

(e)    there were ‘limited records that have been maintained by Mr Marco to delineate between personal, investor or business funds’;

(f)    the Interim Receivers’ view of the estimated realisable value of Mr Marco and AMS’ net asset and liability position on a consolidated basis showed a high case scenario of a shortfall of $221,667,012 and a low case scenario of a shortfall of $362,605,964;

(g)    in the Interim Receivers’ view, investors were owed between $254.5 million (on Mr Marco’s records) and $381.9 million (if an approximation of additional interest accrued was included up to the date of their appointment);

(h)    the Interim Receivers’ analysis of the estimated realisable value of AMS’ assets included $237,400 in loans and $12,667,273 in property; and

(j)    the Interim Receivers’ analysis of the sources and uses of funds disclosed that ‘$18.4 million has been used to purchase, renovate or maintain property either directly by Mr Marco or indirectly by advancing funds to AMS or related parties’.

23    Since providing the redacted copy of the Interim Receivers’ Report to investors, various investors have contacted the Interim Receivers as a result of which there have been meetings and discussions. They were not identified by name but collectively represent approximately 49% of the total claims by investors and represent both small and large investors.

24    A number of common themes and concerns emerged from the separate meetings and discussions with these investors. The major matters which those investors who have contacted the Interim Receivers have raised are:

(a)    whether and which of the assets and property identified in the Interim Receivers’ Report will be available to meet the claims of investors;

(b)    whether there are any other assets or property available to meet the claims of investors which are not identified in the Interim Receivers’ Report (because they have not been located by the limited investigations conducted by the Interim Receivers to date);

(c)    whether any assets or property held in the names of parties related to or associated with the defendants which may have been originally acquired with investor funds are available to meet the claims of investors;

(d)    whether all available assets and property can be ‘wrapped’ or ‘pooled’ for the benefit of all investors, irrespective of whether they are presently held in the names of any one of the defendants;

(e)    the speed and timing of any distributions to investors;

(f)    the diversity of interests and views amongst the investors given that some are ‘Mum and Dad’ type investors who have potentially lost the majority of their retirement assets while others are more sophisticated investors who are financially less dependent on their potentially lost investments. It has been suggested that the former may prefer to receive distributions at the earliest opportunity, while the latter may prefer (or have a greater appetite) to wait to receive any distributions if that means an alternative, appropriate (and currently unidentified) plan to maximise investors’ distributions can be developed in some way;

(g)    how trust law principles apply and how the respective rights and entitlements of investors will be recognised and dealt with in any distribution. In particular:

(i)    Do all investors rank pari passu or will another approach to distribution be adopted such as that taken in Re Courtenay House Capital Trading Group Pty Ltd (in liq) [2020] NSWSC 780?

(ii)    Will investors who have already been paid amounts equivalent to all (or substantially all) of their initial capital investment (and so are really claiming promised returns on capital) be treated the same as investors who have not yet been paid any amounts to cover their initial capital investments, both in the context of voting and for the purposes of entitlements to distributions?

(h)    investors wish to be kept regularly informed and involved in any major decisions that affect their potential distributions;

(i)    avoiding or reducing unnecessary costs that do not benefit the investors; and

(j)    the ability to pursue recovery actions, but in consultation with investors given concerns about costs and timing.

25    A number of these themes and concerns were raised at the first meeting of creditors of AMS convened by the Voluntary Administrators and held on 7 October 2020. The Interim Receivers were represented at the meeting and addressed a number of these matters.

26    During various meetings and telephone discussions with various investors (and often their lawyers), the view has been expressed by the Interim Receivers that if a liquidator were appointed, a committee of creditors would probably be formed.

27    The appointment of Voluntary Administrators to AMS resulted in the Interim Receivers receiving a significant number of queries from investors.

28    The appointment of the Voluntary Administrators to AMS has also significantly increased the level of activity and involvement required by the Interim Receivers. At the time the Interim Receivers’ Report was submitted, the Interim Receivers had not anticipated that such a level of activity and involvement would be required.

29    The Interim Receivers have had to deal with and attend to a number of other matters since late July 2020. These matters have primarily related to monitoring the defendants’ property portfolio to ensure that rent continued to be received and that arrears were brought up to date, liaising with debtors regarding outstanding balances, attending to insurance matters and securing moveable assets such as the motor vehicles identified in the Interim Receivers’ Report, attending to matters arising from certain investor proceedings against the defendants (discussed further below), and dealing with issues in respect of expenses incurred by AMS including which of those would be met from the permitted weekly allowance of $2,750, and which would be met by the Interim Receivers. Prior to the appointment of the Voluntary Administrators, the Interim Receivers were concerned that not all funds from the permitted weekly allowance had been applied to expenses as required. Following the appointment of the Voluntary Administrators, the Interim Receivers informed Mr Marco that it was not appropriate for him to continue to incur or meet such expenses and that expenses would be managed by the Interim Receivers.

30    At the time of the appointment of the Interim Receivers, there were two sets of proceedings on foot involving claims by separate investors against one or more of the defendants. The Interim Receivers have had to attend to various matters arising from these two proceedings.

31    The first proceeding involved an appeal by the defendants against the decision of Tottle J in the Supreme Court of Western Australia in Markopoulus v Marco [2020] WASC 79 to the Court of Appeal of the Supreme Court of Western Australia in proceedings CACV 39 of 2020. The Interim Receivers have had to deal with the solicitors for the defendants, MGM O’Connor Lawyers Pty Ltd, about whether the appeal proceedings ought to be continued and whether and how they would be funded. On 13 August 2020, Mr Marco (as appellant) discontinued the appeal. On 31 August 2020, on the application of the plaintiffs in the primary proceedings, Tottle J made orders requiring Mr Marco to, amongst other things, provide an account of monies provided by the plaintiffs to him.

32    The second proceeding involved proceedings in the Supreme Court of New South Wales against each of the defendants. The Interim Receivers have had to deal with MGM about whether these proceedings ought to be defended and whether and how they would be funded. The proceedings went to trial in September 2020. The defendants did not appear at the trial. On 22 September 2020, the judgment of Henry J in those proceedings was delivered: Baxter Global Investments Pty Ltd v Marco [2020] NSWSC 1293. The plaintiffs in Baxter have since applied for orders for the payment of the judgment sum out of Mr Marco’s bank accounts and for a charging order against those accounts. The Interim Receivers have sought and been granted leave to file submissions opposing those orders. They have done so.

33    Shortly after the submission of the Interim Receivers’ Report, MGM informed the Interim Receivers that all future contact with Mr Marco and Ms Marissen (Mr Marco’s executive assistant) was to be made through them and not to those individuals directly. Therefore, since late July 2020, the Interim Receivers have had limited direct contact with Mr Marco, although they have not had any pressing need to do so.

34    The Interim Receivers have granted their consent, and indicated their ability to carry out the relief sought by ASIC should ASIC’s orders be granted, including being appointed liquidators of the Scheme and AMS.

35    Mr Brauer also opines as follows:

42.    Having acted as Interim Receivers and undertaken the matters outlined in the [Interim Receivers’] Report and this affidavit, Mr Kirman and I consider that we have detailed knowledge of the defendants’ affairs, the alleged scheme and business conducted by them, and their property. We also consider that we have a good knowledge of the investor group and their main concerns and issues.

43.    Given the intermingled nature of the affairs of the defendants, as described in more detail in the [Interim Receivers’] Report, I consider that it would be necessary and efficient (if not essential) that in any winding up of the scheme, the same appointees are able to deal with all property, assets and affairs that relate to the alleged scheme.

Voluntary Administrators’ evidence

36    In an affidavit dated 27 October 2020, Mr Shaw of the Voluntary Administrators details the events of the administration of AMS. From their appointment on 24 September 2020, the Voluntary Administrators performed their statutory tasks in relation to AMS including conducting investigations into the affairs of the company. They carried out the following tasks:

(a)    obtained the books and records of AMS;

(b)    reviewed the books and records and investigated the financial position of AMS;

(c)    completed searches of various statutory registers including the Personal Property Securities Register, ASIC company searches, director searches and director bankruptcy searches;

(d)    reviewed the Interim Receivers’ Report;

(e)    reviewed the Howman-Giles Report;

(f)    spot check audited the Howman-Giles Report;

(g)    issued correspondence to all of the major banks to identify any pre-appointment bank accounts held in the name of AMS and requested bank statements from the same;

(h)    issued correspondence to all of the major utility providers advising of their appointment and requested details of any accounts held in AMS’ name;

(i)    issued correspondence to the Office of State Revenue to identify any amounts outstanding in relation to land tax and payroll tax;

(j)    completed motor vehicle registration searches in the name of AMS;

(k)    liaised with the Directors and Interim Receivers in respect of AMS’ affairs;

(l)    convened and held an initial meeting of creditors on 7 October 2020;

(m)    liaised with creditors and investors in the lead up to the initial meeting and reviewed their claims;

(n)    reviewed all available details regarding any of AMS’ assets;

(o)    held meetings with Mr Marco as director of AMS;

(p)    obtained appraisals on AMS’ and the Directors’ physical assets;

(q)    investigated investments in financial instruments made by Mr Marco and reviewed the potential for recoveries from the same;

(r)    investigated market rental rates for properties leased to related parties;

(s)    conducted a preliminary assessment of the Directors’ personal asset and liability positions;

(t)    reviewed court applications and court orders with respect to Mr Marco and AMS;

(u)    attended to the application for leave to proceed with legal proceedings made by ASIC: see Marco (No 5);

(v)    held meetings and telephone discussions with ASIC regarding the leave to proceed application;

(w)    reviewed AMS’ records for potential voidable transactions and other transactions that may require investigation based on the nature of AMS’ business assets;

(x)    undertook a solvency analysis and established a preliminary estimated date of insolvency for AMS;

(y)    conducted investigations into officer offences and insolvent trading;

(z)    reviewed AMS’ financial statements;

(aa)    conducted preliminary investigations into the Directors’ and related parties’ financial positions; and

(bb)    conducted land title searches in the name of AMS, the Directors and related parties.

37    The Voluntary Administrators have issued formal requests for books and records of AMS to the following persons or entities:

(a)    Mr Marco;

(b)    Mr Damon Marco;

(c)    the Interim Receivers:

(d)    MGM;

(e)    G Coyle & Associates:

(f)    Metaxas Legal;

(g)    Clairs Keeley Lawyers:

(h)    US Department of Justice;

(i)    Madans & Wheaton; and

(j)    Kerman and Co.

38    Additional parties to which formal requests for books and records of AMS were sent to are as follows:

(a)    Acapulco Trade & Investment;

(b)    Andrew Purser;

(c)    Anthony Kirkland-Jones;

(d)    Armeli and Molony Lawyers;

(e)    Beverley Marco;

(f)    Cameron Luck;

(g)    CFTX Hedge Fund;

(h)    Chrysalis Capital Management;

(i)    Deloitte;

(j)    Dharja Kapoor;

(k)    Ed Pollak;

(l)    Eppner Consulting;

(m)    Fairway Investments Ltd & Broadway Fair;

(n)    HSBC Holdings;

(o)    Ian Graydon;

(p)    Kevin Lewis;

(q)    Kirk Widener;

(r)    Lorena Harvey - Rob Barclay;

(s)    Lotusten Asset Management;

(t)    MAS Real Estate;

(u)    NAB;

(v)    Norris Dominique;

(w)    Patricia Markopoulous;

(x)    Phoebe Ang & Kevin Lewis;

(y)    Rainer Lampe;

(z)    Rem Capital Florida;

(aa)    Rem Capital Management;

(bb)    Sergio Herrandiz Gil;

(cc)    Stadden Forbes Wealth Management;

(dd)    Stellar Group;

(ee)    Steven Zielinski;

(ff)    Talitha Marco;

(gg)    Tony Tarky;

(hh)    Westpac; and

(ii)    Williams and Hughes Law.

39    The administration has moved very swiftly, including almost daily meetings with Mr Marco, and with investors and their solicitors. Many opinions and queries have been raised with the Voluntary Administrators.

40    On 25 September 2020, the Voluntary Administrators received two letters from ASIC regarding, among other things, the Voluntary Administrators’ appointment and what involvement the Voluntary Administrators intended to take in these proceedings.

41    Extensive discussions with ASIC and a number of investors ensued on many topics regarding, inter alia:

(a)    the role of the Voluntary Administrators as compared to the Interim Receivers;

(b)    the statutory objectives and benefits of a voluntary administration, including the ability for stakeholders to participate in meetings and decision making, and if they wished to propose a DOCA;

(c)    the fact that Mr Marco as a Director had communicated his intention to propose a DOCA;

(d)    concerns from investors that the costs of running tandem processes (ie. the voluntary administration process and ASIC’s winding up application) could result in a worse return for creditors and investors, especially given extensive preservation orders were already in place;

(e)    questions whether Mr Marco might try to use the voluntary administration process to shield himself and his family from personal claims from the investors;

(f)    questions from investors whether they would have a say in how AMS (and more broadly the Scheme the subject of these proceedings) could be efficiently wound up and the likelihood of Director cooperation to identify and realise more assets, more efficiently.

(g)    questions from investors whether the voluntary administration process, or a DOCA if approved, would hinder ASIC’s ability to investigate or prosecute its claims against Mr Marco generally; and

(h)    the position that the Voluntary Administrators would take on ASIC’s Application.

42    Much of this evidence does not need to be recorded in detail as the position taken by the Voluntary Administrators was one of neutrality and providing assistance to the Court. No other submissions were made. For present purposes it is sufficient to record that the result of the investigations of the Voluntary Administrators are contained in the separate reports as follows:

(a)    The Initial Report to Creditors dated 29 September 2020 which:

(i)    included the Declaration of Independence, Relevant Relationships and Indemnities (DIRRI);

(ii)    advised of the Voluntary Administrators’ appointment on 24 September 2020; and

(iii)    gave notice that a first meeting of the creditors of AMS was scheduled to be held on 7 October 2020;

(b)    the Major Report to Creditors dated 18 October 2020 which was produced in advance of the second meeting of creditors on 26 October 2020 and contains detailed analysis and opinions as to the affairs of AMS; and

(c)    the Supplementary Report to Creditors dated 18 November 2020 which was produced in advance of the reconvened second creditors meeting on 26 November 2020 to inform creditors of further developments in the weeks since the adjournment of the 26 October 2020 meeting.

43    On 16 October 2020, the solicitors for Mr Marco provided written details of a proposed DOCA. At the date of the hearing, Mr Marco’s DOCA proposal (including a subsequent amendment discussed further below) was the only DOCA proposal that had been received by the Voluntary Administrators.

44    At the hearing, counsel for the Voluntary Administrators indicated the possibility that an investor-led DOCA may be proposed at the second creditors meeting. Indeed, Mr Shaw deposed in his affidavit that the prospect of an investor-led DOCA, as well as general creditor sentiment, formed the basis for his recommendation that the second meeting should be adjourned to 26 November 2020. As has subsequently been revealed by a further affidavit of Ms Lim filed in support of ASIC’s recent interlocutory process referred to above (at [13]), the Voluntary Administrators completed the Supplementary Report to Creditors. The Supplementary Report to Creditors included a timeline of the various DOCA proposals put forward which is reproduced below. Significantly, no investor-led DOCA proposal has been proposed:

45    As the above timeline indicates, Mr Marco has put forward three DOCA proposals in the administration of AMS:

(a)    the Original DOCA dated 14 October 2020 on which the Voluntary Administrators provide their recommendation in the Major Report to Creditors;

(b)    the First Revised DOCA dated 23 October 2020 which was communicated to creditors in a circular of the same date which included an observation that the creditors may wish to adjourn the second creditors meeting (which they did); and

(c)    the Second Revised DOCA dated 18 November 2020 on which the Voluntary Administrators provided their recommendation in the Supplementary Report to Creditors ahead of the reconvened second creditors meeting on 26 November 2020.

46    It should be noted that each iteration of Mr Marco’s DOCA proposals included a set of conditions precedent requiring:

(a)    ASIC’s Application being unsuccessful or the Court otherwise enabling the DOCA to be effectuated according to its terms;

(b)    the asset preservation orders to be lifted to allow deed administrators to deal with relevant property; and

(c)    AMS being reinstated as trustee of the AMS Trust.

47    On the Voluntary Administrators’ analysis in the Major Report to Creditors, based on the terms of the Original DOCA, creditors were estimated to receive a slightly greater return compared to an immediate winding up for the following reasons:

(a)    the Original DOCA scenario allowed for less litigation costs required to pursue alleged loan accounts as they were to be excluded;

(b)    the Original DOCA allowed for a lower amount of professional fees due to a shorter anticipated time frame to realise the assets than proceeding to liquidation;

(c)    the Original DOCA provided greater certainty for creditors i.e. identifying the assets that are available for realisation;

(d)    a liquidation would require the liquidators to conduct extensive investigations at additional cost and would likely result in protracted litigation which would likely reduce any returns to creditors; and

(e)    the DOCA was likely to bring the return to creditors forward as it reduces the risk of the Directors:

(i)    contesting the current Application;

(ii)    appealing any adverse judgement; and

(iii)    opposing all subsidiary litigation in respect to the collection of other assets (e.g. loans and bequeathed property).

48    The Voluntary Administrators identified the following issues with the Original DOCA proposal:

(a)    the Original DOCA contemplated use of AMS, the AMS Trust and some personal assets of Mr Marco for future trading of investments, of which the Voluntary Administrators were not supportive due to the:

(i)    inability to confirm the parties to the contract prior to submitting for due diligence and illustrating proof of funds;

(ii)    uncertainty in respect of the nature of the investment and underlying instruments subject to the trade; and

(iii)    uncertainty on the requirements to perform such trading, including proper licensing;

(b)    the proposal failed to include a number of personal assets that may become available in a liquidation scenario;

(c)    the proposal failed to include eight debtors (mostly related parties) that would be available in a liquidation scenario; and

(d)    liquidators would be able to pursue Mr Damon Marco for insolvent trading and voidable transactions in a liquidation scenario.

49    Based on the above analysis, the Voluntary Administrators formed the opinion that they could not recommend the Original DOCA and that, failing alternative or improved DOCA proposals, it was in the creditors’ interests for AMS to be wound up.

50    Echoing these views, on 21 October 2020, the Interim Receivers sent a circular to investors regarding Mr Marco’s Original DOCA proposal, expressing their opinion as creditors of AMS that they would not vote in favour of the Original DOCA proposal, that the creditors should vote for an adjournment of the second meeting of creditors, and commenting on the difference in estimated realisations between the Major Report and the Interim Receivers’ Report.

51    At the meeting of the Committee of Inspection on 22 October 2020, numerous concerns were aired about the Original DOCA and the prospect of an investor-led DOCA was foreshadowed with the proviso that more time was needed. For these reasons, the Voluntary Administrators recommended, and the creditors resolved, to adjourn the second meeting to 26 November 2020.

52    The only new proposal brought forward was Mr Marco’s Second Revised DOCA. It is included in the Supplementary Report to Creditors which also includes a series of background statements to the Second Revised DOCA which relevantly noted that:

5.    An objective of the DOCA is to bring in all reasonably recoverable money and assets that were purchased with money given to [Mr] Marco and given to [AMS], including all money and assets put by [Mr] Marco and [AMS] into trusts and to [related parties], which can be identified to produce the best net return to creditors … to form a consolidated pool of funds for distribution in a consistent manner…

…

7.    It is critical to the DOCA’s success, and the advantage of a DOCA over a winding up, that the DOCA must include a mechanism for engaging with the [related parties] and for getting in money (or assets purchased with it / traceable proceeds) that may still be reasonably available without requiring protracted and expensive litigation.

53    The terms of the Second Revised DOCA are then set out in full (where ‘Recipients’ refers to related parties):

54    In the Voluntary Administrators’ opinion, the advantages of the Second Revised DOCA include that it:

(a)    contains a mechanism that allows for a mediation or settlement conference with the recipients of funds or assets. This should in turn allow for the efficient recovery or settlement of any traceable assets or claims and thus avoid protracted and expensive litigation;

(b)    is likely to engender greater assistance from investment providers and Mr Marco in the realisation of investment assets;

(c)    allows for the possible appointment of a trustee to Mr Marco that would co-exist together and would not undermine the DOCA;

(d)    allows for significant input and engagement from any committee of inspection;

(e)    means there is likely to be less legal proceedings and consequently likely lower professional fees;

(f)     is structured to avoid excessive legal costs and delays allowing a quicker anticipated return to creditors;

(g)    provides for a greater estimated return to creditors than liquidation;

(h)    whilst the proposal fails to include some of Mr Marco’s personal assets and Beverley Marco’s personal assets that ASIC have applied to be incorporated in the winding up of the Scheme, the DOCA provides for preservation of Mr Marco’s assets until they are dealt with by a trustee in bankruptcy, or a trustee under a personal insolvency agreement, or a court; and

(i)    the DOCA does not preclude ASIC from undertaking further investigations into the actions of the Directors and pursuing any claim that may therefore arise, which may include those breaches identified at Section 8.1 of the Report.

55    The Voluntary Administrators also identified a number of shortcomings in the Second Revised DOCA:

(a)    recipients of funds/assets do have the ability to refuse to participate in a mediation or settlement conference, and also to refuse to provide a statement of financial position which may result in an extended timeframe to recover any funds/assets;

(b)    the deed administrators might need to seek creditor approval to vary the DOCA due to non-compliance of the related party, within the process detailed in the DOCA;

(c)    the exact terms of any proposal for a personal insolvency agreement for Mr Marco are unknown;

(d)    liquidators would be able to pursue Mr Damon Marco for insolvent trading and voidable transactions in a liquidation scenario; and

(e)    there is a risk that a party may apply to overturn the DOCA pursuant to s 445D of the Corporations Act.

56    Based on these competing considerations, the Voluntary Administrators formed the opinion that it was in the interests of creditors that the Second Revised DOCA be approved. Particular regard appears to have been had to the ability of the deed administrators under the proposal to pursue related parties (recipients) for recovery and that the methodology set out for mediation or settlement conferences provides a framework to commence the process.

57    Despite this recommendation, the creditors of AMS resolved on 26 November 2020 that AMS be wound up pursuant to s 439(c) of the Corporations Act. As previously noted, these matters have been brought to the Court’s attention by ASIC’s subsequent application. An affidavit sworn by Ms Lim on 2 December 2020 annexes a Form 509D ‘Notice of Special Resolution to wind up a company’ and a Form 505 ‘External Administration or Controllership – Appointment of an administrator or controller’ which confirms that the Voluntary Administrators have been appointed as the Voluntary Liquidators of AMS. The affidavit did not annex any minutes of the 26 November 2020 creditors meeting.

AN UNREGISTERED MANAGED INVESTMENT SCHEME

58    Section 601EE(1) of the Corporations Act relevantly provides that if a person operates a managed investment scheme in contravention of s 601ED(5), ASIC may apply to have the scheme wound up. Section 601EE(2) gives the Court the power to make any orders it considers appropriate for the winding up of the Scheme. Section 601ED(5) of the Corporations Act provides that ‘[a] person must not operate in this jurisdiction a managed investment scheme that this section requires to be registered under s 601EB unless the scheme is so registered’. It is not in dispute that the Scheme alleged to have been operated by the defendants was not registered under s 601EB and Ms Lim gives evidence to confirm this.

59    A ‘managed investment scheme’ is defined in s 9 of the Corporations Act. The definition relevantly has three positive elements and contains a number of presently inapplicable exclusions at sub-ss (c)-(n). The positive elements of the definition are as follows:

managed investment scheme means:

(a)    a scheme that has the following features:

(i)    people contribute money or money’s worth as consideration to acquire rights (interests) to benefits produced by the scheme (whether the rights are actual, prospective or contingent and whether they are enforceable or not);

(ii)    any of the contributions are to be pooled, or used in a common enterprise, to produce financial benefits, or benefits consisting of rights or interests in property, for the people (the members) who hold interests in the scheme (whether as contributors to the scheme or as people who have acquired interests from holders);

(iii)    the members do not have day to day control over the operation of the scheme (whether or not they have the right to be consulted or to give directions); or

…

60    Section 601ED(1) of the Corporations Act, which imposes a registration requirement in respect of certain managed investment schemes that meet the above definition, provides as follows:

601ED    When a managed investment scheme must be registered

(1)    Subject to subsections (2) and (2A), a managed investment scheme must be registered under section 601EB if:

(a)    it has more than 20 members; or

(b)    it was promoted by a person, or an associate of a person, who was, when the scheme was promoted, in the business of promoting managed investment schemes; or

(c)    a determination under subsection (3) is in force in relation to the scheme and the total number of members of all of the schemes to which the determination relates exceeds 20.

61    Section 601ED(2) and s 601ED(2A) are not presently relevant. Section 601ED(4) of the Corporations Act sets out rules for working out how many members a scheme has for the purposes of the section. It is in the following terms:

(4)    For the purpose of this section, when working out how many members a scheme has:

(a)    joint holders of an interest in the scheme count as a single member; and

(b)    an interest in the scheme held on trust for a beneficiary is taken to be held by the beneficiary (rather than the trustee) if:

(i)    the beneficiary is presently entitled to a share of the trust estate or of the income of the trust estate; or

(ii)    the beneficiary is, individually or together with other beneficiaries, in a position to control the trustee.

62    As a drafting note under the prohibition in s 601ED(5) confirms, a failure to comply with s 601ED(5) is presently an offence by virtue of s 1311(1) of the Corporations Act. Section 601ED(8) provides that a person contravenes that subsection if the person contravenes subs (5). Section 601ED(8) is accompanied by a drafting note which indicates that the subsection is a civil penalty provision as a result of s 1317E of the Corporations Act. Section 601ED(8) is identified in the table of civil penalty provisions contained in s 1317E(3) of the Corporations Act, but s 601ED(5) is not.

63    The introduction of the offence and civil penalty provisions into s 601ED referred to above occurred as a result of the Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Act 2019 (Cth) (the Amending Act). The relevant provisions of the Amending Act commenced on 13 March 2019 after the asset preservation and freezing orders were made. The application and transitional provisions which were introduced into the Corporations Act by Sch 1, Pt 2, cl 146 of the Amending Act, and now appear in s 1656 and s 1657 of the Corporations Act, provide that the amendments:

apply in relation to the commission of an offence [or to the contravention of a civil penalty provision] if the conduct constituting the commission of the offence [or the contravention of the civil penalty provision] occurs wholly on or after the commencement day.

64    As the impugned conduct occurred before 1 November 2018 when the asset preservation orders were made, the new civil penalty provisions do not apply here. Accordingly, ASIC seeks only the relief available under s 601EE in relation to contraventions of s 601ED, namely, that the Scheme be wound up.

65    The definition of ‘managed investment scheme’ in s 9 of the Corporations Act requires the identification of a ‘[a] scheme’. In Australian Softwood Forests Pty Ltd v A-G (NSW) (Ex rel Corporate Affairs Commission) (1981) 148 CLR 121, Mason J (with whom Gibbs CJ and Stephen J agreed) observed (at 129) by reference to Clowes v Commissioner of Taxation (Cth) (1954) 91 CLR 209 (at 225) that ‘all that the word “scheme” requires is that there should be “some programme, or plan of action”‘. In Australian Securities and Investments Commission v Takaran Pty Ltd (2002) 170 FLR 388; [2002] NSWSC 834, Barrett J discussed the nature of a ‘scheme’ (at [15]):

The essence of a “scheme” is a coherent and defined purpose, in the form of a “programme” or “plan of action”, coupled with a series of steps or course of conduct to effectuate the purpose and pursue the programme or plan…Profit-making will almost invariably be a feature or objective of the kind of scheme with which the s 9 definition of “managed investment scheme” is concerned, given the definition’s references in several places to “benefits”. Whatever is incidental and necessary to the pursuit of the profit (or “benefits”) will therefore be comprehended by the scheme, including, it seems to me, steps sensible to counter risk of loss (or detriment).

66    The evidence clearly establishes that such a program or plan of action existed. There was evidence of:

(a)    the provision and execution of a large number of investment documents consisting of Declarations of Trust, investment confirmation letters and investment summaries (including those exhibited to the investor affidavits, those identified in Pt 3.2 of the Howman-Giles Report and the primary documents themselves as exhibited to the Lim Affidavit);

(b)    the receipt of funds from investors by Mr Marco into bank accounts held in his name (as addressed in Pt 4 of the Howman-Giles Report and [74]-[98] of the Gomm Affidavit, and evidenced in the bank statements exhibited to the Lim Affidavit);

(c)    the circumstances in which funds were provided by four sample investors, being Mr Martin, Mr and Mrs Morrison and Mr de Marte; and

(d)    the transfer and application of investor funds by all three defendants (as addressed in [74]-[147] of the Gomm Affidavit and evidenced in the primary bank statements exhibited to the Lim Affidavit).

67    The first element of the ‘managed investment scheme’ definition contained in s 9(a)(i) of the Corporations Act requires that people contribute money or money’s worth. Investors have contributed a great deal of money to the Scheme operated by the defendants. The Howman-Giles Report and the Gomm Affidavit address investor receipts by reference to primary financial records obtained by ASIC and exhibited to the Lim Affidavit. The findings of the Howman-Giles Report are summarised at [1.6.13] (Table 2), where Mr Howman-Giles concludes that investors contributed some $261.5 million to Mr Marco. The detailed findings of Mr Howman-Giles’ financial analysis are further addressed in Pt 5.2 of his Report, which incorporates analysis of deposits, withdrawals, rollovers and re-allocations. Mr Howman-Giles identifies a gross investment amount of $2.647 billion (at [5.2.2] (Table 15)) and a net amount presently owing to investors of $256.18 million (at [5.2.19]-[5.2.20] (Table 19)). It is important to understand, however, that the gross amount is calculated by inclusion of many ‘rolled over’ initial investments which were compounded on returns as high as 7% (in many cases close to every quarter) for a number of years.

68    The first element of the ‘managed investment scheme’ definition also requires that money or money’s worth be contributed as consideration to acquire rights (interests) to benefits produced by the scheme. The word ‘interest’ in this context is also defined in s 9 as follows:

interest in a managed investment scheme (including a notified foreign passport fund) means a right to benefits produced by the scheme (whether the right is actual, prospective or contingent and whether it is enforceable or not).

69    Schemes involving the contribution of money for a fixed interest return are capable of engaging this aspect of s 9(a)(i) of the ‘managed investment scheme’ definition. In this regard the observations of Davies AJ (at [27]-[28]) in Australian Securities and Investments Commission v Pegasus Leveraged Options Group Pty Ltd [2002] NSWSC 310 are pertinent to the present case:

27    In the present case, the investors invested in a scheme. They did not merely make individual loans to Pegasus at interest. In each case, the investors understood that the moneys would be used with other moneys in some money-making programme or plan of action…

28    … In each case, the investor was informed and understood that the ability of Pegasus to pay the specified rate of interest would result from a dealing with the moneys in the manner which was represented to the investor. It was obvious to each investor that the rate of interest offered was not a normal rate of interest. That rate of interest was understood to be achievable only by the carrying out by Pegasus of its represented programme or plan of action.

(see also the authorities cited in Pegasus at [31] and Australian Securities and Investments Commission v Emu Brewery Mezzanine Ltd (2004) 187 FLR 270 at [90]-[96].)

70    Additionally, in Pegasus, that was so even where ‘there was no describable activity which was likely to produce a return …’ in the amount promised (at [19]).

71    The terms of the primary investment documents exhibited to the Lim Affidavit, the evidence contained in the investor affidavits, the financial analysis at Pt 5.2 of the Howman-Giles Report, and the primary financial records obtained from the defendants upon which the Howman-Giles Report is based demonstrate that people contributed money or money’s worth as consideration to acquire rights (interests) to benefits produced by the Scheme. In particular, the Declarations of Trust exhibited to each of the investor affidavits provide for a rate of return of 7% on the principal investment with a maturity date falling just over three months after the commencement date. The investment type in each case is listed as ‘Private Placement’. There is no doubt that investors executed these documents and transferred funds to Mr Marco on the understanding that they were acquiring rights to benefit from what appeared to be a lucrative and somewhat exclusive investment scheme.

72    The second element of the ‘managed investment scheme’ definition, contained in s 9(a)(ii) of the Corporations Act, requires that ‘any’ of the contributions are to be pooled or used in a common enterprise, to produce financial benefits or benefits consisting of rights or interests in property for the people who hold interests in the scheme. By reference to the investor affidavits (particularly the de Marte Affidavit at [25], [34] and [57], the Lorraine Morrison Affidavit at [23], the Peter Morrison Affidavit at [27] and the Martin Affidavit [43]) investors understood their funds would be pooled to produce financial benefits. Further, this would be the only reasonable inference. There was no reason to think that these investors were just gifting their funds to Mr Marco, nor does the evidence so suggest. The Gomm Affidavit (at [74]-[98]) and the primary financial documents upon which Mr Gomm’s summary is based establish that investor funds were in fact pooled in accounts held under Mr Marco’s name from which investor payments, transfers to AMS for the acquisition of property, and related party transactions were made.

73    The final element of the ‘managed investment scheme’ definition, contained in s 9(a)(iii) of the Corporations Act, requires that ‘the members do not have day-to-day control over the operation of the scheme (whether or not they have the right to be consulted or to give directions)’. The investor evidence (particularly the de Marte Affidavit at [52], the Lorraine Morrison Affidavit at [41], the Peter Morrison Affidavit at [43] and the Martin Affidavit [42]) shows that the investors did not regard themselves as having practical control over the funds they contributed to Mr Marco once they were provided to him. Regardless of the investor perceptions, their lack of control reflects the practical reality, evidenced in the primary investment documents, that Mr Marco effectively controlled investor funds once they were placed into his bank account.

74    As noted, under s 601ED(1)(a) of the Corporations Act a managed investment scheme is required to be registered under s 601EB if it has more than 20 members. Clearly this one did as the business records tendered by ASIC and the summary of those records contained within the Howman-Giles Report demonstrate. Mr Howman-Giles was able at [1.6.8] (Table 1) of his Report to identify 311 investors in the period between 1 January 2010 and 1 November 2018. That number is broken down by reference to particular calendar years at [1.6.41] (Table 7), which discloses that investor numbers comfortably exceeded the 20 member threshold in each year from 2013 (at some point) to 2018. The effect of the primary business records upon which ASIC relies, and the summary contained in Mr Howman-Giles Report, is that the defendants also cannot take the benefit of the exception in s 1012E(2) of the Corporations Act for small scale offerings of financial products. Nor have the defendants sought to do so.

75    These factors and evidence establish that an unregistered managed investment scheme existed and on this basis, it was not seriously contested that Mr Marco contravened s 601ED(5). However, in the course of discussions on the final form of declarations and orders to be made, it was contended that the contravention was not made out with respect to AMS because it did not operate the Scheme. In short, the defendants say that only Mr Marco received funds from investors for the purpose of operating the Scheme. The fact that some investor funds were then transferred to AMS to purchase various property (whether as trustee or otherwise) does not, it is said, establish that AMS was also operating the Scheme along with Mr Marco.

76    For the following reasons, and relying on the clear statements in Pegasus and the recent decision in Australian Securities and Investments Commission v MyWealth Manager Financial Services Pty Ltd (No 3) [2020] FCA 1035 as to the meaning of ‘operate’ in the context of s 601ED(5), the submission cannot be accepted. Both Mr Marco and AMS operated the Scheme that was required to be registered under s 601EB, that was not so registered in contravention of s 601ED(5).

77    The defendants do not contest the evidence from both the Interim Receivers and the Voluntary Administrators that Mr Marco has repeatedly told them that the affairs of AMS should be treated as ‘one and the same’ with his personal affairs and that they ‘should be viewed collectively as a representation of his business dealings’. Rather, they argue that this fact does not support the inference that AMS also operated the Scheme.

78    It is nonetheless necessary to set out some of the key findings of the Interim Receivers and the Voluntary Administrators in their investigations into the defendants. In the Major Report to Creditors the Voluntary Administrators observed that:

[AMS] was primarily utilised as an asset holding entity which did not trade, other than receiving property related income i.e. rent. Mr Marco advised our office that the purpose of [AMS] was to purchase residential and commercial property for the benefit of investors. Almost all funding for the purchase of property by [AMS] was sourced from pooled investor funds, the majority of which was from investors who had provided money to Mr Marco in a personal capacity.

(Emphasis added.)

79    In their Report, the Interim Receivers stated that:

The Receivers have not identified any evidence to suggest that [AMS] traded in its own capacity. The Australian Business Number used by AMS was registered to the [AMS Trust] and the property business appears to have been operated exclusively through the [AMS Trust]. Mr Marco has also stated that AMS undertook no activities in its own right.

And further that:

AMS should be considered an extension of Mr Marco’s business and therefore both entries should be reviewed on a consolidated basis.

80    The defendants contend that while the above statements may reflect the views of the various insolvency practitioners and even Mr Marco himself, they do not reflect the legal position which is that only Mr Marco received funds and agreed to terms with investors such that the Scheme was operated by him alone. This view does not accord with the language of the statute, nor its application in Pegasus and MyWealth.

81    In Pegasus, Davies AJ observed (at [55]) that:

The word “operate” is an ordinary word of the English language and, in the context, should be given its meaning in ordinary parlance. The term is not used to refer to ownership or proprietorship but rather to the acts which constitute the management of or the carrying out of the activities which constitute the managed investment scheme. The Oxford English Dictionary gives these relevant meanings:

“5.    To effect or produce by action or the exertion of force or influence; to bring about, accomplish, work.

6.    To cause or actuate the working of; to work (a machine, etc.). Chiefly U.S.

7.    To direct the working of; to manage, conduct, work (a railway, business, etc.); to carry out or through, direct to an end (a principle, an undertaking, etc.). orig. U.S.”

(Emphasis added.)

82    Drawing on this reasoning, Derrington J in MyWealth said (at [85]):

The word “operate” in s 601ED(1) does not refer to the identity of the person who owned the scheme, rather it refers to those acts which constitute the management or carrying out of the activities of the scheme as a matter of ordinary parlance: [Pegasus]. However, the section does not only apply to people who, by themselves, perform all of the activities which constitute the carrying out of the scheme. A person will operate a managed investment scheme if they perform an act or some of the acts which constitute its carrying on, so long as the act or acts are directed to that end. In this case, the scheme was carried on by the defendants acting together, even though each had different, albeit sometimes overlapping, roles to perform.

(Emphasis added.)

83    These decisions make it clear that an entity’s involvement in a scheme need not encompass all of the conduct necessary to the scheme in order for it to ‘operate’ the scheme for the purpose of s 601ED(5). Here, by Mr Marco’s own admission, AMS used investor funds to purchase residential and commercial properties for the benefit of investors. In this sense, the actions of AMS were directed to producing the purported benefit which investors had contributed money or money’s worth as consideration to acquire. This finding is only strengthened by the analyses of the Interim Receivers and Voluntary Administrators which confirms that AMS never traded in its own right and further that it was essentially propped up by numerous transfers of investor funds from Mr Marco.

FINANCIAL SERVICES BUSINESS WITHOUT AN AFSL – S 911A

84    Section 1101B(1)(a)(i) of the Corporations Act relevantly provides that the Court may make such order, or orders, as it thinks fit if, on the application of ASIC, it appears to the Court that a person has contravened a provision of Ch 7 (Financial services or markets).

85    Section 911A(1) of the Corporations Act, which appears in Ch 7 (Financial services or markets), provides that ‘subject to this section a person who carries on a financial services business in this jurisdiction must hold an Australian financial services licence covering the provision of the financial services’. Sub-section 911A(2) provides a number of presently inapplicable exceptions to the requirement in s 911A(1). The phrase ‘financial services business’ is defined by s 761A to mean ‘a business of providing financial services’.

86    Section 766A of the Corporations Act identifies the circumstances in which a person provides a financial service. Relevantly, a person provides a financial service under s 766A(1)(b) if they ‘deal in a financial product’.

87    Division 3 of Ch 7 defines the phrase ‘financial product’ in a number of different respects, including specific inclusions and exclusions, as well as a general definition. The general definition and one of the specific inclusions are presently relevant and it is not seriously contested that the interests that investors received from the Scheme constituted financial products. It is also relevant to note that both avenues for satisfying the definition of financial product are alternatives and do not give rise to material differences in subsequent analysis.

88    As to the specific inclusion, s 764A relevantly provides:

764A     Specific things that are financial products (subject to Subdivision D)

(1)    Subject to Subdivision D, the following are financial products for the purposes of this Chapter:

…

(ba)    any of the following in relation to a managed investment scheme that is not a registered scheme, other than a scheme (whether or not operated in this jurisdiction) in relation to which none of paragraphs 601ED(1)(a), (b) and (c) are satisfied:

      (i)    an interest in the scheme;

(ii)    a legal or equitable right or interest in an interest covered by subparagraph (i);

…

89    It will be recalled from the above analysis that the Scheme operated by the defendants satisfied s 601ED(1)(a) by having more than 20 members. None of the specific exclusions in subdiv D are presently applicable, nor was it contended that any are.

90    Section 763A(1)(a) of the Corporations Act contains the general definition of ‘financial product’, and relevantly provides that for the purposes of Ch 7 a ‘financial product’ is a facility through which, or through the acquisition of which, a person makes a financial investment. Section 763B(a) of the Corporations Act relevantly provides that a person makes a financial investment if the investor gives money or money’s worth to another person and the other person:

(i)    … uses the contribution to generate a financial return, or other benefit, for the investor;

(ii)    the investor intends that the other person will use the contribution to generate a financial return, or other benefit, for the investor (even if no return or benefit is in fact generated);

(iii)    the other person intends that the contribution will be used to generate a financial return, or other benefit, for the investor (even if no return or benefit is in fact generated); …

It is also a requirement that ‘the investor has no day-to-day control over the use of the contribution to generate the return or benefit’: s 763B(b).

91    The concept of ‘dealing’ in a financial product under s 766A(1)(b) is given its meaning by s 766C which relevantly provides that:

(1)    For the purposes of this Chapter, the following conduct (whether engaged in as principal or agent) constitutes dealing in a financial product:

   (a)    applying for or acquiring a financial product;

   (b)    issuing a financial product;

(c)    in relation to securities and interests in managed investment schemes – underwriting the securities or interests;

   (d)    varying a financial product;

   (e)    disposing of a financial product;

92    With respect to the concept of ‘issuing’ further guidance is given by s 761E(4) which relevantly provides that:

Subject to this section, the issuer, in relation to a financial product issued to a person (the client), is the person responsible for the obligations owed, under the terms of the facility that is the product:

(a)    to… the client: …

93    The concept of ‘carrying on business’ is given content by s 761C of the Corporations Act and Pt 1.2, Div 3 of the Corporations Act. In particular, s 19 provides that:

A reference to a business of a particular kind includes a reference to a business of that kind that is part of, or is carried on in conjunction with, any other business.

Section 20 provides that:

A reference in this Act to a person carrying on a business, or a business of a particular kind, is a reference to the person carrying on a business, or a business of that kind, whether alone or together with any other person or persons.

Finally, Section 2C of the Acts Interpretation Act 1901 (Cth) provides that:

[i]n any Act, expressions used to denote persons generally (such as “person”, “party”, “someone”, “anyone”, “no-one”, “one”, “another” and “whoever”), include a body politic or corporate as well as an individual.

94    The evidence of all witnesses and all records is unequivocal in demonstrating that all relevant actions were conducted by Mr Marco, but that he was also the guiding mind and will of (and controlled) AMS in both its capacities. To the extent actions were performed using AMS, those actions were controlled by Mr Marco. AMS only acted on direction from Mr Marco and at his instance.

95    The defence has called no evidence at all in this final hearing in which relief was sought against all defendants. No conclusion is sensibly open, other than that all actions performed by AMS in both capacities were performed at the relevant times at the instance of, and jointly with, Mr Marco. I consider that the position of the respective defendants cannot be relevantly distinguished. Liability is established against all of them. In light of the following matters and for the same reasons that the defendants all carried on a managed investment scheme, but also by reference to the definition of persons in s 2C of the Acts Interpretation Act, it has been established that the defendants all carried on a financial services business.

96    Mr Marco provided financial services by dealing in financial products. He issued financial products to investors based upon evidence of:

(a)    the provision and execution of investment documents;

(b)    the receipt of funds from investors by Mr Marco into bank accounts held in his name; and

(c)    the circumstances in which funds were provided by four of Mr Marco’s investors.

97    As a result of these activities Mr Marco made available a facility through which, or through the acquisition of which, investors made a financial investment. In particular:

(a)    investors gave money or money’s worth to Mr Marco for the purposes of s 763B(a)(i) of the Corporations Act;

(b)    Mr Marco used the contributions of investors to generate a financial return or other benefit for investors for the purposes of s 763B(a)(ii) of the Corporations Act in the limited sense that investor funds were used to finance withdrawals and some small returns were derived from investment activities undertaken by Mr Marco and AMS; and

(c)    I infer from the investor affidavits, the terms of the primary investment documents, and the circumstances of a large number of financial contributions having been made by investors that investors intended that Mr Marco would use the contribution they provided for the benefit of investors even if no return or benefit was in fact generated for the purposes of s 763B(a)(iii) of the Corporations Act.

I also infer from the same unchallenged material, and for the purposes of s 763B(b) of the Corporations Act, that investors did not have day-to-day control over the use of the contributions to generate the return or benefit.

98    It is alternatively also the case, for the reasons expressed in relation to s 601ED that investors were entitled to interests in the Scheme such that Mr Marco was dealing in a financial product pursuant to s 764A(i)(ba).

99    Based upon evidence as to quantum, number, and frequency of deposits and withdrawals (including the material set out in Pt 5.2 of the Howman-Giles Report) and investor evidence as to the circumstances in which funds were invested, it is clear that the systematic issuing of financial products amounted to the carrying on of a business.

100    While it may have been the case that the positive acts of ‘dealing’ in the financial products (whether by issuing or varying them) were performed by Mr Marco in his personal capacity, and while Mr Marco represented to investors that their funds would be used in ‘private placement programmes’ in which he alone would partake, it is clear that AMS’ property holdings formed an essential element of the business as a whole. This is demonstrated by the evidence as to the transfer and application of investor funds, between and by both defendants, as addressed at [74]-[147] of the Gomm Affidavit and evidenced in the primary bank statements exhibited to the Lim Affidavit. While AMS’ role in the Scheme may have been completely internal and not ‘investor-facing’ its operation of the Scheme was central to Mr Marco’s ability to deal in the interests created by the Scheme such that it also carried on the financial services business: MyWealth (at [125]) and Australian Securities and Investments Commission v Arafure Equities Pty Ltd (2005) 56 ACSR 429; [2005] QSC 376 (at [30]).

101    Such a view also accords with Mr Marco’s own understanding of AMS as an extension of his own business dealings. It is clear that the financial services business was carried on by both Mr Marco and AMS in the sense contemplated by s 19 and s 20 of the Corporations Act. This, of course, is not a conclusion on whether or not assets in the name of AMS are all held on behalf of investors or otherwise. That will be for separate determination.

102    The defendants did not hold an AFSL at any relevant time.

103    It follows that liability against all defendants is established.

RELIEF

The defendants’ submissions on relief

104    The defendants’ submissions went primarily to relief, not liability. It was the precise, rather than the general nature of the relief, which attracted comment. I will not re-iterate all the written contentions as by the time of the hearing the arguments and evidence had become more refined. But the contentions for the defence included some helpful statements of principle which were not opposed by ASIC.

105    Mr Marco opposed most of the declarations and orders sought in the Application on the basis that they were imprecise in form, gave rise to conflicting relief, were materially unsupported, and unworkable from the perspective of any distributions to be made. With the modifications ASIC has now made, I do not consider these criticisms remain valid.

106    As to declarations, Mr Marco acknowledges that the Court has a wide discretionary power to make declarations under s 21 of the Federal Court Act: Australian Building and Construction Commissioner v Construction, Forestry, Mining and Energy Union (2017) 254 FCR 68 (at [90]-[93]). He argues, and I accept, that for the Court to make a declaration the Court must be satisfied of the following requirements:

(a)    the question must be a real and not a hypothetical or theoretical one;

(b)    the applicant must have a real interest in raising it; and

(c)    there must be a proper contradictor: Forster v Jododex (1972) 127 CLR 421 (at 437-438).

107    Mr Marco observes also (and I accept) that, in addition, before a court makes declarations of breaches of provisions of the Corporations Act it should be satisfied:

(a)    first, that there is sufficient supportive evidence to satisfy the Court that it should make the declarations sought in regard to breaches of the Corporations Act to the standard identified in Briginshaw v Briginshaw (1938) 60 CLR 336 per Dixon J (at 361-362); see also BMI Ltd v Federated Clerks Union of Australia (1983) 76 FLR 141 (at 152-153); Australian Securities and Investments Commission v Monarch FX Group Pty Ltd (2014) 103 ACSR 453 per Gordon J (at [64]) and Australian Securities and Investments Commission v Munro [2016] QSC 9 (at [47]); and

(b)    second, that the declarations are specifically informative as to the basis upon which the court declares that a contravention of the Corporations Act has occurred. There should be appropriate and adequate particulars of how and why the impugned conduct is a contravention of the Corporations Act: Rural Press Ltd v Australian Competition and Consumer Commission (2003) 216 CLR 53 (at [90]); Australian Competition and Consumer Commission v Renegade Gas Pty Ltd [2014] FCA 1135 per Gordon J (at [66]); and BMW Australia Ltd v Australian Competition and Consumer Commission [2004] FCAFC 167 (at [35]);

108    Mr Marco also opposes the continued appointment of receivers to his assets. By way of final relief, ASIC now seeks the appointment of the Interim Receivers on a permanent basis by replacing their interim appointment under s 1101B(5) (as ordered in Marco (No 3)) with a final appointment under s 1101B(1) as the Scheme Receivers. Mr Marco says that such an ongoing appointment is unnecessary in circumstances where the Interim Receivers have completed the task they were required to do in terms of the orders made in Marco (No 3); they have identified, preserved and secured Mr Marco’s property and provided their Report to the Court.

109    The proposed orders for the appointment of receivers in the Application are open-ended, requiring further orders for variation or termination. They have no end date or other means of ascertaining when the receivership will finish or be completed. Mr Marco says this is unsatisfactory particularly in relation to the continued appointment over his personal assets, as Individual Receivers if, and once, the Scheme property has been identified and secured.

110    Mr Marco also opposes an order that the Individual Receivers’ costs and expenses be paid from his property as sought in the Application. The Individual Receivers’ costs and expenses should continue to be paid by ASIC, he argues, consistent with the orders made in Australian Securities and Investments Commission v Marco (No 4) [2020] FCA 881 (as discussed at [33]). The prejudice to creditors is manifest. In regard to the proposed orders sought appointing the receivers to AMS on a final basis (the Corporate Receivers and, together with the Individual Receivers, the Scheme Receivers), Mr Marco says it is unclear how the Corporate Receivers’ orders and the winding up orders are proposed to coexist.

111    The defendants’ arguments against the winding up of AMS are somewhat inconsequential given the subsequent appointment of the Voluntary Liquidators. However the legal argument will be set out nonetheless, as it was put before events overtook it. The defendants contended that it is not desirable, necessary, nor appropriate that AMS be wound up, for the following reasons:

(a)    the Voluntary Administrators have been appointed to AMS pursuant to a resolution of the Directors in accordance with s 436A of the Corporations Act. Section 436A is found in Pt  5.3A of the Corporations Act;

(b)    the object of Pt 5.3A of the Corporations Act, as set out in s 435A, is:

to provide for the business, property and affairs of an insolvent company to be administered in a way that;

(i)    maximises the chances of the company or as much as possible of its business, continuing in existence; or

(ii)    if it is not possible for the company or its business to continue in existence – results in a better return for the company’s creditors and members than would result from an immediate winding up of the company.

(c)    the outcome of the administration of a company can be either that:

(i)    a DOCA is executed by both the company and the deed’s administrator; or

(ii)    the company’s creditors resolve under s 439C(b) that the administration should end; or

(iii)    the company’s creditors resolve under s 439C(c) that the company be wound up: s 435C(2).

112    Mr Marco says that having regard to the provisions of s 440A(1) and s 440A(2) of the Corporations Act, and in circumstances where there may be a possibility of a better return for creditors of AMS through the administration process, the administration should be allowed to proceed and there should be no order, at least at this stage, for the winding up of AMS. Similarly, until the administration process has been completed, an order for the winding up of the Scheme may prejudice the ability of the Voluntary Administrators to seek to recover increased funds for the investors.

113    For quite detailed reasons which no longer require examination, Mr Marco opposes the proposed order sought in the Application directing repayment to investors. This has now been abandoned by ASIC for the reason that if it succeeds, liquidators will deal with creditors under the provisions of the Corporations Act.

114    Finally, Mr Marco argues that it is not clear either from the Application or ASIC’s submissions what ASIC proposes in regard to the current asset preservation orders which have been in place since November 2018: Australian Securities and Investments Commission v Marco [2019] FCA 466, as varied in March and September 2019. Those orders were obtained pursuant to s 1323 of the Corporations Act. The original application filed on 29 October 2018 sought the asset preservation orders as ‘interim relief’. The purpose of orders under s 1323 is self-evidently to protect the interests of persons by preserving assets until an investigation, prosecution, or proceeding is completed so that the assets will be available to meet the claims of certain alleged aggrieved persons: Australian Securities and Investments Commission v Carey (No 5) [2006] FCA 864 (at [18]); Australian Securities and Investments Commission v Carey (No 3) [2006] 2006 FCA 433 (at [26]-[27]).

115    In circumstances where ASIC seeks final relief by way of:

(a)    the winding up of the Scheme and AMS; and

(b)    the appointment of Individual Receivers and the Corporate Receivers under s 1101B(1) of the Corporations Act;

Mr Marco says it is not appropriate for the s 1323 asset preservation orders to remain in place. He says they should be vacated.

116    Mr Marco opposes any orders that the defendants pay ASIC’s costs of these proceedings. He seeks an order that all reserved costs be vacated and each party bear their own costs.

Declaratory and injunctive relief

117    In relation to the matters to be noted by the Court, Mr Marco makes the point that the time for operation of the Scheme should be specified because some investors started as early as 2005 and, secondly, makes the point that there is no evidence that AMS operated the Scheme. On the second point, I have found to the contrary, such that I think the notation is correct.

118    I agree with Mr Marco’s submission in relation to the timing, which should be specified. The appropriate timing having regard to the findings made above is that relevant conduct at the appropriate scale occurred in the period from at least 1 January 2014 until 31 October 2018, such that those dates should be inserted after the word ‘whereby’ in the second line of what it is that the Court is noting. A similar reference to those dates should be inserted at the end of declaration 1 and declaration 2, that is, ‘in the period between at least 1 January 2014 and 31 October 2018’.

119    As to the injunctive relief, although the defendants submit that in light of the declarations, it should not be granted as it would simply be repetitive and would expose contraveners to risks of contempt of court, in my view, this is an appropriate case for the grant of an injunction. I note the approach taken by Burley J in Australian Competition and Consumer Commission v viagogo AG (No 3) [2020] FCA 1423, where his Honour considered that injunctive relief was appropriate having regard to the deliberateness of the conduct of the respondent in that case, including that senior management was aware of the conduct and did not correct it (at [138]). In this regard, the investor updates forwarded by Mr Marco indicate a lack of willingness to recognise the reality of the financial circumstances and the contraventions which have been established with clarity for some time.

120    The Court has power under s 21 of the Federal Court Act to grant declaratory relief. As observed in Australian Securities and Investments Commission v Sweeney [2001] NSWSC 114 (at [30]), it is beyond contest that a superior court of record has plenary jurisdiction to make a declaratory order concerning contravention of the Corporations Act (citing Australian Softwood per Gibbs CJ (at 125 and Corporate Affairs Commission (NSW) v Transphere Pty Ltd (1988) 15 NSWLR 596 per Young J at 209). In circumstances where contraventions have been established and declarations would have utility, including by identifying contravening conduct and recording the Court’s disapproval of that contravening conduct, the Court ought to grant declaratory relief: Australian Securities and Investments Commission v Ostrava Equities Pty Ltd [2016] FCA 1064 per Davies J (at [51]).

121    The Court also has power under s 1324 of the Corporations Act to grant injunctive relief on the application of ASIC. That power is enlivened where a person has engaged in conduct that constitutes a contravention of the Corporations Act and may be exercised if, in the opinion of the Court, it is desirable to do so: see s 1324(1)(a). In the present case, because the relief ASIC seeks is framed by reference to the restraint of future contraventions of the Corporations Act, rather than in terms which prohibit the carrying on of a financial services business or managed investment scheme per se, considerations of the kind outlined in [53] of Ostrava Equities and similar cases are inapplicable.

122    In circumstances where a contravention has been identified, it is appropriate for the Court to restrain the defendants from committing future contraventions of a similar kind. That is especially so in circumstances where there is evidence before the Court to suggest that the defendants may continue to engage in the impugned conduct if such orders are not made. There is evidence to this effect in the Lim Affidavit at [42] and exhibited in ‘Folder N – Mr Stephen Tangney – Notice P00216850 documents’.

123    The declaratory and injunctive relief sought by ASIC will be granted.

Winding up of the scheme and appointment of liquidators and receivers

124    Orders are sought by ASIC in accordance with s 1101B(1)(a)(i) of the Corporations Act in relation to the appointment of Scheme Receivers on a final basis and s 601EE(1) and s 461(1)(k) in relation to its application for orders that the unregistered managed investment Scheme and AMS in both its capacities be wound up (respectively). In particular:

(a)    s 601EE(1) provides that if a person operates a managed investment scheme in contravention of s 601ED(5) ASIC may apply to have the scheme wound up and s 601EE(2) provides that the Court may make any orders it considers appropriate for the winding up of the scheme;

(b)    s 461(1)(k) provides that the Court may order the winding up of a company if the Court is of opinion that it is just and equitable that AMS be wound up; and

(c)    s 1101B(1)(a)(i) provides that the Court may make such order or orders as it thinks fit if on the application of ASIC, it appears to the Court that a person has contravened a provision of Ch 7.

125    Further considerations must also now be factored into the analysis by virtue of the appointment of the Voluntary Administrators as Voluntary Liquidators of AMS by special resolution at the resumed second creditors meeting on 26 November 2020. In its recent application in response to those events, ASIC relies on s 467B of the Corporations Act for an order that the Interim Receivers be appointed as the Court-Appointed Liquidators, such that the appointment of the Voluntary Liquidators is terminated. Section 467B provides as follows:

467B    Court may order winding up of company that is being wound up voluntarily

The Court may make an order under section 233, 459A, 459B or 461 even if the company is already being wound up voluntarily.

126    Although s 467B is not a source of power to order a winding up, it confirms the Court’s power to order a winding up even if the company is already being wound up voluntarily: In the matter of SPG Projects Pty Ltd (in liq) [2020] NSWSC 34 per Gleeson J (at [6]), citing Citrix Systems Inc v Tele Systems Learning Pty Ltd (in liq) (1988) 28 ACSR 529 per Moore J (at 535). The practical effect of such an order is that the court-appointed liquidator supersedes the voluntary liquidator: In the matter of Evcorp Grains Pty Ltd ACN 134 204 050 (No 2) [2014] NSWSC 155 per Brereton J (at [5]).

127    Turning to the winding up of AMS on the ‘just and equitable ground’ under s 461(k) (and s 467B), s 462(2)(e) and s 464 of the Corporations Act make clear that ASIC has standing to seek such an order if it is investigating, or has investigated, under Pt 3, Div 1 of the ASIC Act matters being, or connected with the affairs of a company. It is well established that ASIC may apply for the winding up of a company on the ‘just and equitable ground’ on the basis of public interest considerations: see, for example, Australian Securities Commission v AS Nominees Ltd (1995) 62 FCR 504 per Finn J (at 530G-531G). In the present case, Pegasus provides a compelling analogy. In Pegasus, Davies AJ granted a winding up on application by ASIC, having referred (at [91]) to observations of Owen J in Australian Securities and Investments Commission v Chase Capital Management Pty Ltd [2001] WASC 27 (at [75]) to the effect that ‘[t]he public interest justifies intervention where, among other things, it is required for investor protection and where there has been regular or repeated breaches of the law’.

128    I am satisfied that the evidence clearly establishes that similar considerations are equally applicable in the present proceedings such that both the Scheme and AMS ought be wound up. The authorities on orders under s 467B disclose the requirement for a ‘good reason’ to justify the replacement of the voluntary liquidator: Evcorp Grains (at [9]-[10]). In this case, the good reasons are obvious and numerous. At present, the Voluntary Liquidators are appointed to AMS alone in circumstances where Mr Marco is the only significant creditor of the company in the ordinary sense. The claims of investors to the assets of AMS in a winding up are contingent at best. What is important in circumstances where there is an interconnection and overlap and mixed assets, is that there be a single insolvency controller appointed to liquidate the assets as a whole, including the personal assets covered by the Scheme to ensure that it is done in a just and equitable manner and to minimise unnecessary cost. That, for example, was the approach taken by Siopis J in Australian Securities and Investments Commission v Westpoint Corporation Pty Ltd [2006] FCA 135, where his Honour said (at [19]-[21] and [32]-[36]):

19    Senior Counsel for ASIC, made submissions in support of the appointment of Mr Herbert and Mr Read as liquidators. He submitted that the company is part of a group comprising a large number of companies and Mr Herbert and Mr Read were already in control of Westpoint Management Pty Ltd - another of the companies in the group. He submitted that a factor which should be taken into account in considering whether to appoint Mr Read and Mr Herbert, is that the affairs of Westpoint Management Pty Ltd and the company are substantially intertwined, and that the on-going investigations would be assisted if there was one set of liquidators in respect of both companies. Further, he submitted that the appointment of the same persons as liquidators to the companies in a group of companies would be more efficient and would reduce the costs of the administration. It was in the interests of creditors, generally, if expenses were reduced.

20    Senior counsel also submitted that there was no real conflict between the roles which Mr Herbert and Mr Read might have to perform as liquidators of the company and as provisional liquidators of Westpoint Management Pty Ltd. He submitted that the authorities are to the effect that it is desirable that where companies in a group go into liquidation, to the extent that it is possible to do so without there being a real conflict of interest, one liquidator should be appointed to the companies in liquidation. Mr Colvin SC relied upon the following observations of Lehane J in the case of Re Chilia Properties Pty Ltd, (admin apptd) (1997) 154 ALR 179 at 180 (‘Chilia’):

‘…it is well established that in the absence of any real, as opposed to theoretical, conflict of interest it is generally desirable that the external administration of a group of companies should be placed in the hands of one administrator.’

21    Mr Colvin SC further submitted that, where there were dealings within a group of companies between companies that were under the effective control of the same persons, in assessing real conflict, a distinction should be drawn between dealings which affected the interests of external creditors and other external interests, and those which did not. Mr Colvin SC also submitted that it is well accepted that the courts would appoint a single liquidator to a group of companies, notwithstanding that there might be some possible theoretical conflict, on the basis that if a real conflict emerged during the course of the administration, that the liquidator could then make alternative arrangements as to how to deal with the real conflict. The fact that there might be a theoretical conflict should not be an inhibition on the appointment of a single liquidator.

…

32    First, I agree that the observations made by Lehane J in Chilia, referred to above, state the principles to be applied in this case. The principles are also reflected in the following observations by Hoffmann J (as he then was) in Re Arrows Ltd [1992] BCC 121, which were cited with approval by Warren J in Sisu Capital:

‘…It is by no means uncommon in the case of the insolvency of a substantial group of companies for cross-claims and conflicts of interest to arise between companies within the group. That does not usually deflect the court from appointing a single firm of insolvency practitioners in the first instance to deal with the whole insolvency of the group, leaving the question of potential conflict of interests to be dealt with if and when it arises.’

33    I accept the arguments advanced by Mr Colvin SC and Mr Thomson that in the situation where there is no obvious and real conflict but there is a possibility of a theoretical conflict, a court should not thereby be inhibited from appointing a single set of liquidators when that would advance the efficiency of the liquidation, and result in fewer fees being charged in respect of the liquidation.

34    I am not satisfied that on the evidence that is before me that there is any real conflict in the sense that that concept is recognised in the cases. There is no evidence the appointment of Mr Herbert and Mr Read to the position of liquidators of the company would adversely affect the interests of external creditors or other external interests. The evidence of Mr Francis as to the inter-relationship between Westpoint Management Pty Ltd and the company does not demonstrate any such prejudice.

35    I am also confident that in the event that any real conflict does emerge that the liquidators will approach the Court and seek directions in relation to how to deal with that conflict, as is foreshadowed in the authorities.

36    Second, as to the question of the extent of work that has already been done, I accept that the administrators have done some good work in relation to the investigation of the affairs of the company as is evidenced by the draft report to creditors of 13 February 2006, exhibited to the affidavit of Mr Francis. However, as is recognised in that document itself, the amount of work which will be required to be done in the conduct of a liquidation of this size and of this complexity would be substantially more than has already been done. Therefore, the fact that there has been some work done in investigating the affairs of the company, does not, in my view, operate as a decisive factor in favour of appointing the administrators as liquidators.

(see also Australian Securities and Investments Commission v Mercorella (No 2) [2006] FCA 763).

129    Relevant also, particularly to the creditors will be the fact that the Voluntary Administrators incurred costs in excess of $500,000 during the administration and have a potential cost estimate as high as $1.5 million for the winding up of AMS, as deposed by Mr Shaw. This highlights the importance of the insolvency proceeding as efficiently as possible. The Interim Receivers have been in place since May 2020, as distinct from the Voluntary Administrators who were appointed at Mr Marco’s request in late September 2020. There is no doubt that it is more efficient for a single insolvency practitioner to be appointed across all the potential assets forming part of the Scheme. It is conventional to appoint ASIC’s nominee and particularly so in this case where a substantial amount of work has already been carried out by the Interim Receivers. Further, there has clearly been duplication in the work of the Interim Receivers and the Voluntary Administrators to date which has given rise to unnecessary costs. Certainly, the Interim Receivers have an advanced understanding of the affairs of AMS and the Scheme, which is a relevant consideration for their appointment: see Australian Securities and Investments Commission v Linchpin Capital Group Ltd (No 2) [2019] FCA 398 per Derrington J (at [4]) and, of course, Siopis J in Westpoint.

130    There is no doubt that this case calls out for the same insolvency practitioners to be appointed to all of the relevant constituent elements of the Scheme. For Mr Marco, it was contended that there was concern that because the Interim Receivers were appointed by ASIC, they might not be independent. While it is true that the Interim Receivers were appointed on ASIC’s application, they were actually appointed by the Court as independent Interim Receivers for the purpose of preparing a Report for the benefit of the Court. There is no reason at all to consider they have not discharged their obligations to date objectively in accordance with their professional obligations. At the same time, the Voluntary Administrators were appointed on the application of Mr Marco, a director of AMS. To the extent that there could be any potential perceived concern it might more readily look to be in the case of that appointment, although I hasten to add there is no reason to consider that there is any concern on the face of either appointment. There is no doubt that each has independent obligations and responsibilities and there is no doubt that there is an absence of evidence that either is relevantly compromised in any way. But any concern about the independence of the Interim Receivers is without foundation: see Westpoint (at [38]).

131    As to Mr Marco’s concerns about the interaction between Court-Appointed Liquidators, Scheme Receivers and the existing asset preservation orders, ASIC’s current form of relief adequately provides for their consistent operation. It is entirely appropriate in the interim period for sufficient provision to be made to enable the party the subject of the asset preservation orders to continue to pay legal expenses and to continue to draw amounts to meet normal living expenses. Such provision for personal expenses is a fundamental component of the regime under s 1323 of the Corporations Act for circumstances where the Court has not determined the final merits of a particular dispute. Ultimately though, the reality is that Mr Marco has personally guaranteed each of the Declarations of Trust. Unless the declarations can be set aside, the inevitable result will be bankruptcy and the protection afforded under the Bankruptcy Act 1966 (Cth). That also, of course, will give Mr Marco protection in the event that he cannot meet certain specified debts. It would appear inevitable that the guarantees will be drawn upon, given the very substantial deficit in funds available for investors. In terms then of the ongoing interrelationship between the Scheme Receivers and the Court-Appointed Liquidators, the position is clear that the Scheme Receivers will deliver up that part of the property, that is the property of the Scheme to the liquidators and that the asset preservation orders will lapse upon the later appointment of the Scheme Receivers and Court-Appointed Liquidators.