Federal Court of Australia

Australian Securities and Investments Commission v Tzouvelis [2023] FCA 431

ORDERS

THE COURT ORDERS THAT:

1.    Senior National Judicial Registrar Legge be appointed as a referee pursuant to s 54A of the Federal Court of Australia Act 1976 (Cth) to inquire and report in accordance with the Federal Court Rules 2011 (Cth) on the questions whether any of the documents referred to in exhibit YH-4 to the affidavit of Yu-chiao Hsueh affirmed 7 December 2022, in respect of which the first respondent claims legal professional privilege, contain or evidence communications between the respondents, or any of them, and their legal advisors in furtherance of, or as a step preparatory to, either or both of the improper purpose of:

(a)    diverting assets from the second respondent to the third respondent in order to minimise the assets available to it to pay a pecuniary penalty that ASIC was seeking against it in the civil penalty proceeding brought against it by the applicant in proceeding no. VID 585 of 2016;

(b)    causing the second respondent to file and serve misleading evidence and written submissions about the financial position of the second respondent in the penalty phase of proceeding no. VID 585 of 2016.

2.    The solicitors for the respondents provide in electronic form and marked “confidential” a copy of each of the documents referred to in exhibit YH-4 to the affidavit of Yu-chiao Hsueh affirmed 7 December 2022 to the chambers of Senior National Judicial Registrar Legge by no later than 4:00pm on 16 May 2023.

3.    Senior National Judicial Registrar Legge provide to the chambers of O’Callaghan J, marked “Confidential”, a copy of the report referred to in order 1 by no later than 4:00pm on 16 June 2023.

4.    The further hearing of the applicant’s originating application filed on 24 October 2022 otherwise be adjourned to a date to be fixed.

5.    The costs of the hearing on 30 and 31 March 2023 be reserved.

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

REASONS FOR JUDGMENT

O’CALLAGHAN J

introduction

1    By an originating application filed on 24 October 2022, the Australian Securities and Investments Commission (ASIC) sought declarations pursuant to s 21 of the Federal Court of Australia Act 1976 (Cth) that 615 documents held on electronic devices seized pursuant to a search warrant executed at the home of the first respondent (Mr Tzouvelis) are not subject to the legal professional privilege he asserts by reason of what is sometimes called the fraud or crime “exception” to such privilege, because there are reasonable grounds to believe that the documents record or evidence communications made in furtherance of a requisite improper purpose.

2    ASIC is currently investigating whether Mr Tzouvelis, and three companies with which he is associated (which are also respondents to this application), have contravened ss 911A, 912A, 961B, 1041E, 1041G and 1041H of the Corporations Act 2001 (Cth), s 13 of the Australian Securities and Investments Commission Act 2001 (Cth), ss 82 and 83A of the Crimes Act 1958 (Vic) (obtaining financial advantage by deception and falsification of documents) and s 35 of the Crimes Act 1914 (Cth) (giving false testimony).

3    The matters being investigated include matters related to Mr Tzouvelis’ conduct as a director of Golden Financial Group Pty Ltd (Golden Financial), the second respondent, in connection with a civil penalty proceeding commenced by ASIC against Golden Financial in 2016, and with orders made by Moshinsky J on 27 October 2017 that Golden Financial pay a pecuniary penalty of $1 million in relation to admitted contraventions of the Corporations Act: Australian Securities and Investments Commission, in the matter of Golden Financial Group Pty (formerly NSG Services Pty Ltd) v Golden Financial Pty Ltd (No 2) [2017] FCA 1267 (ASIC v Golden Financial (No 2)) (proceeding no. VID 585 of 2016).

4    ASIC submitted that I should accept that there is a prima facie case that the seized documents contain or evidence communications between the respondents, or any of them, and their legal advisors in furtherance of, or as a step preparatory to, either or both of:

(a)    the improper purpose of diverting assets from Golden Financial to a related company called Premium Client Services Australia Pty Ltd (Premium), the third respondent, in order to minimise the assets available to Golden Financial to pay a pecuniary penalty that ASIC was seeking against Golden Financial in the civil penalty proceeding referred to above; and relatedly

(b)    causing the second respondent to file and serve misleading evidence and written submissions about the financial position of the second respondent in the penalty phase of the civil penalty proceeding.

5    The first respondent said that his rights to legal professional privilege in the documents obtained by ASIC under its search warrant should be protected, contending that ASIC has not made good a case to the contrary and that there was nothing improper about diverting assets to Premium given the risks faced by Golden Financial. In essence, the respondents say that Golden Financial’s business started to be impacted by the negative reputational impacts of ASIC’s civil penalty proceeding against it, and that the business deteriorated over time due to multiple factors, including: financial advisors working for Golden Financial began leaving; negative media attention; difficulty obtaining finance; the termination in September 2016 of the major referral relationship with H&R Block; the July 2017 termination by Zurich of its distribution agreement with Golden Financial; and by August 2017 difficulties obtaining adequate professional indemnity insurance cover. They also contended that the evidence and submissions filed about the second respondent’s financial position in the penalty phase of the civil penalty proceeding was not misleading.

6    ASIC relied on the affidavit of Ms Olivia Populin affirmed 21 September 2022 and the following three affidavits of Mr Yu-chiao Hsueh:

(1)    Affidavit of Yu-chiao Hsueh affirmed 21 October 2022 (First Hsueh Affidavit);

(2)    Affidavit of Yu-chiao Hsueh affirmed 7 December 2022 (Second Hsueh Affidavit); and

(3)    Affidavit of Yu-chiao Hsueh affirmed 10 March 2022 (Third Hsueh Affidavit).

7    Ms Populin was a Financial Investigator in ASIC’s Forensic Accountant Services team. Mr Hsueh was a Senior Lawyer in ASIC’s Financial Services Enforcement team.

8    The respondents relied on the following two affidavits of Mr Tzouvelis:

(1)    Affidavit of Antonios Tzouvelis affirmed 15 February 2023 (First LPP Affidavit);

(2)    Affidavit of Antonios Tzouvelis affirmed 24 March 2023 (Second LPP Affidavit).

9    Two further affidavits of Mr Tzouvelis were admitted into evidence, being affidavits filed in proceeding no. VID 585 of 2016 and annexed to the First Hsueh Affidavit:

(1)    Affidavit of Antonios Tzouvelis affirmed 17 August 2017 (First Penalty Affidavit); and

(2)    Affidavit of Antonios Tzouvelis affirmed 11 October 2017 (Second Penalty Affidavit).

the originating application

10    ASIC’s originating application sought declarations with respect to the following categories of documents:

(a)    documents created between 1 July 2016 and 31 December 2018 recording or evidencing communications between any of the respondents (including persons acting on behalf of any of the respondents) and their legal advisers with respect to any (whether actual or contemplated):

(i)    sale;

(ii)    redirection;

(iii)    transfer;

(iv)    assignment; and/or

(v)    novation,

of any client accounts, payments (including but not limited to trail commissions), rights arising from any agreements and/or any other assets from or by Golden Financial to Premium;

(b)    documents created between 1 July 2016 and 30 June 2019 recording or evidencing communications between any of the respondents (including persons acting on behalf of any of the respondents) and their legal advisers with respect to:

(i)    Premium receiving (whether actual or contemplated) trail commission payments;

(c)    documents created between 1 April 2017 and 27 October 2017 recording or evidencing communications between any of the respondents (including persons acting on behalf of any of the respondents) and their legal advisers for the purpose of preparing evidence and/or submissions by or on behalf of Golden Financial in relation to its financial position, its capacity to pay a pecuniary penalty and/or the state of its financial services business, in the penalty phase of Federal Court proceeding no. VID 585 of 2016.

Legal principles

11    In Commissioner for the Australian Federal Police v Propend Finance Pty Ltd (1997) 188 CLR 501 at 514, Brennan CJ said:

In determining whether a claim of legal professional privilege can be upheld, it is open to the party resisting the claim to show reasonable grounds for believing that the communication effected by the document for which legal professional privilege is claimed was made for some illegal or improper purpose, that is, some purpose that is contrary to the public interest. I state the criterion as “reasonable grounds for believing” because (a) the test is objective and (b) it is not necessary to prove the ulterior purpose but there has to be something “to give colour to the charge”, a “prima facie case” that the communication is made for an ulterior purpose. The purposes that deny the protection of privilege for a communication (whether documentary or oral) between a client and the client’s solicitor or counsel include the furthering of the commission of an offence.

When a party in curial proceedings is seeking to rebut a claim of privilege by asserting that the communication with the legal adviser was made for an ulterior purpose, the evidence of ulterior purpose must be admissible in those proceedings. It is not sufficient to rely on the information laid before the justice who issued the warrant. The informant is not necessarily a witness and, if he or she is a witness, the admissible evidence is what is then deposed to, not a statement made to or before the issuing justice. In the present case no admissible evidence was tendered, although Davies J at first instance recorded that counsel for the parties were content that he “should have regard to” the sworn information laid before the issuing justice.

(Footnotes omitted).

12    Although the rule concerning fraud or other illegal purpose is often called an “exception” to legal professional privilege, it is not, because the illegal or fraudulent objective of the communication prevents the communication from becoming the subject of privilege, so that privilege never attaches to it in the first place. See, by way of example, Carter v Managing Partner, Northermore Hale Davy & Leake (1995) 183 CLR 121 at 165 (McHugh J) (“The so-called exceptions to the doctrine are in truth not exceptions at all. Rather they identify circumstances where the doctrine does not apply to communications between legal adviser and client”).

13    As Gibbs J (as he then was) said in R v Bell; Ex parte Lees (1980) 146 CLR 141 at 147, “[t]he privilege, which arises only because the public interest requires it, does not exist when it is seen that it would be contrary to a higher public interest to give effect to it.”

14    The extent of the application of the rule is not limited to fraud or crime. As Brennan CJ said in the passage quoted from Propend above, it extends to “some illegal or improper purpose”. See too Attorney-General (NT) v Kearney (1985) 158 CLR 500 at 513 (Gibbs CJ) (“legal professional privilege will be denied to a communication which is made for the purpose of frustrating the processes of the law itself, even though no crime or fraud is contemplated”).

15    And as Finkelstein J further explained in In the Matter of ACN 005 408 462 Pty Ltd (formerly TEAC Australia Pty Ltd) [2008] FCA 964 at [16]:

The rule is not confined to a communication in pursuance of fraud or illegality. In Attorney-General (Northern Territory) v Kearney (1985) 158 CLR 500, it was applied to a public body that had exercised its powers in bad faith. It was not suggested that the authority had acted fraudulently or dishonestly. The allegation was that the authority had exercised its powers for an ulterior purpose. That was sufficient because the word “fraud” is wide enough to include “fraud on justice” (Kearney 158 CLR at 514) or conduct that would “frustrate the processes of law” (R v Bell; Ex parte Lees (1980) 146 CLR 141 at 156). The exception includes a communication to further any abuse or misuse of power or deliberate breach of a legal duty: Southern Equities Corporation Ltd (in Liq) v Arthur Anderson & Co (1997) 70 SASR 166 at 174.

16    The passage from Southern Equities Corporation Ltd (in Liq) v Arthur Anderson & Co (1997) 70 SASR 166 at 174 to which Finkelstein J referred is from the judgment of Doyle CJ, and is as follows:

I conclude from this reference to authority that the claim of privilege will fail only if there is material raising an arguable case that the relevant communications were made for the purpose of furthering or assisting a crime or fraud, and that fraud in this context embraces a range of legal wrongs that have deception, deliberate abuse of or misuse of legal powers, or deliberate breach of a legal duty at their heart. It is not enough, I consider, that one could simply say that a transaction constituted sharp practice, or fell below the normal standard of commercial probity. It is not enough, I consider, that one would regard a transaction on which advice was sought as artificial, or as deliberately structured to take advantage of the law on a topic. In light of the authorities, one cannot be more precise than that.

17    In Australian Securities and Investments Commission v Mercorella (No 3) [2006] FCA 772; (2006) 58 ACSR 40 at 56-7 [94], Mansfield J referred to and followed two other cases which stand for the proposition that relevant improper conduct extends to cases in which a client seeks to put assets beyond the reach of the legitimate claims of secured creditors, as follows:

In Gartner v Carter [2004] FCA 258, Lander J concluded that communications between a client and a legal adviser for the purpose of the client putting assets beyond the reach of the legitimate claims of secured creditors is a “fraud on justice”. His Honour at [130] said that such a purpose “is a fraud on the creditor and there is no public interest in protecting that communication”. Lander J followed the decision in Barclays Bank Plc v Eustice [1995] 4 All ER 511. Schiemann LJ (with whom the other members of the Court of Appeal agreed) said at 524 that, because the relevant transactions involving the disposition of assets at undervalue were intended to prejudice the interests of the secured creditor, the

… purpose [was] sufficiently iniquitous for public policy to require that communications between [the client] and his solicitor in relation to the setting up of these transactions be discoverable.

If that view be correct, then it matters not whether either the client or the solicitor shared that view. They may well have thought that the transactions would not fall to be set aside … either because they thought that the transactions were not at an undervalue or because they thought that the court would not find that the purpose of the transactions was to prejudice the bank. But if this is what they thought then there is a strong prima facie case that they were wrong. Public policy does not require the communications of those who misapprehend the law to be privileged in circumstances where no privilege attaches to those who correctly understand the situation.

18    His Honour concluded at 58 [100]: “I can see no public interest in a client engaging a legal practitioner for the purpose of preparing documents which have the effect of concealing the true nature of a transaction and which enable the client to present through documents a picture which is not true”.

19    For a document or communication to be made in furtherance of the fraud or improper purpose it must help forward, advance or aid it. See Propend at 514 (Brennan CJ). However, the rule can apply even if the lawyer does not know of the fraudulent or improper purpose. See Southern Equities at 174 (Doyle CJ). The rule can also apply if the privileged communications relate to the fraud of a third party, rather than the lawyer’s client themselves. See Capar v Commissioner of Police (1994) 34 NSWLR 715, 717-22 (Donavan AJ).

20    It is not necessary to prove an improper purpose on the balance of probabilities. The prima facie test applies. In AWB Limited v Cole (No 5) (2006) 155 FCR 30 at 89 [218], having observed that proof on the balance of probabilities is not required, Young J continued:

The “prima facie” test arguably reflects the fact that issues of legal professional privilege are usually dealt with in the interlocutory stages of a proceeding, but the authorities have not departed from that formulation where a declaration is sought in relation to privilege issues … It must also be established, on the same prima facie basis, that the communication which is the subject of the claim for privilege was made in furtherance of, or as a step preparatory to, the commission of the fraud or wrongdoing.

21    In Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 61 at 622-23, the High Court (Kitto, Taylor, Menzies and Owen JJ) made the following observations about the nature of a prima facie case in the context of applications for interlocutory injunctions:

The Court addresses itself in all cases to two main inquiries. The first is whether the plaintiff has made out a prima facie case, in the sense that if the evidence remains as it is there is a probability that at the trial of the action the plaintiff will be held entitled to relief … How strong the probability needs to be depends, no doubt, upon the nature of the rights he asserts and the practical consequences likely to flow from the order he seeks. Thus, if merely pecuniary interests are involved, “some” probability of success is enough … and in general it is right to say, as Roper CJ in Eq said in Linfield Linen Pty Ltd v Nejain (1951) 51 SR (NSW) 280 at p 281 :

“There are disputes of fact as to a number of matters … but this being an application for an interlocutory injunction I look at the facts simply to ascertain whether the plaintiff has established a fair prima facie case and a fair probability of being able to succeed in that case at the hearing”.

Thus where the defendant goes into evidence on the interlocutory application the Court does not undertake a preliminary trial, and give or withhold interlocutory relief upon a forecast as to the ultimate result of the case. James LJ explained the general attitude of the Court when he said, in Plimpton v Spiller (1876) 4 ChD 286, at p 289, in relation to a patent action where there was no outstanding issue as to validity:

“… the Court, not forming an opinion very strongly either one way or the other whether there is an infringement or not, but considering it as a fairly open question to be determined at the hearing, and not to be prejudiced by any observation in the first instance, reserves the question of infringement as one which will have to be tried at the hearing, and which it will then have to consider.”

22    Those observations were, as I said, made about whether a prima facie case has been made out in the context of an application of an interlocutory injunction, but they are equally applicable to the approach taken by courts in applications of this sort.

23    Two critical questions arise in this case:

(a)    diverting assets from the second respondent to the third respondent in order to minimise the assets available to it to pay a pecuniary penalty that ASIC was seeking against it in the civil penalty proceeding brought against it by the applicant in proceeding no. VID 585 of 2016; and/or

(b)    causing the second respondent to file and serve misleading evidence and written submissions about the financial position of the second respondent in the penalty phase of proceeding no. VID 585 of 2016; and

(2)    Do any of the 615 identified documents over which privilege is claimed contain or evidence communications between the respondents, or any of them, and their legal advisors in furtherance of, or as a step preparatory to, either or both of those purposes?

24    These reasons deal with the first of those questions. For the reasons that follow, the answers to question 1 are:

     Question 1 (a): Yes.

     Question 1 (b): Yes.

25    With respect to question 2, the 615 documents have not yet been produced for inspection. ASIC originally contended that I could and should make the declarations it sought with respect to the categories alleged by reference to the descriptions of the documents contained in exhibit YH-4 to the Second Hsueh Affidavit, without inspecting them. I expressed the view at the hearing that I would not do that.

26    During the course of her submissions, Ms Eugenia Levine of counsel (who appeared with Ms Edwina Smith for ASIC) did not resist the proposition that it was not appropriate to ask the court to make declarations in respect of any categories of documents, and that question 2 should be addressed upon an inspection of each of the 615 documents over which a claim for privilege was asserted.

27    At the request of Mr JWS Peters AM KC (who appeared with Mr Matthew Hooper of counsel for the respondents), I allowed the parties to file brief written submissions after the hearing about whether, in the events that had occurred, and in particular in light of the form of ASIC’s originating application, the documents should be inspected.

28    Those submissions were duly filed. The respondents submitted that although as a general rule a court should not be hesitant in examining documents in respect of which disputed claims of privilege are made, the discretionary power to do so should not be exercised in this case, because “ASIC should be held to its forensic decision to run the case it did, on the evidence it led, and without making any application for production to or inspection by the Court of the documents prior to the final hearing”.

29    The respondents submitted that cases which stand for the proposition that courts should not normally be asked to fill gaps in the disclosed case for a claim of privilege by inspecting the documents (like Ensham Resources Pty Limited v Aioi Insurance Company Limited (2012) 209 FCR 1; Edwards v Nine Network Australia Pty Ltd (No 4) [2022] FCA 1496) should apply in a case such as this, and that “the power to order inspection should not be used to remedy a lack of admissible evidence led by ASIC to support the required element of ‘furtherance’”.

30    I do not accept that submission. No reason was advanced why observations in the cases about not necessarily permitting a party claiming privilege the opportunity to fill gaps in its evidence adduced by asking a court to inspect their documents have any relevance in a case, like this, where inspection is sought to test the claim, the court being satisfied of a prima facie case of improper purpose.

31    I reject the respondents’ submission that ASIC made a forensic decision to run its case in a particular way. ASIC is not bound by pleadings on an application of this sort and, in any event, Ms Levine expressly referred to the court’s power to inspect the documents in her opening. As Dowsett J said in Beazley v Steinhardt [1999] FCA 447; (1999) 106 A Crim R 21 at 29 [35] (affirmed on appeal in Beazley v Steinhardt [1999] FCAFC 1255), a case in which it was alleged that documents over which there was a claim for legal professional privilege had been created in furtherance of a criminal or illegal purpose:

In Sankey v Whitlam (1978) 142 CLR 1, the High Court inspected the relevant documents in determining a claim of public interest immunity, and it is difficult to see why a different approach ought be taken in a case such as this. However a court would probably not take that step unless the party asserting an ulterior purpose had gone some way towards establishing that assertion. In most cases, that would probably mean that the onus of establishing such purpose had been discharged. Nevertheless, it would still be necessary to look at the documents to determine whether they were produced in the course of pursuing the relevant ulterior purpose.

32    Along the same lines, see also R v Governor of Pentonville Prison, Ex parte Osman [1990] 1 WLR 277 at 310 (Lloyd LJ and French J) (“we can see no objection to the magistrate looking at the documents, if necessary, in order to determine whether they came into existence in furtherance of a criminal purpose”).

the facts

The parties and other relevant entities

33    Mr Tzouvelis is currently the director of 28 companies. He was previously the sole director and secretary of Golden Financial.

34    Golden Financial was registered as a company on 10 December 2007. Its registered name was initially National Sterling Financial Services Pty Ltd, then NSG Services Pty Ltd (from 19 February 2014 to 8 August 2017), and then Golden Financial Group Pty Ltd (from 9 August 2017). At all relevant times, it provided financial services advice and held an Australian financial services licence (or AFSL) permitting it to advise retail clients about and deal in life risk insurance and superannuation products. It employed and engaged persons to provide financial services advice on its behalf as its representatives, and its authorised representatives, within the meaning of the Corporations Act.

35    Mr Tzouvelis was the sole director and secretary of the company now known as Golden Financial from 10 December 2007 until 1 July 2018.

36    The current director of Golden Financial is Mr Luke Donohue. He was appointed on 1 July 2018.

37    Mr Tzouvelis has been the sole shareholder of the company now known as Golden Financial since it was registered on 10 December 2007. It obtained an AFSL on 3 April 2008. Golden Financial surrendered it on 22 June 2019.

38    Premium, previously called Adelaide FS Pty Ltd, was registered as a company on 25 February 2014.

39    Mr Angelo Panagopoulos was the sole director of Premium until 4 September 2019.

40    The current sole director of Premium is Ms Samantha Noyes.

41    The sole shareholder of Premium was Adelaide Financial St Pty Ltd until 30 April 2020.

42    Pursuant to a bare trust deed dated 25 February 2014, Mr Panagopoulos agreed to subscribe for and hold shares in Adelaide Financial St Pty Ltd in bare trust for Belgian Court Pty Ltd.

43    Mr Tzouvelis is the sole director and shareholder of Belgian Court Pty Ltd, and has been since 29 March 1996.

44    To the extent that Belgian Court Pty Ltd acted in its capacity as trustee, it is the trustee for the Tzouvelis Family Discretionary Trust, of which Mr Tzouvelis is the appointor.

45    iProsper Financial Planning Pty Ltd (the fourth respondent) was registered as a company on 4 November 2015.

46    Its sole shareholder until 23 August 2019 was Mrs Rhonda Tzouvelis, Mr Tzouvelis’ wife. Since 23 August 2019, the sole shareholder has been iProsper Group Pty Ltd.

47    iProsper has been a Corporate Authorised Representative of Premium since 16 November 2018.

48    iProsper is the trustee of the iProsper Unit Trust, of which Belgian Court Pty Ltd (as trustee for the Tzouvelis Family Discretionary Trust, of which Mr Tzouvelis is the appointor) is the sole unit holder.

49    The following chart was admitted into evidence and is an uncontroversial depiction of the relationship between the relevant entities:

The civil penalty proceeding

50    On 3 June 2016, ASIC commenced a civil penalty proceeding (being proceeding no. VID 585 of 2016) against NSG Services Pty Ltd (NSG) alleging contraventions of ss 961K(2) and 961L of the Corporations Act. Those provisions are contained in Div 2 of Part 7.7A of the Corporations Act, which was introduced as part of the “Future of Financial Advice Reforms” by the Corporations Amendment (Further Future of Financial Advice Measures) Act 2012 (Cth).

51    ASIC alleged that, on several occasions between 1 July 2013 and 20 August 2015, certain NSG representatives failed to comply with ss 961B and 961G of the Corporations Act in relation to personal advice provided to retail clients of NSG; that NSG failed to take reasonable steps to ensure that its representatives complied with ss 961B and 961G of the Corporations Act, and thereby contravened s 961L of the Corporations Act; and that in respect of breaches of ss 961B and 961G by NSG representatives who were not authorised representatives, NSG breached s 961K of the Corporations Act.

52    Pursuant to s 1317E of the Corporations Act, ASIC sought declarations that NSG had contravened:

(a)    s 961K(2) of the Corporations Act, in respect of the contraventions by its representatives (other than authorised representatives) of ss 961B and 961G of the Corporations Act;

(b)    s 961L of the Corporations Act, by failing to take reasonable steps to ensure that its representatives (including authorised representatives) complied with ss 961B and 961G of the Corporations Act.

53    Pursuant to s 1317G(1E) of the Corporations Act, ASIC sought orders that NSG pay pecuniary penalties in respect of its contraventions of ss 961K(2) and 961L of the Corporations Act. It also sought its costs.

54    The proceeding was allocated to the docket of Moshinsky J.

55    On 29 November 2016, the parties signed heads of agreement pursuant to which NSG agreed to the court declaring that it had contravened ss 961K(2) and 961L of the Corporations Act.

56    On 24 March 2017, ASIC and NSG filed an agreed statement of facts which provided the factual basis for proposed declarations. It also provided that “[f]ollowing the execution of a Statement of Agreed Facts … the parties will proceed to a contested hearing on penalty at a date to be fixed”.

57    On 30 March 2017, Moshinsky J made declarations in respect of the admitted contraventions substantially in the terms of the declarations proposed.

58    A copy of the agreed statement of facts was annexed to his Honour’s reasons. See Australian Securities and Investments Commission, in the matter of NSG Services Pty Ltd v NSG Services Pty Ltd [2017] FCA 345. Those agreed facts included the following:

(c)    Size of NSG

19.    Between 30 June 2013 and 30 June 2016, NSG has had the following numbers of authorised representatives and financial advisers:

20.    As at the date of this ASOF, NSG employs or engages two people that are authorised representatives and financial advisers.

21.    NSG has filed with ASIC annual AFSL holder profit and loss statements and balance sheets (Form FS70) that set out the net revenue and asset position of the NSG Services Unit Trust and Associated Entity between 30 June 2008 and 30 June 2016 as follows:

59    On 22 September 2017, Golden Financial filed submissions on the question of penalty and capacity to pay which relevantly addressed its financial position, and which contended that the combined penalty for all contraventions should be no more than $100,000:

Total penalty and capacity to pay

…

120.    NSG’s present financial circumstances reflect a constrained capacity to pay a pecuniary penalty. Its net assets are only $159,249. Its future prospects are affected by the fact that its business and financial standing have suffered considerably. The widespread adverse publicity associated with the proceeding, including the declarations of contravention, has led to a substantial loss of clients, staff and reputation. It has lost its major referral relationship. Significant costs in relation to the proceeding have already been incurred by NSG, and it has agreed at mediation to pay ASIC’s costs, including its costs of the investigation pursuant to s 91 of the ASIC Act. All these matters serve to establish a sound foundation for both general and specific deterrence, even before any pecuniary penalty is awarded.

60    On 26 October 2017, ASIC and Golden Financial agreed that Golden Financial would pay $50,000 for ASIC’s costs of its investigation and $50,000 for its costs of the proceeding. Golden Financial also agreed that it would join with ASIC in seeking the imposition of a pecuniary penalty of $1 million.

61    On 27 October 2017, Moshinsky J made orders to that effect and gave reasons in ASIC v Golden Financial (No 2). His Honour’s reasons included the following:

8    In the course of oral submissions, the parties also indicated that they had reached agreement as to a payment plan whereby the pecuniary penalty would be paid in instalments over a two year period. In light of this arrangement, both parties submitted that I did not need to concern myself with ‘capacity to pay’ as a factor in considering the appropriateness of the proposed pecuniary penalty. Neither party sought to have the details of this arrangement included in the orders.

9    For the reasons that follow, I consider it appropriate for there to be separate pecuniary penalties ordered in respect of the s 961K(2) contraventions and the s 961L contraventions. As explained above, the parties have in effect proposed that the penalties for these groups of contraventions be $250,000 and $750,000 respectively. I consider these proposed penalties to be within the appropriate range for the contraventions. Accordingly, I will make orders to the effect that NSG pay a pecuniary penalty of $250,000 in respect of the s 961K(2) contraventions and $750,000 in respect of the s 961L contraventions. I will also make the agreed costs orders.

…

27    I regard the contraventions of ss 961K(2) and 961L by NSG as very serious in nature. While the s 961K(2) contraventions arise from specific contraventions by NSG’s representatives, for which NSG is automatically liable, the contraventions of s 961L concern the overall way in which NSG itself conducted its operations. The facts and matters referred to above and in the Liability Reasons demonstrate that the contraventions were very serious, and warrant the imposition of a substantial penalty.

28    Given the differences between the provisions in s 961K(2) and s 961L, in that s 961K(2) imposes liability upon NSG for contraventions by its representatives (other than authorised representatives), while s 961L imposes an obligation on NSG itself to take reasonable steps to ensure that its representatives comply with ss 961B, 961G, 961H and 961J, it is appropriate that the penalties for the contraventions of s 961K(2) and s 961L be dealt with separately.

29    It is not necessary, in the present context, to refer to each of the factors that are relevant to the penalty discretion. However, I note, in particular, the following matters.

30    First, it is not suggested that NSG’s conduct involved dishonesty.

31    Secondly, the circumstances in which the conduct took place include, relevantly, that at the very start of the transitional period relating to the relevant provisions, the eight year old daughter of Mr Tzouvelis passed away from a sudden childhood illness. This was only two weeks after the Future of Financial Advice reforms had passed into voluntary effect. Mr Tzouvelis entered into a period of intense grieving. The result was that NSG’s senior management was substantially impaired during the critical 12 months leading up to the compulsory implementation of the new Div 2 of Part 7.7A of the Act.

32    Thirdly, in relation to the size and financial position of NSG, during the relevant period it operated a substantial enterprise, with commissions received (before expenses) in the millions of dollars.

33    Fourthly, NSG has co-operated with ASIC, including in reaching an agreement in relation to the declarations of contraventions and the ASOF.

34    Further, in relation to the proposed pecuniary penalty, NSG has also reached an agreement with ASIC. I take NSG’s agreement to the proposal of a substantial penalty to demonstrate its recognition of the seriousness of its contraventions. Further, I note that Mr Tzouvelis has expressed contrition in his affidavit evidence.

35    Taking the above matters into account, I consider the penalty proposed by the parties, namely $1 million for both the contraventions of ss 961K(2) and 961L, to be appropriate. For the reasons indicated, I consider that separate penalties should be imposed for the s 961K(2) contraventions and the s 961L contraventions. In this regard, I consider the proposed amounts with respect to the two sets of contraventions (namely, $250,000 for the s 961K(2) contraventions and $750,000 for the s 961L contraventions) to be appropriate. In summary, I consider that these penalties, which are substantial, appropriately recognise the seriousness of the offending as well as the other circumstances of this case.

36    Accordingly, I will make orders to this effect. I will also make the costs orders agreed by the parties.

62    The sum of $100,000 for ASIC’s investigation and litigation costs have been paid, but only $100,000 of the pecuniary penalty order has been paid. The balance of $900,000 remains outstanding.

The transfer of assets – the first alleged improper purpose

The evidence relied on by ASIC

63    ASIC relied on the content of, and inferences open to be drawn from, a considerable body of documentary evidence, including as follows.

64    On 8 December 2016, nine days after NSG signed the heads of agreement with ASIC, Mr Tzouvelis sent an SMS to the Operations Manager of the NSG, Ms Chrystal Evans, asking whether there was “[a]ny word on transfer of AFSL”.

65    On the same day, Ms Evans wrote to several insurance companies (MLC Wealth, ANZ, Colonial First State, AMP, and IOOF) asking to “transfer all clients currently being held by [NSG] to [Premium] AFSL 454195”. Ms Evans’ 8 December 2016 email to Mr Matthew Kent at IOOF was in these terms (errors and emphasis in the original):

Subject: Transfer Customers for NSG (AFSL to Premium Client Services (AFSL 454195)

Hi Matt,

As discussed back in June 2015 NSG is moving on in terms of licenses etc. As part of this we have made agreements and arrangements with another licence to service all of our existing client base.

Based on this I would formally like to make the request to transfer all NSG clients, including clients currently under Brian and Vince to Premium Client Services AFSL 454195.

I am unaware if Premium Client Services currently has an Corporate code with IOOF so if they don’t can you please forward me the relevant details of what you need to set this up and I will handle with them and their director.

Also could you check if Angelo Panagopoulos has been set up with his individual code? If not can you send me forms to have this done. His individual AR number with ASIC is 1250446

I was supposed to request this a few weeks ago so if you could make an urgent move on it I would greatly appreciate it.

Thanks in Advance.

Chrystal Evans

Operations Manager

National Sterling Group

66    Ms Evans’ 8 December 2016 email to the team at ANZ was relevantly in these terms:

Subject: FW: Transfer of all clients from NSG Services Pty Ltd to Premium Client Services Pty

Hi Team,

RE Transfer of all clients from NSG Services Pty Ltd to Premium Client Services Pty

We would like to transfer all clients currently being held by NSG Service Pty. Ltd., its sub-authorised reps Brian Sayers and Vince Panagiotidis, to Premium Client Services AFSL 454195.

I am unsure if Premium Client Services currently have an arrangement with ANZ/One Path however if not we need to get this started transfer started immediately and find out what forms we need to have signed in order to have this transfer completed ASAP.

67    Between 12 and 13 December 2016, Ms Evans, Mr Tzouvelis and Mr Panagopoulos (then director of Premium and the external accountant for Mr Tzouvelis, NSG and Premium) exchanged emails about transferring clients from NSG to Premium, including about the “need [for] some signatures [of clients] on paperwork”.

68    A little over three weeks after ASIC commenced proceedings against it, Golden Financial transferred $821,212.36 from its bank account to a bank account held in the name of Premium.

69    In response to ASIC’s contention that the payment was evidence of the first improper purpose alleged, Mr Tzouvelis deposed in his First LPP Affidavit that the reason for this transfer was that on 29 June 2016, Premium had issued twenty invoices to Golden Financial totalling $821,212.36 for management fees said to have been incurred between November 2014 and May 2016. He deposed as follows:

I refer to paragraph 50 of the Hsueh affidavit in which he deposes to a transfer on 29 June 2016 of $821,212.36 from [Golden Financial] to Adelaide FS Pty Ltd (i.e. [Premium]). The reason for this transfer was that [Premium] had invoiced [Golden Financial] for $821,212.36 worth of management fees (wages and operating costs to service the client database) from November 2014 to May 2016. The transfer was made in payment of these management fees, contained in 20 invoices sent by [Premium] to [Golden Financial]. At page 158 of AT-1 is a true copy of a receipt issued by [Premium] to [Golden Financial] which identifies the amount paid and the relevant invoices.

70    This is a reproduction of the receipt that Mr Tzouvelis said was issued by Premium to Golden Financial and which was at page 158 of the bundle of documents annexed to his First LPP Affidavit:

71    ASIC contended that Mr Tzouvelis’ “explanation does not accord with the documentary evidence” because:

73    [O]n 29 June 2016, shortly after ASIC commenced the civil penalty proceeding on 3 June 2016, Golden Financial paid $821,212.36 to Premium. This had the effect of reducing Golden Financial’s available assets. Mr Tzouvelis claims in the Tzouvelis LPP Affidavit that the reason for this transfer was that Premium had invoiced Golden Financial for management fees (wages and operating costs to service the client database) from November 2014 to May 2016.

74    This explanation does not accord with the documentary evidence. In particular:

(a)    the sum of $821,212.37 exceeds the recorded income for Premium in its audited financial statements for the entirety of financial years 2015 and 2016. Golden Financial’s audited financial statements also record $0 in ‘Management Fee’ for financial year 201585 and $444,043 in ‘Management Fee’ for financial year 2016;

(b)    …

(c)    finally, the ‘receipt’ which Mr Tzouvelis says was issued by Premium to Golden Financial is curious in that it purports to be dated 30 June 2016. However, the letterhead contains the email address ‘talwis@iprosperfinancialplanning.com.au’, being the email of an individual called Theshan Alwis. Mr Alwis does not appear to have started his employment with Premium until June 2019. Also, the website address ‘https://www.iprosperfinancialplanning.com.au’ is featured on the ‘receipt’, but iProsper did not become Premium’s corporate authorised representative until 16 November 2018.

(Footnotes omitted).

72    Those submissions prompted Mr Tzouvelis to respond in his Second LPP Affidavit, as follows:

14    I refer to paragraph [47] of My First Affidavit, the receipt at page 158 of AT-1 and paragraph 74(c) of ASIC’s written submissions.

15    Theshan Alwis was employed by PCSA between 8 July 2019 and 28 February 2023. Theshan is a qualified accountant and worked within the accounts department for the Tzouvelis Group of companies.

16    For the purposes of the preparation of My First Affidavit, Theshan was asked to login to a part of the Tzouvelis Group’s accounting system, Quickbooks, to obtain and provide copies of the management fee invoices between [Golden Financial] and PCSA between November 2014 and May 2016 and the payment summary document dated 30 June 2016. Theshan carried out this task and produced those documents.

17    I am informed by my staff and believe that it is a standard function within the Quickbooks accounting software system that any historical report generated by the system will automatically populate the ‘company details’ with the information that is attached to that account and, relevantly, the login details of the person who accessed the system to retrieve the historical information. I am informed and believe that as a result, despite Theshan not having been employed by PCSA at the time with respect to which the historical report retrieved relates, his details appear on the report because he obtained it.

73    That in turn led ASIC to send a letter to the respondents’ solicitors, in the following terms:

1.    We refer to the second affidavit of Mr Tzouvelis sworn in this proceeding on 24 March 2023.

2.    In particular, we refer to Mr Tzouvelis’ explanation of Quickbooks at paras 14 to 17 regarding the production of the document referred to in para 14 (and exhibited at page 158 of AT-1), which is described as a receipt (the Receipt).

3.    Mr Tzouvelis’ explanation provided in those paragraphs does not accord with ASIC’s understanding of the operation of Quickbooks.

4.    Accordingly, we request that your clients produce, by 12 noon on Wednesday, 29 March 2023, the Quickbooks audit log for the Receipt, verifying when that document was created, edited and produced.

74    There was no response to that letter. No explanation was provided of how the respondents’ QuickBooks system relevantly operated to produce the receipt. Nor was an audit log produced.

75    On 20 March 2017, Ms Eleni Pantelidou, Production Accounts Manager for National Sterling Group, sent an email to Mr Rod Brown, Business Development Officer for IOOF asking, among other things:

I would like to ask you what are the steps that we need to take so that we transfer all our existing accounts to a new licensee. Are there any forms that the director needs to sign so that we register the new licensee with you and then transfer those accounts to the new licensee?

76    On 21 April 2017, Ms Pantelidou prepared a letter of release for Mr Tzouvelis to authorise The Colonial Mutual Life Assurance Society Limited (Colonial Mutual) to transfer 33 specified clients’ accounts to Premium.

77    On 4 July 2017, Zurich terminated Golden Financial’s distribution agreement with Macquarie Life dated 24 December 2012.

78    On 6 July 2017, Mr Tzouvelis sent an email to Ms Leanne Shepherd of Zurich which stated, among other things:

Thank you for your time and understanding, as discussed we would like to bring to your attention and correct some of the points made in your letter...

Finally we just want to thank you all for confirming our understanding of the cancellation over the last few days...

* We will continue to receive our trail payments as normal...

79    On 19 July 2017, Ms Shepherd responded to Mr Tzouvelis in an email, which stated, among other things:

We confirm that the Distribution Agreement with NSG has been terminated by agreement between us effective from 17 July 2017.

We would like to also confirm the consequences of termination are:

* Trail commission is unaffected and continues;

*no new business will be accepted...

80    On 3 August 2017, Mr Tzouvelis responded to Ms Shepherd, which stated, among other things:

Hi Guys thank you for your time in the last few days. I fully understand what your [sic] saying about the access to the customers perhaps we could relook at this down the track. I would like to say thank you [for] clarifying the below.

81    Between 12 June 2017 and 15 March 2018, Mr Tzouvelis signed several Deeds of Assignment between Golden Financial and Premium by which Golden Financial assigned to Premium its rights under distribution agreements with insurance companies Colonial Mutual (12 June 2017), Zurich (10 August 2017), and ING (15 March 2018).

82    Between June and December 2017, Mr Tzouvelis also signed several “letters of release” on behalf of Golden Financial to authorise IOOF, CommInsure, AMP, Suncorp, AIA, ANZ, TAL and MLC to transfer specified client accounts to Premium.

83    ASIC said that between 5 July 2017 and 6 September 2021, Premium received commission payments from insurance product providers transferred from Golden Financial totalling $7,808,784.71.

84    ASIC relied on the evidence of Ms Populin in her 21 September 2022 affidavit, correctly summarised in the First Hsueh Affidavit as follows:

(a)    In June 2017, the Golden Financial ANZ A/C 835673203 (described in the bank statements under account name as “NSG SERVICES PTY LTD RECEIVING COMMISSIONS”) received $295,215.67 in commission payments from insurance product providers. Premium NAB A/C 848196805 had not received any commission payments from insurance product providers at that time.

(b)    In July 2017, the Premium NAB A/C 848196805 started to receive commission payments from insurance product providers, receiving a total of $22,949.44 in the month of July 2017.

(c)    In October 2017, the Golden Financial ANZ A/C 835673203 received $87,427.30 in commission payments from insurance product providers compared to $101,943.95 in Premium NAB A/C 848196805.

(d)    In December 2017, the Golden Financial ANZ A/C 835673203 received $533.61 in commission payments from insurance product providers compared to $131,742.14 in Premium NAB A/C 848196805.

(e)    In the months since December 2017, Golden Financial ANZ A/C 835673203 received either nil or negligible payments until it was closed on 15 July 2020.

(f)    In the period between 5 July 2017 and 6 September 2021, Premium has received payments from insurance product providers transferred from Golden Financial totalling $7,808,784.71. Prior to 5 July 2017, Premium did not receive any payments from insurance product providers.

85    Mr Tzouvelis disputed the total figure calculated by Ms Populin. But he accepted that Premium received payments totalling $5,864,008.25, comprising “upfront payments” of $933,543.65 and trail payments of $4,930,464.60. He also admitted that nearly all of Golden Financial’s distribution agreements with insurance companies were assigned to Premium.

86    It is not necessary for present purposes to resolve the question which of the two figures ($7,808,784.71 or $5,864,008.25) is correct. ASIC has plainly made good a case for the higher figure. But on any view, it is common ground that large sums of money from insurance companies originally destined to be in the coffers of Golden Financial ended up with Premium.

87    The evidence also demonstrated that Golden Financial was intent on ensuring that trailing commissions which would otherwise be payable to Golden Financial be transferred to Premium.

88    For example, during April and May 2017, Ms Pantelidou and Mr Tzouvelis corresponded about arrangements for transferring clients of Golden Financial to Premium, via emails with subject headers like “Moving Trail update”, “Moving Trail Progress” and “Moving Trail to Premium Client Services”.

89    On 1 August 2017, Ms Pantelidou sent an email to Mr Tzouvelis with the subject header “Update on the trail”, providing information about insurance companies from whom trail commissions were now being received in the Premium account:

Hi Tony

This is the update so far.

1.    IOOF - Done, we are receiving the trail in the Premium Client Services account

2.    Macquarie /super) - Done, we are receiving the trail in the Premium Client Services account

3.    MLC - Done, we are receiving the trail in the Premium Client Services account. As Brian and Kyle are still lodging business with the old code I will have to do a secondary transfer soon.

4.    CommInsure - Done, we are receiving the trail in the Premium Client Services account.

5.    One Path - everything has been sent to them, they had emailed Luke and left voicemails as they wanted to know the adviser who will be taking over the clients. I emailed them yesterday to let them know it will be Angelo. Waiting for them to transfer the clients.

6.    AIA - they emailed an extra document that needed to be signed by Angelo and they require the original. Angelo signed it and I am waiting for you to sign the release letter so that I can post everything today. Can you please sing the letter, it’s been in your tray since yesterday.

7.    Asteron - the new dealer group has been set up, waiting for them to transfer the clients.

8.    Zurich - Luke sent all the documents as the PI Insurance was done after I had left. I have emailed them and called them for an update but they still haven’t replied and not answered my calls. I will call them again today.

90    On 26 October 2017, Mr Tzouvelis sent a letter regarding “Change of Bank Account Details” to both ANZ and ING. Each letter was in these terms:

I, Antonios Tzouvelis, the sole director of NSG Services Pty Ltd (AFSL 321191), confirm that we have recently changed our bank account details so please update your records and use the updated bank account details from now on.

Old account details: Bank: ANZ

BSB: 013-423

Account Number: 83-567-3203

New account details:

Old account details:

Bank: National Australia Bank 8S8: 083-170

Account Number: 84-819-6805

91    Mr Tzouvelis was cross-examined about his evidence about those documents, as follows:

[MS LEVINE] And there, you sign this form. That’s your signature at the bottom? Correct.

25 October 2017 is the date, and it says, “I” – do you remember signing this form? I’m going to say to you no. I don’t, but that doesn’t mean I didn’t – I didn’t.

It’s your signature? Yes. It appears to be my signature, but I – I don’t remember that particular form.

And it says:

I, Antonios Tzouvelis, the sole director of NSG Services Proprietary Limited confirm that we’ve recently changed our bank account details. Please update your records and use the updated bank account details from now on.

It has got the old account details at ANZ and the new account details at the NAB. Now, Mr Tzouvelis, it’s the case, isn’t it, that those new bank account details you gave to ING were in fact for Premium of Golden Financial? I’ve been made aware of this and, if you would like – if you want the yes-no answer, the answer is yes or I can give you the actual answer as well.

So it’s not correct, is it, that this was a change of bank account details within NSG, as suggested by the documents going to ING. Correct? It’s – it’s not the correct bank account details. That’s what I can agree with you.

And I put to you that you were doing this because you wanted Premium to start receiving the trailing commissions, but you hadn’t obtained yet most of the wet ink signatures necessary to transfer the client accounts from Golden Financial to Premium. Correct? Again, no. It’s not correct.

You didn’t tell ING this was the incorrect bank account details at any point prior to today or at all, did you? I was not in charge of that, but I – the – so again, okay. No.

Well, you said you’ve been made aware of it. What is your explanation? Okay. So in the communications, Chrystal explains there’s a two-stage process to this in terms of what needs to be done. In addition to that, we weren’t receiving any commissions from ING to Golden. They in fact shut us down. So to transfer over something we’re not receiving, I don’t understand how that occurs. Right. Why she did it in this two-stage process, I must tell you my honest opinion, my honest answer, is I trusted Chrystal. By and large, she did a fantastic job. So why she needed a two-stage process, I don’t have my fingers all over that. I trusted in what she did and she – in the end, I suppose she got it all over.

This form that we’re looking at, page 27, that’s a form you signed, not Chrystal Evans? Correct. I did sign it.

92    On 3 November 2017, Ms Pantelidou emailed Mr Tzouvelis telling him:

Hi Tony,

I have put in your tray the following

60 day bank statement of Premium Client Services bank account that shows that commission is paid there and highlighted the amounts

One statement of each company that shows that commission is paid to Premium Client Services.

93    On 13 November 2017 Ms Shepherd of Zurich emailed Mr Tzouvelis as follows:

Dear Tony

We refer to the below email of 18/10/2017 along with our recent telephone conversation, and advise that as a result of the termination of the Distribution Agreement, clause 13.6 does not apply, as the clause (under the terms of the agreement, clause 11.4) does not survive termination. As discussed, even if the transfer had been requested prior to termination we would have been unable to process an assignment anyway, as the new entity does not hold a Distribution Agreement with Zurich.

Zurich will not recognise an assignment of trail commission rights such that Zurich is obliged to pay an assignee. However, Zurich acknowledges that NSG may wish to pay their entitlements to another entity. Zurich can facilitate that by allowing NSG to direct payment of NSG entitlements to a third party’s bank account as directed by NSG. The Change of Bank Account for Commission Form is attached for completion and return. In cases where Zurich pays to a third party bank account as a consequence of such a direction:

•    Zurich recognises its obligation for payment of trail commission continues to NSG;

•    all communication will continue to be between ZAL and NSG;

•    GST paperwork will be managed between ZAL and NSG;

in the event NSG ceases to hold an AFSL, payments of trail commission will cease;

•    in the event NSG ceases to be registered for GST, payment will similarly cease.

94    On 4 January 2018, solicitors for Golden Financial (Mr Mark Bland of Mills Oakley) replied to that email, relevantly in these terms:

We act for NSG Services Pty Ltd and refer to your email to Mr Tony Tzouvelis of 13 November 2017.

… In your email, you state that Zurich refuses to recognise an assignment of trial [sic] commission rights but offers to make payment of entitlements into a third parties [sic] bank account as directed by NSG.

The proposed alternative arrangement is not acceptable to our client.

...

We request that you provide written confirmation of our clients’ assignment to [Premium] … within 7 days of the date of this letter.

95    On 19 January 2018, Zurich responded to the above correspondence and stated, among other things:

However, our searches have not been able to confirm the required relationship between the two entities. We will accordingly update our records to reflect the assignment on your provision of satisfactory documentary evidence from ASIC’s Company database showing that PCS is a related body corporate of NSG ... We have been previously advised on a number of occasions by [Mr Tzouvelis] that the 2 entities are not related, so we would be grateful if you would clarify the identity of the intended assignee (and that it is a related body corporate of NSG).

96    On 6 March 2018, Mr Tzouvelis emailed Ms Evans asking her:

Can you please tell me who else NSG is receiving money from or in other words who hasn’t been transferred to another account.

Also who has changed bank account but not transferred to another AFSL

97    Ms Evans responded the same day:

Hi Tony,

Ones that haven’t been transferred from NSG are OnePath

Zurich

ING Direct (only some clients have been transferred that signed the relevant document) However all of them are paid to the PCSA bank account

All others have been transferred.

98    Mr Tzouvelis then replied: “So the rest have infact [sic] transferred to Premium”.

99    ASIC also relied on evidence that the transfer of the right to receive trailing commissions by Golden Financial to Premium was, contrary to terms contained in various deeds of assignment, in fact made in the absence of valuable consideration.

100    One such deed was a Deed of Assignment between Golden Financial and Premium dated 12 June 2017. It relevantly provided:

Deed of Assignment

This Deed is made on the 12th day of July 2017.

Between

Golden Financial Group Pty Ltd

Level 9, 608 St Kilda Road, Melbourne VIC 3004 (“Assignor”)

and

Premium Client Services Australia Pty Ltd

Ground Floor, 61 Camberwell Road, Hawthorn East VIC 3123 (“Assignee”)

Recitals

A.    By an Agreement dated 30 May 2008 between the Assignor and The Colonial Mutual Life Assurance Society Limited (“Colonial”) [an insurance provider], the Assignor was appointed to provide non-exclusive distribution services for products of Colonial on the terms and conditions set out in the Distribution Agreement.

B.    The Assignor is authorised to and wishes to assign the Distribution Agreement to the Assignee.

C.    The Assignee is authorised to and willing to accept the assignment of the Distribution Agreement.

D.    The Assignee agrees to be bound to comply with the provisions of the Distribution Agreement that are binding on the Assignor as if it were a party to the Distribution Agreement instead of the Assignor.

Now This Deed Witnesses:

Assignment

1.    For valuable consideration of the Assignee, the Assignor Irrevocably assigns to the Assignee absolutely all the Assignor’s:

a.    right, title and interest in the Distribution Agreement, including the right to recover same, together with any fees or commissions which has accrued or which may have accrued in the future.

b.    rights and remedies arising under the Distribution Agreement.

Transfer of Clients

2.    Contemporaneously with the execution of this Deed, the Assignor will execute and deliver to Colonial authority to transfer the Clients of the Assignor to the Assignee.

3.    Until such time that the Clients of the Assignor are transferred to the Assignee, the Assignor declares that it will hold the Distribution Agreement as bare trustee for the Assignee and will only deal with the Distribution Agreement as directed by the Assignee.

…

101    Mr Tzouvelis was asked about the deed in his cross-examination, relevantly as follows:

[MS LEVINE] So is it the case that valuable consideration was paid?---No, there was no money paid. I – on this.

So this document is incorrect?---I don’t know the answer to that because I spoke to the solicitor, and he said to me, “Tony, the – the value – valuable consideration would be considered the actual income that goes over.” I didn’t fully understand it, but we had – we definitely did not pay money to come over .....

But you just said to me before or agreed with me that it was – that the transfers from Golden to Premium occurred for no valuable consideration; isn’t that right?---Correct. We didn’t pay for it.

So then this document must be incorrect; is that so?---I can’t agree with that. I – I would get the solicitor to actually – I don’t understand it enough to give you an answer on that.

And, yes, if we turn to page 759 where it’s executed as a deed, it says:

Antonios Tzouvelis, sole director, sole company secretary –

that’s you?---Mmm.

It’s a signature. Is that your signature?---That is.

So you signed it, knowing it to be incorrect; is that so?---No. I assumed that the solicitors that have actually set this up – I have – I didn’t read it.

You didn’t read it?---No.

But I thought you just said moments ago that you spoke to a solicitor and they---?--- This is after.

Well, let me finish my question?---Yes. Yes.

I thought you said you spoke to a solicitor and solicitor said something to the effect of the valuable considerations of the income, so did you speak to someone or did you not? ---I did say yes. I did speak to someone at a later point.

So you signed it without understanding it? I signed it with the idea that the people that I deal with know what they’re doing.

102    In his First LPP Affidavit, Mr Tzouvelis deposed that no consideration needed to be paid because the Tzouvelis Family Discretionary Trust owned the client database and it licensed Golden Financial to use it. Mr Tzouvelis claimed that ASIC’s characterisation of the transfer of the clients from NSG to Premium “[did] not accurately reflect the reality …” because:

[t]he [Tzouvelis Family Discretionary Trust (TFDT)] owns the database of relevant clients and grants limited licenses to licensees to use that database and provide limited financial services to clients under an appropriate [AFSL]. The TFDT, through entities it controls, has historically transferred these rights to AFSL holders temporarily at the discretion of the TFDT to transfer them elsewhere. Accordingly, the ownership of the relevant database of clients remains under the control of the TFDT. At pages 77 - 100 of AT-1 are copies of relevant agreements showing the licensing of these rights.

103    Mr Tzouvelis was cross-examined about his statement that copies of licence agreements were exhibited, and the truth of his evidence that a licence agreement of the type he described in fact existed, including as follows:

[MS LEVINE] And then you say at the last line of that paragraph:

At pages 77 to 100 of AT1 are copies of relevant agreements showing the licensing of these rights.

Are they the documents you were referring to moments ago when you said that – you gave evidence to the effect that documents in relation to the licensing of the rights were attached to your affidavit? So 77 to 100.

Yes? Yes.

If I take you to page 77. That’s minutes of a meeting of Russian Roulette Proprietary Limited? Yes.

That’s the former name for Belgian Court Proprietary Limited; is that right? That is correct.

It appears to be undated, and it says it was resolved that the company as trustee for various trusts become an agent for Oceanic Life Limited, etcetera. Is Oceanic Life Limited an insurance product provider? Correct.

This is not a licensing agreement between the Tzouvelis Family Discretionary Trust and Golden financial, is it? This is the – in 1995 representative of – well, 96, is representative of how we started the business and how all the assets, in terms of the insurance companies that I deal with, were all connected to the family trust.

I will ask my question again, though? Yes.

This is not a licensing agreement between the Tzouvelis Family Discretionary Trust and Golden Financial, is it? No, not with Golden.

No? No.

The next documents and agreement between Oceanic Life Limited – we’ve established that’s an insurance product provider, correct, and Russian Roulette? That’s former name for Belgian Court. Again, this is not a licensing agreement between Golden Financial and anyone else, is it? And – not with Golden Financial.

No. We can go through this document by document, Mr Tzouvelis, if you wish, but I put to you that nowhere in this bundle at 77 to 100 of your first affidavit is there a licensing agreement to which Golden Financial is a party in respect of the licensing of rights concerning insurance product ..... clients; correct? If it’s not there, I’m not sure where it is, but it – it

Well, we can – well ? If that – well, I’m not sure why we would have put it there if it’s not in there.

Well ? Yes.

Do you say there is a licensing agreement attached to your affidavit involving Golden Financial? I am going to say to you that what is there has been checked, and that’s what we’ve – what we’ve produced.

Well, I put to you that there is no document there to which Golden Financial is a party that concerns a licensing of rights by the Tzouvelis Family Discretionary Trust? In here, correct.

You haven’t annexed it anywhere else or in this proceeding, have you? I don’t – I think this what’s – what’s here is what it is.

104    It suffices for present purposes to say that, whatever Mr Tzouvelis’ answers in response to those questions amount to, the fact of the matter is that the documents that he swore constituted or evidenced a licence agreement between the family trust and Golden Financial did no such thing.

105    Relatedly, Mr Tzouvelis was also cross-examined about the fact that relevant financial statements did not contain any mention of licence fees, including as follows:

[MS LEVINE] Yes. Can I take you to Golden Financial’s financial year 2016, audited financial accounts, volume 2.

…

MS LEVINE: This is headed NFG Services Proprietary Limited Another Entity Statement of Comprehensive Income for the Year Ended June 2015, and then over the page, it’s Statement of Financial Position for the Company. Can you point me to where anything, in terms of a licensing fee, is recorded as an expense? I am not the accountant.

I’m asking a different question? Yes.

Can you point me to anywhere here where a licensing fee is recorded as an expense paid on the part of NSG? It would be – I would say to you that the answer to that would be the distributions. I don’t – I – I rely on my accountants to actually ensure that the accounting is in place and it gets audited.

Do you agree with me there’s nothing here that records a licensing fee? I’m sorry, I can’t agree with you because I don’t actually completely understand. I would like to get these guys to actually point it out to me, and we would then be able to give an accurate answer.

So your position is you, as the director of the company at the time, can’t explain to me or the court this financial statement and whether it records a licensing fee you say was payable to the Tzouvelis Family Discretionary Trust pursuant to an agreement that doesn’t seem to have materialised?

HIS HONOUR: I don’t think the question has been answered.

MS LEVINE: Is the answer no? Sorry, I didn’t

I’m sorry, your Honour.

THE WITNESS: Yes, I wasn’t sure what the question is. Would you please repeat that?

MS LEVINE: The question is, you, as a director of the company at the time, I say now, are you, that you cannot explain this statement of financial position by the company and whether or not it records the payment of a licensing fee to the Tzouvelis Family Discretionary Trust? My answer to that is that I have the accountants that do their job. We hire – we’ve got very good qualified people to do their job. They know what the – the overlying principles are in terms of if there’s any profit and that – how that gets distributed. That’s what I rely on. I don’t get involved in the day-to-day accounting. This has not operated

Can I take you to page 690 of the same bundle. Your Honour, it’s 690 still of Mr Hsueh’s first affidavit.

And, in fact, if you could go to 688, Mr Tzouvelis. You see that’s an form FS70 – ASIC form FS70, profit and loss statement and balance sheet. Do you see that? Yes, I do.

And do you see at the bottom there summary and results of AFS licensee financial year to end 2016? Correct.

And if you then go to page 690, it has got your signature at the bottom. Do you see that? Yes, I do.

Is that a – is paragraph 11 – do you see that? That’s a certification on your part that the profit and loss statement and balance sheet give a true and fair view of the matters stated in the financial statements, etcetera? Correct.

And yet you’re saying now that you weren’t yourself reviewing the statement of financial position I took you to before to form a few about its contents and what they are referable to, and you relied wholly on your accountants? I’m saying to you that I relied on the people that I have employed for a long time to do that, correct, and then we had the – these are audited accounts.

I put it to you that nowhere in this statement of financial position is there any express reference for a licensing fee payable to the Tzouvelis Family and Discretionary Trust. That’s correct, isn’t it? I don’t know.

Well, can you read it, please, Mr Tzouvelis, and point me to where it expressly refers to a licensing fee? I – I – I can’t actually answer that question because I don’t know where that would be – where – where that would be written, but I do know that the accountants understand exactly how we’re supposed to be operating.

106    It is again not necessary for current purposes to make any particular observations about those answers, other than to say that the financial statements in evidence for the 2016 and 2017 financial years nowhere recorded the payment of any licence fees by Premium to Golden Financial.

107    ASIC also relied on the correspondence set out above between Zurich and Mills Oakley (Golden Financial’s former solicitors) which it contended permitted an inference to be drawn that Golden Financial had at one point told Zurich, contrary to the fact, that it and Premium were not related entities, and that unless Golden Financial produced a deed of assignment assigning for valuable consideration the entitlement to premium income, Zurich would not have agreed to pay such income to Premium.

Evidence relied on by the respondents

108    The respondents relied principally on Mr Tzouvelis’ affidavit evidence in support of its case that ASIC had not made good a prima facie case that they had acted for the improper purpose of diverting assets from Golden Financial to Premium to minimise the assets available to Golden Financial to pay the pecuniary penalty.

109    It is necessary to set out the relevant parts of the First LPP Affidavit, as follows:

4    I make this affidavit in response to the originating application filed by the applicant, ASIC, on 21 October 2022 (which was accepted for filing on 24 October 2022) …

5    Annexed to this affidavit and marked “AT-1” is a bundle of paginated documents. In this affidavit a reference to a page number is a reference to the corresponding numbered page of Annexure AT-1.

6    As far as I am aware, ASIC’s Application is supported by the Hsueh Affidavit and the affidavit of Olivia Populin dated 21 September 2022 (Populin Affidavit).

…

10    In this affidavit, I seek to respond to the considerations of Mr Hs[ue]h summarised in paragraph 8 above and deposed to by him in the Hsueh Affidavit. I oppose ASIC’s Application, personally and on behalf of the Second to Fourth Respondents. It is the Respondents’ position that ASIC has failed to establish that there are reasonable grounds to believe that the Subject Documents record or evidence communications made in furtherance of an improper purpose.

…

12    I note paragraphs 12 and 13 of the Hsueh Affidavit and the reference to ASIC’s investigation … The Subject Documents do not record or evidence communications made in furtherance of contraventions of any of the statutory provisions listed in this paragraph or any other improper purpose. Rather, the documents record communications by which I and [Golden Financial] sought and received legal advice from my solicitors on various different topics, and communications in respect of actual or anticipation of litigation, including but not limited to … the Civil Penalty Proceeding … I did not attempt to or in fact minimise the assets available to [Golden Financial] for the purposes of minimising [its] capacity to pay a pecuniary penalty that ASIC was seeking. I did not give or attempt to give any misleading evidence in the Civil Penalty Proceeding …

Reason for and process of transferring clients from [Golden Financial] to PCSA

13    … Transferring clients from [Golden Financial] to PCSA in 2017 … was not done in order to reduce [its] capacity to pay any penalty imposed by the Federal Court, nor was it done for any other improper purpose. It was always my understanding, as I explain below, that, given the constitutional make-up of the Tzouvelis Group, companies within that group could transfer the rights to service clients to one another (so long as relevant stakeholders, such as insurers, were adequately informed about and agreed to the transfer).

14.    It has been my understanding, since the inception of the Tzouvelis Group, that the rights to provide financial services to the client database of the Tzouvelis Group and thereby the right to derive income from providing such financial services and the goodwill connected to the rights to provide financial services have always been retained by the trustee of the Tzouvelis Family Discretionary Trust (TFDT) …

15    … ASIC’s characterisation in its search warrant dated 8 December 2021 (and executed on 10 December 2021) (Search Warrant) of a transfer of “NSG’s clients” to PCSA does not accurately reflect the reality of the relevant transfer. The TFDT owns the database of relevant clients and grants limited licenses to licensees to use that database and provide limited financial services to clients under an appropriate [AFSL]. The TFDT, through entities it controls, has historically transferred these rights to AFSL holders temporarily at the discretion of the TFDT to transfer them elsewhere. Accordingly, the ownership of the relevant database of clients remains under the control of the TFDT. At pages 77 - 100 of AT-1 are copies of relevant agreements showing the licensing of these rights.

….

19    Before ASIC’s announcement [of the Civil Penalty Proceeding] was made, I and others working within the business of [Golden Financial] were aware that ASIC had been conducting an investigation into [Golden Financial] with respect to [it] acting in the best interests of its clients and with respect to the provision of appropriate advice by [Golden Financial] to its clients. As a result of this investigation, and the knowledge of its occurrence, financial advisors working for [Golden Financial] rapidly began to leave [it]. Based on my discussions with several such advisors I believed they did not wish to have their reputations in the industry tarnished by associating themselves with a company under investigation by ASIC for providing potentially inappropriate advice to clients. As a consequence of this ongoing exodus of staff, [Golden Financial’s] revenue was negatively impacted over the course of the ASIC investigation, even prior to June 2016, and following it (after the launch of the Civil Penalty Proceeding on 3 June 2016). From 2016 to 2018 [Golden Financial’s] number of financial advisors dropped from 25 down to 2 and its revenue dropped from $4,645,998 down to $15,624. With respect to these numbers, I refer to pages 109 - 128 of AT-1 which contain true copies of [Golden Financial’s] 2016 and 2018 tax returns.

20    [Golden Financial’s] business declined sharply in this period as a result of the level of negative media and other negative attention [it] received after ASIC announced the commencement of the Civil Penalty Proceeding. I understand this was ASIC’s first court action following the implementation of the Future of Financial Advice law reforms.

110    Having exhibited examples of such negative media attention, the affidavit continued:

22    Following the reduction in [Golden Financial’s] staff, the reduction in its revenue (as a result of clients leaving) and the adverse media (including social media) and other attention [Golden Financial] suffered, as identified above, I together with [its] management team decided that the [Golden Financial] business was not sustainable. I was conscious that there had been and there continued to be a significant amount of negative commentary about [Golden Financial] on social media. [Golden Financial] was finding it extremely difficult to recruit staff which made operating the business untenable. On average, [Golden Financial] needed to recruit 20 new financial advisors a year to be financially viable. As I explain above, staff had exited the business and [Golden Financial] could not hire enough new recruits due to the negative press and social media commentary. On the institutional side, the negative press and social media was making it very difficult to onboard new product issuers such as insurance companies. Further, banks would not lend to [Golden Financial]. As an example, I recall that in response to one loan application Bank of Queensland declined lending to [Golden Financial] even on the basis of a 50% loan to value ratio (LVR). As a result of these matters, I together with [Golden Financial’s] management team formed the view that the recruitment of new advisors/employees and the further development of business partners (including referral sources) was going to be untenable. To illustrate the problems the [Golden Financial] business faced at the time, on 4 September 2016 H&R Block (being a referral source for 97% of [its] new clients at the time) terminated its relationship with [Golden Financial]. I was told by Brodie Dixon at H&R Block during a telephone conversation on that date and believe that the reason for H&R Block terminating the relationship was ASIC’s investigation into [Golden Financial] and the Civil Penalty Proceeding.

23    Further to this, prior to the Federal Court handing down its penalty decision in the Civil Penalty Proceeding on 27 October 2017 … (Penalty Decision) … Zurich had informed [Golden Financial] that it no longer wished to deal with us. This was an enormous blow to the business of [Golden Financial] and marked the business’ ultimate decline. Zurich had recently acquired the business of Macquarie Life, which then accounted for 80% of insurance policies issued to [Golden Financial’s] new clients, and it had issued insurance policies to approximately 60% of [its] existing client database. Without Zurich, [Golden Financial] could no longer work with over 5,000 of its clients as [Golden Financial] had lost the authority of Zurich to deal with those clients with respect to products issued to them by Macquarie Life/Zurich. [Golden Financial] could not communicate with 60% of its client base about their products. Even absent the other problems [it] faced (as identified above) this alone made the [Golden Financial] business unviable. In addition to this, [Golden Financial], as a result of the Civil Penalty Proceeding, had significant difficulty acquiring professional indemnity insurance. With regards to this difficulty I refer to paragraph 10 of my affidavit filed in the Civil Penalty Proceeding and dated 11 October 2017. Without professional indemnity insurance cover, [Golden Financial] could not comply with its AFSL and, therefore, [Golden Financial’s] clients had to be moved to an entity that could acquire professional indemnity cover.

…

25    Another problem [Golden Financial] encountered during the Civil Penalty Proceeding and following the Federal Court’s decision was that institutional business partners such as Zurich terminated [Golden Financial’s] access to its online databases and systems which prevented [it] from being able to continue to service its clients. As a result, it became impossible to access and obtain account information or execute clients’ instructions. Other business partners such as ING/Onepath restricted [Golden Financial’s] access to their online databases and systems, which also restricted [its] ability to service its clients and execute their instructions. In the circumstances, I took the view that it would be very difficult for [it] to continue to provide services to its clients efficiently, honestly and fairly and that this created risks for clients: for example that they could not obtain the life insurance coverage that they had instructed [Golden Financial] to arrange for them.

Practicalities of transfer of client database from [Golden Financial] to PCSA

26    Certain banks and other institutions required each individual client of [Golden Financial’s] consent to the transfer of servicing rights to PCSA. When this occurred, and despite my understanding that this was not a legal requirement at the time, [Premium] sought this written approval from clients. An example of such an institution was ING, which required ‘wet ink’ signatures on original documents from over 250 clients giving their consent to the transfer. In respect of other institutions, the transfer of clients was effected by discussions between myself (representing TFDT), [Golden Financial] representatives and representatives of the relevant institutions.

27    I note that not all of the [Golden Financial] clients were ultimately transferred to PCSA. This was for a variety of reasons. At the relevant time, following the Federal Court’s decision in the Civil Penalty Proceeding, OnePath (a life insurance product issuer) would not permit the transfer of clients to [Premium]. However, to ensure continued service to [Golden Financial’s] then clients, those clients were transferred to Myonline Advisors Pty Ltd (AFSL No 427484) (MOA). iProsper was appointed as a Corporate Authorised Representative of MOA and the TFDT appointed iProsper to service those clients. When the agreement between iProsper and MOA was terminated in October 2018, Onepath orphaned the clients, meaning the clients had no financial advisor associated with them on Onepath’s system. In mid-2019 PCSA achieved registration with Onepath and from that time PCSA became recognised as the responsible financial advisor for those clients with OnePath products.

28    As set out above, due to the disruption caused by ASIC’s investigation and prosecution of [Golden Financial] (including the Federal Court’s decision in the Civil Penalty Proceeding and [Golden Financial’s] difficulty in obtaining professional indemnity insurance), I together with [Golden Financial’s] management team decided that [Golden Financial] could not continue to adequately service its clients in a manner consistent with its AFSL obligations and in accordance with the Corporations Act. Accordingly, [Golden Financial’s] management team decided that [it] was not a viable business and its remaining clients were at risk of suffering loss. The decision was made, therefore, to move [its] clients to [Premium].

29    The ASIC register reflects that on 22 June 2019, ASIC cancelled [Golden Financial’s] AFSL. I caused [Golden Financial] to request that this be done. … By 22 June 2019, at the latest, when ASIC cancelled [the] AFSL, [Golden Financial] could no longer and was no longer generating any form of revenue that required [Golden Financial] to hold an AFSL. I note also that since the Penalty Decision was handed down and throughout the time [Golden Financial] had been paying the penalty to ASIC by instalments, ASIC was consistently provided with copies of [Golden Financial’s] up to date financial statements providing information to ASIC as to [its] financial position.

30    In my 17 August 2017 affidavit filed in the Civil Penalty Proceeding I refer (from paragraph the fall in revenue of [Golden Financial] between 2014 and 2016 and I exhibited relevant documents. I refer to and rely on my 17 August 2017 affidavit in those proceedings. No clients were transferred from [Golden Financial] to PCSA until after the end of the 2016 financial year. Client transfers were not a contributing factor to the fall of [Golden Financial] revenue between 2014 and 2016.

111    Mr Tzouvelis then turned to the matter of the financial assistance that he said he provided to Golden Financial, by way of loans “so that it can meet its various financial commitments”. He explained that Golden Financial “has had no business activities from 1 July 2018 and its only operations have consisted of managing and resolving customer complaints and making payments to ASIC”. Mr Tzouvelis said that he has “voluntarily funded [Golden Financial] to facilitate it meeting its obligations as best I can”, including over $200,000 so that financial compensation could be paid to clients; $150,000 for costs awarded in the penalty proceeding; $100,000 towards the $1 million pecuniary penalty and over $800,000 for the continued operating expenses.

112    He also added that “[t]hese are amounts that I have paid out of my own pocket to ensure that [Golden Financial] stays afloat and to ensure that it continued to make part payments of the pecuniary penalty. I have also paid these amounts so that [it] can support and compensate its previous clients where necessary, rather than the alternative of [it] being placed into liquidation”.

113    As to trail commissions, Mr Tzouvelis deposed that Premium “did not derive any income from AFSL-related activities in 2016. As a result, there was no impact on [Golden Financial’s] AFSL income prior to the Penalty Decision due to the transferring of servicing rights of clients from [Golden Financial to Premium]”.

114    He added:

35    In 2017 when the client transfers were initiated out of necessity due to providers refusing to continue with [Golden Financial], PCSA’s AFSL-related income was approximately $50,000. This figure compares to the total income of [Golden Financial] for the period (in excess of $4 million). Thus the $50,000 was of little consequence to [Golden Financial’s] financial position. I also note that during this period [Golden Financial] was working intensively with its solicitors Mills Oakley to set up and implement a compliant AFSL framework, including compliant operating systems. [Golden Financial] paid approximately $80,000 to Mills Oakley for this purpose, with every intention at the time of [Golden Financial] continuing to operate as a profitable (and compliant) enterprise.

115    During the course of his examination-in-chief, Mr Tzouvelis also adopted the truth of instructions he gave to his solicitors which were recorded in a letter dated 1 March 2022 to ASIC (Exhibit R1), the gist of which was that Golden Financial had requested the suspension of payments of the pecuniary penalty instalments because of the COVID-19 lockdowns and significant financial losses and that no response was received to those requests; that Golden Financial and Mr Tzouvelis “at all times … intend that the pecuniary penalty is paid”; and that if Golden Financial “intended to seek to avoid this obligation by winding up the company, it would have done so already”.

The competing submissions about whether ASIC has established a prima facie case with respect to the first alleged purpose

116    In substance, as I have set out above, Mr Tzouvelis says that the transfers were done in the best interests of clients because Golden Financial was no longer able to service the clients and comply with its general obligations under its AFSL following ASIC’s initial investigation and the civil penalty proceeding. In substance, and in particular, he says that he and Golden Financial’s management team decided that it could not continue to adequately service its clients in a manner consistent with its AFSL obligations and in accordance with the Corporations Act because:

(a)    financial advisors working for Golden Financial began leaving;

(b)    negative media attention was generated;

(c)    there was difficulty obtaining finance;

(d)    the termination on 4 September 2016 of the major referral relationship with H&R Block;

(e)    the new business revenue of Golden Financial to 30 June 2017 had halved compared to the previous year;

(f)    Zurich on 4 July 2017 terminated its agreement with Golden Financial, with consequent inability of it to service those clients; and

(g)    there was difficulty obtaining adequate professional indemnity insurance cover for Golden Financial in around August 2017.

117    The respondents also contended that there was nothing improper in transferring the agreements with insurers and clients to Premium given the risks faced by Golden Financial, because Premium:

(a)    already held an AFSL;

(b)    was an entity that was able to obtain PI cover; and

(c)    was another entity in the Tzouvelis Group of companies which could be appointed by the Trustee of the Tzouvelis Family Discretionary Trust to service the clients in the client database owned by the trust, in exchange for payment of a licence fee to TFDT.

118    The respondents also contended that attempts by Golden Financial from late 2017 to keep it “operating in a compliant and profitable manner” and the funds that were expended for it, although unsuccessful, “tell[] against any improper purpose, as there would have been no need to keep [Golden Financial] operating if the purpose was to ensure it had no funds to pay the penalty”.

119    The respondents further contended that Golden Financial’s distribution agreements with the insurers “also required … PI cover, and permitted the insurers to terminate the agreements if there was no PI cover”.

120    Thus, it was submitted:

While [Golden Financial] lost its major revenue stream due to the assignment of commission to [Permium], that assignment was necessary because of the dire situation [Golden Financial] found itself in, and not because of a dishonest design. Moreover, [Golden Financial] did not lose any assets in the process, as the underlying asset (the client database) was owned by the TFDT whose trustee could appoint whichever AFSL holder it chose to service the clients: Mr Tzouvelis’ affidavit at [13]. Thus, ASIC’s status as a potential future unsecured creditor of [Golden Financial] was not prejudiced. Even if it was prejudiced, that was not the purpose sought to be achieved, but only a by- product of honest business decisions.

(Emphasis in original.)

121    As to the payment of the lump sum of $821,212.36, Mr Tzouvelis deposed that it was a lump sum payment of various management fees invoices (Exhibit R2), which fees were said to have been incurred between November 2014 and May 2016, and that there was in effect nothing untoward about the payment.

122    In his oral address, Mr Peters also sought to emphasise evidence given by Mr Tzouvelis that although $900,000 of the $1 million penalty still remains unpaid, Mr Tzouvelis was not challenged in cross-examination about his assertion in his First LPP Affidavit that he always intended that Golden Financial would pay the penalty. He also relied on evidence given by Mr Tzouvelis that there was an attempt from late 2017 to keep Golden Financial operating in a compliant and profitable manner, and funds were expended for that purpose, but this was not achieved – something it was submitted told against any improper purpose “as there would have been no need to keep [Golden Financial] operating if the purpose was to ensure it had no funds to pay the penalty”.

123    Mr Peters also sought to make something of the fact that the $1 million penalty was the subject of a “payment plan”. See ASIC v Golden Financial (No 2) at [8].

124    ASIC advanced the following contentions by way of reply.

125    First, it submitted that the documentary evidence of the respondents, and more particularly of Mr Tzouvelis, produced regarding the transfer of Golden Financial’s interests to Premium disclosed no contemporaneous concern with Golden Financial’s reputation or operations in light of adverse publicity or the best interests of clients.

126    Secondly, ASIC submitted that emails Mr Tzouvelis exchanged regarding the transfer of Golden Financial’s interests “convey a clear concern with ensuring that trailing commissions which would otherwise be payable to Golden Financial be transferred to Premium” – not the interests of clients. In that regard, it referred, for example, to the email exchanges between Ms Pantelidou and Mr Tzouvelis in April and May 2017, with the subject headers like “Moving Trail update”, “Moving Trail Progress” and “Moving Trail to Premium Client Services”. See paragraph [88] above.

127    Thirdly, ASIC relied on the email exchange between Ms Shepherd of Zurich and the then solicitors for NSG which occurred after the cancellation of the distributorship agreement. During that exchange, Zurich said that it would pay NSG’s entitlements to trail commission into a third party’s bank account as directed by NSG only on the basis that the obligation for payment “continues to NSG” because it (Zurich) would “not recognise an assignment of trail commission rights such that Zurich is obliged to pay an assignee”. See paragraph [93] above. That proposal was dubbed “not acceptable” by NSG’s then solicitors. ASIC’s point was that NSG’s insistence that the revenue stream be assigned to Premium, rather than merely paid into its bank account, was in the light of that exchange, unlikely to have had anything to do with the interests of NSG’s clients.

128    Fourthly, ASIC submitted that the evidence disclosed “a particular concern on the part of Mr Tzouvelis to re-direct payments away from Golden Financial” (emphasis in original), including in circumstances where Mr Tzouvelis, in his 26 October letters set out at paragraph [90] above, seems to have gone out of his way to convey the impression to ANZ and ING that Golden Financial had merely changed its own bank account details – whereas he was in fact providing bank account details for Premium.

129    Fifthly, ASIC submitted that the evidence of Mr Tzouvelis was “vague as to when any decision was made that Golden Financial’s business was not sustainable and to consequently transfer its distribution agreements to Premium”.

130    Sixthly, ASIC submitted that the absence of any payment from Premium to Golden Financial in consideration for the assignment of its distribution agreements serves as further evidence from which it can be inferred that assets were transferred from Golden Financial to reduce its ability to pay a pecuniary penalty.

131    Seventhly, ASIC submitted that Mr Tzouvelis’ explanations for the fact that less than one month after ASIC commenced the civil penalty proceeding against Golden Financial on 29 June 2016, it transferred $821,212.36 from its NAB account to a NAB account held in the name of Premium should not be accepted.

132    In her closing address, Ms Levine submitted that I should be satisfied on a prima facie basis that the receipt is not a genuine document for these reasons:

And your Honour will no doubt already be aware of what ASIC says are the issues with this invoice. It has been canvassed in cross-examination and, to some extent, this morning. But the points are these. There’s a real doubt about the genuine nature of this receipt, in circumstances where Mr Alwis didn’t work at the company at the time, and that’s accepted by Mr Tzouvelis. There’s the iProsper email address, but iProsper did not become a corporate authorised representative of Premium until … November [2018]. And the reference there, your Honour, is to page 543 of the first Hsueh affidavit, which is documentary proof as to the corporate authorised representative relationship commencing. I asked Mr Tzouvelis in cross-examination if he was aware that ASIC had asked for an audit log in relation to the receipt. No adequate explanation for why this has not been produced has been provided.

….

Going back then to this receipt, Mr Alwis didn’t work there at the time. iProsper was not an authorised corporate representative at the time. Mr Tzouvelis hasn’t been aware of a request for the audit log in relation to the receipt and no adequate explanation has been provided as to why it has not been produced. And there’s a real question mark as to its – the genuine nature of this receipt. We submit that the court ought to, for prima facie purposes, treat it not as a genuine receipt. Indeed, Mr Alwis is not being called for – hasn’t not been called as a witness. No explanation has been proffered as to why not.

HIS HONOUR: Yes. All right. You say I assume that his evidence wouldn’t be favourable and so on.

MS LEVINE: That’s right. I would urge that inference, your Honour, in circumstances where it would – My learned friend has suggested to the effect that – not in terms but some suggestion that this is just an easier way to deal with these things. In my submission, it would have been fairly – readily doable, so to speak, to call Mr Alwis, put on a short affidavit, have him explain what he has done. That hasn’t happened. None of the other staff that’s – apparently were involved … but, again, no one has been called. No one has been called from QuickBooks to explain.

No business records have been tendered from QuickBooks as to how they operate. So all that really cast doubt on whether these are genuine documents and ASIC says, “At least on a prima facie basis the court can infer they’re not.”

133    Ms Levine made a similar submission about what she said was the prima facie doubtful provenance of Exhibit R2, which purports to be a collection of invoices of the monthly management fees summarised in the receipt reproduced at paragraph [70] above and said to have paid by NSG to Premium for the fees owing for the period 30 November 2014 through 31 May 2016 (each marked “paid”). Exhibit R2 was tendered by counsel for the respondents through Mr Tzouvelis on the first day of the hearing, on the basis that the invoices formed part of the books and records of Premium. (I doubt that anything turns on it, but the invoices comprising Exhibit R2 total $841,212.36, which is $20,000 more than the total in the recept. That is because the final amount with an invoice date of 31 May 2016 is recorded as being $20,000 less in the latter).

134    Mr Peters, I interpolate, submitted that I should not accept ASIC’s submission that Mr Tzouvelis created false invoices for the payments to Premium, because ASIC was wrong to submit that Premium did not trade in 2014, 2015 or 2016 (because ASIC’s own documents demonstrated that it did).

135    In conclusion, ASIC submitted as follows:

In circumstances where it is now known that:

(a)    Golden Financial assigned its interests in distribution agreements to Premium for no consideration, and, with respect to several insurers, prior to entering into the agreement as to penalty with ASIC on 26 October 2017;

(b)    Premium had consequently received trailing commissions well in excess of the $900,000 owing to ASIC (even accepting Mr Tzouvelis’ calculations, these amount to more than $4.9 million, and do not include any further amounts received since September 2021 that are unknown to ASIC),

[the] representations to ASIC about the ‘struggles’ Golden Financial has faced in paying the pecuniary penalty, and the asserted cause of those struggles, support the inference that the purpose of the transfer of assets from Golden Financial was to negate Golden Financial’s ability to pay the penalty to ASIC … [Further] Mr Tzouvelis does not provide any adequate explanation for why the penalty has not been paid.

Has ASIC establish a prima facie case in respect of the first alleged purpose?

136    In my view, ASIC has made out a prima facie case that the respondents acted with the improper purpose of diverting assets from Golden Financial to Premium to minimise the assets available to Golden Financial to pay the pecuniary penalty.

137    Let me turn first to the question of the management fees.

138    Even accepting that ASIC was wrong to submit that Premium did not trade in 2014, 2015 or 2016, it is, with respect, telling that counsel for the respondents did not proffer a response to ASIC’s contentions that it was open to be inferred that the management fee invoices, and the receipt for them, that Mr Tzouvelis produced are fictitious because:

(a)    Mr Alwis, whose iProsper email address appears at the top of the receipt, was not employed by Premium during the period of the invoices;

(b)    iProsper, the website address of which also appears at the top of the recept, did not become an authorised corporate representative until 16 November 2018, well over two years after the date of the last invoice;

(c)    no adequate explanation was given as to why an audit log for the invoices and the receipt, which ASIC asked for in its 28 March 2023 letter (Exhibit A1), could not be produced;

(d)    Mr Alwis (who now does work for Premium) was not called to give evidence, including as to how QuickBooks relevantly operates;

(e)    the sum of $821,212.37 exceeds the recorded income for Premium in its audited financial statements for the entirety of financial years 2015 and 2016;

(f)    the payment of the management fees purportedly recorded as having been paid is not recorded in NSG’s accounts.

139    One would have thought that if there were an explanation as to how each of those things could be so, Mr Alwis and Mr Tzouvelis could easily enough have given one. Yet no explanation was forthcoming.

140    ASIC contended that the evidence about the invoices and the receipt casts doubt on the propriety of the payment and Mr Tzouvelis’ explanation of it, which calls into question Mr Tzouvelis’ credibility and more broadly supports the inference that assets were transferred from Golden Financial to Premium for an improper purpose. Another way of putting the submission is that production of fictitious evidence suggests a guilty mind.

141    In my view, the evidence discloses an available inference that the invoices comprising Exhibit R2 and the receipt at page 158 of Mr Tzouvelis’ First LPP Affidavit are fictitious. That, it seems to me, makes more probable ASIC’s case that the lump sum payment of twenty months’ worth of invoices totalling $821,212.37 to Premium on 29 June 2016 (three weeks after the civil penalty proceeding was commenced) was made in order to minimise the assets available to Golden Financial to pay the pecuniary penalty.

142    Secondly, and related to the question of credit, Mr Tzouvelis’ evidence in cross-examination about his “Change of Bank Account Details” letters to ANZ and ING on 26 October 2017 was unsatisfactory.

143    He was asked, for example, whether it was the case that the new bank account details for Golden Financial he provided to ANZ and ING were in fact Premium’s bank account details. His response – “I’ve been made aware of this and, if you would like – if you want the yes-no answer, the answer is yes or I can give you the actual answer as well” – was hardly helpful.

144    He was then asked: “So it’s not correct, is it, that this was a change of bank account details within NSG, as suggested by the documents going to ING. Correct?” His answer – “It’s … not the correct bank account details. That’s what I can agree with you” – was not responsive.

145    When pressed on the critical (and obvious enough) point, however, Mr Tzouvelis dissembled. It was put to him that he knew that ING would not start to pay to Premium the trailing commissions until “wet ink” signatures from Golden Financial’s clients agreeing to the transfer could be produced, and few such signatures had been procured at the time the letters were sent. He said that was “not correct”. When asked to explain why he did not tell ING that the details he provided were incorrect, he said:

Okay. So in the communications, Chrystal [Evans – the Operations Manager of NSG] explains there’s a two-stage process to this in terms of what needs to be done. In addition to that, we weren’t receiving any commissions from ING to Golden. They in fact shut us down. So to transfer over something we’re not receiving, I don’t understand how that occurs. Right. Why she did it in this two-stage process, I must tell you my honest opinion, my honest answer, is I trusted Chrystal. By and large, she did a fantastic job. So why she needed a two-stage process, I don’t have my fingers all over that. I trusted in what she did and she – in the end, I suppose she got it all over.

146    What Mr Tzouvelis’ response amounted to was never further explored, in re-examination or by way of submissions made on his behalf.

147    It is clear, and ultimately the respondents did not dispute, that the so-called “updated” bank account details for NSG were not, in fact, bank account details for NSG. The new account details were the details of Premium’s account. And in the case of ING, at least, Mr Tzouvelis knew that ING required each client to authorise in writing, by way of a wet ink signature, the transfer from NSG to Premium before payments of trailing commissions could be made to Premium.

148    It seems to me that in those circumstances, the inference is available that Mr Tzouvelis was concerned to ensure that payments were re-directed away from Golden Financial, because he knew that if he made it evident to ING that the new bank account details were in fact those of Premium, he would been met with a refusal to agree to re-direct relevant payments, thus keeping the payments in Golden Financial’s coffers, at least until sufficient wet ink signatures had been obtained. That inference is consistent with ASIC’s prima facie case that the respondents acted with the improper purpose of diverting assets from Golden Financial to Premium to minimise the assets available to Golden Financial to pay the pecuniary penalty.

149    Thirdly, it seems to me that the timing of the various efforts to divert Golden Financial’s income streams tells in favour of the prima facie case as to improper purpose. It was, after all, only nine days after NSG signed the heads of agreement with ASIC that Mr Tzouvelis sent an SMS to the Operations Manager of the NSG, Ms Evans, asking her whether there was “[a]ny word on transfer of AFSL”. And on the same day, Ms Evans wrote to several insurance companies asking then to “transfer all clients currently being held by [NSG] to [Premium]”, adding that “if you could make an urgent move on it I would greatly appreciate it”. The absence of any explanation for the supposed urgency supports the inference that the true urgency was to reduce the funds available in Golden Financial’s bank account to minimise the assets available to it to pay any then doubtless anticipated pecuniary penalty.

150    As Schiemann LJ (with whom Butler-Sloss and Aldous LJJ agreed) said in Barclays Bank plc v Eustice [1995] 4 All ER 511 at 520, in the context of considering whether there was a prima facie case that a particular transaction had been entered into for the purpose of prejudicing the bank’s interests:

Once one accepts that there is a strong prima facie case that the bank’s security has been transferred to members of the family at a time when action by the creditor was clearly anticipated by the debtor and that these transfers were at an undervalue and that what remains in the hands of the debtor barely if at all covers the debt, there is in my judgment a strong prima facie case that the purpose of the transactions was to prejudice the interests of the creditor.

151    Fourthly, nowhere in all of the documentary evidence adduced by the respondents regarding the transfer of Golden Financial’s interests to Premium is there disclosed any contemporaneous concern with Golden Financial’s reputation or operations in light of adverse publicity or the best interests of clients. That, in my view, permits the inference to be drawn that the explanations now proffered about the critical nature of those matters are matters of recent invention.

152    If it matters, I am not persuaded about ASIC’s contention that the communications between Mr Tzouvelis and his then solicitors and Zurich about the assignment of the trail commissions (see paragraphs [93]-[95] above) also support the prima facie case for which it contended. Zurich’s insistence that it not assign the trail commissions to Premium seems to have been founded on its understanding, from what it had been advised by Mr Tzouvelis “on a number of occasions” that Premium and Golden Financial were not related entities, as Zurich’s 19 January 2018 email suggests (see paragraph [95] above). Why Mr Tzouvelis would have told Zurich such a thing is not apparent, on the state of the evidence before me. Likewise, why the deed of assignment between Golden Financial and Premium (see paragraph [100] above) was expressed to be for valuable consideration when, it seems from what Mr Tzouvelis said in cross-examination that no “money” was in fact paid is not sufficiently clear, at least to me, to permit the drawing of any relevant inference in support of ASIC’s case.

153    In forming the view that ASIC has made out a prima facie case that the respondents acted with the improper purpose of diverting assets from Golden Financial to Premium to minimise the assets available to Golden Financial to pay the pecuniary penalty, I have, of course, had regard to each of the matters relied on by Mr Peters to the contrary. Whether those matters would be established at any contested trial involving them, as the authorities to which I refer above make clear, is a question which it is both unnecessary and undesirable to resolve now. It is no part of my task to provide “a forecast as to the ultimate result of the case”. See Beecham Group Ltd v Bristol Laboratories Pty Ltd at 622 (Kitto, Taylor, Menzies and Owen JJ). As Gibbs CJ emphasised in Attorney-General (NT) v Kearney at 516, a prima facie finding in cases of this type “is no more than a … finding on the present material and reflects in no way any view as to the probable outcome of the litigation”.

154    But to adopt what Dowsett J said in Beazley v Steinhardt at 29 [34], “… the mere availability of other explanations does not exclude the suggested conclusion”.

Causing the filing and serving of misleading evidence and written submissions about Golden Financial’s financial position – the second alleged improper purpose

155    ASIC relied on the following evidence in support of its prima facie case of the improper purpose of causing Golden Financial to file and serve misleading evidence and written submissions about its financial position in the penalty phase of the civil penalty proceeding.

156    On 7 June 2017, and at the same time that Golden Financial was preparing material to file with the court with respect to the question of penalty, Mr Donohue (then Accounts Manager of NSG) sent an email to Mr Tzouvelis and Patrick Kypreos of EGA Corporate Advisers, attaching a letter of the same date from Mr Donohue to Mr Kypreos concerning transactions that had occurred on 1 July 2016. The letter stated:

I am writing to follow on from discussion you have recently had with Tony Tzouvelis regarding engaging you and your firm to review and advise transactions that occurred within NSG Services Pty Ltd, as well as NSG Services Unit Trust, of which NSG Services Pty Ltd is Trustee…

We would like you to review the transactions that have occurred within this entity for the 2017 Income year, with particular attention to the transactions that took place on 1 July 2017, whereby NSG Services Unit Trust made a payment to Belgian Court Discretionary Trust in the sum of $4,878,769.09. This transaction is broken down between the following transactions:

•    The transaction of $2,916,889 being the forgiveness of debt between NSG Services Pty Ltd and NSG Services Unit Trust, creating an increase in capital of the Trust.

•    The transaction of $2,916,889 being the Capital Distribution to the Belgian Court Discretionary Trust.

•    The transaction of $1,994,037.83 to reduce Prepaid Income and $181,276.15 to reduce Prepaid GST. This transaction was for the assignment of a Distribution Agreement (Agreement attached) and was assigned to Belgian Court Discretionary Trust.

Please review and provide opinion on these accounts and transactions.

157    On 16 June 2017, Mr Tzouvelis wrote to Mr Kypreos and Mr Donohue as follows: “Essentially by doing the debt forgiveness it created 3mil in equity. To bring this to a zero we put money and took it out on July the 1st [2016]. Right now we need to explain to ASIC what has been done so it doesn’t look like it is profit, they seem to want to determine the fine based on what you make not what you have done. SO the less we show the less the fine”.

158    On 19 June 2017, Mr Donohue sent an email to Mr Tzouvelis and Mr Panagopoulos, which stated in relation to the financial accounts, among other things: “ASIC has seen 2016, they haven’t seen 2017 … in my opinion ASIC don’t actually care about the profit given they have never mentioned it and it wasn’t discussed on the Statement of Facts. What was mentioned, and what ASIC do care about, is revenue, and Net Assets. In terms of revenue, Mark [Bland of Mills Oakley] has all of this information regarding the decline, especially for 2017… The Net Asset issue has to be addressed and ASIC have to be notified of how it was addressed, otherwise, as at 30 June 16, NSG has $3m available to pay a penalty.”

159    Mr Tzouvelis addressed Golden Financial’s net asset position in his First Penalty Affidavit relevantly as follows:

43    NSG’s financial reports for the year ending 30 June 2017 are still in draft form as it is seeking external accounting and taxation advice. NSG has provisionally reported total net assets of $159,249 and an operating profit of $269,302. Now produced and shown to me marked Annexure AT-3 is a draft financial statement for the period 1 July 2016 to 30 June 2017.

44    I have read the Agreed Statement of Facts dated 24 March 2017 filed in this proceeding. Paragraph 21 of the Agreed Statement of Facts sets out the following in respect of the financial position of NSG Services Unit Trust (referred to in this affidavit as the NSGS Trust) and Associated Entity (the trustee, NSG [Golden Financial]) as at 30 June 2016:

Revenue from commission    Net asset position

$4,655,103        $3,073,646

45    I explain at paragraphs 46 to 56 below why the figures in paragraph 44 above did not reflect the true financial position of NSG as at 30 June 2016 and why the net assets have decreased substantially as at 30 June 2017.

…

50    As at 30 June 2016, NSG reported cash at bank of $5,599,927. Now produced and shown to me marked Annexure AT-6 is a copy of NSG’s audited financial statements for the year ended 30 June 2016.

51    NSG used these funds and other cash at bank to facilitate the following transactions in the financial year ended 30 June 2017:

52    Transaction 1 relates to a payment on 22 August 2016 of a tax liability for the financial years ending 30 June 2010, 2011 and 2012 referrable to business activities of entities related to and including the Consolidated Group. Now produced and shown to me marked Annexure AT-7 are National Australia Bank transaction history reports evidencing a debit transaction from NSG to BC Trust account in the amount of $4,878,629.09 on 1 July 2016 and from BC Trust’s account in the amount of $3,271,477.41 on 22 August 2016.

53    Transaction 2 relates to NSG’s payment of trade creditors on 29 and 30 June 2016. Now produced and shown to me marked Annexure AT-8 is an NSG record of payables reconciliation for 29 and 30 June 2016.

54    Transaction 3 is a payment of cash which corresponds to an assignment by NSG to the BC Trust of its rights and liabilities under a distribution agreement with Macquarie Life Limited (Macquarie). The cash corresponds to a current, contingent liability, being pre­paid income in the amount of $1,812,762. The distribution agreement was subsequently assigned to Zurich Australia Limited (Zurich) on 1 October 2016 following the sale of Macquarie’s life insurance business to Zurich earlier in 2016. NSG transferred both its rights under the distribution agreement, and the contingent liability, to Belgian Court. I refer to the Statement of Financial Position on page 2 of Annexure AT-6 which sets out the above figure as being a current liability (income in advance) as at 30 June 2016.

55    Since 30 June 2016, NSG has paid $712,362 in relation to an unpaid trust distribution to NSFM Unit Trust referable to the financial year ended June 2016. Now produced and shown to me marked Annexure AT-9 is a copy of a distribution reconciliation (general ledger) evidencing unpaid profit distribution in the amount of $713,153.24 as at 30 June 2016. The difference in these figures ($712,362 and $713,153.24) relates to an $791 income tax liability paid by the NSFM Unit Trust on behalf of NSG.

56    NSG has always been used to facilitate larger transactions for associated companies. As I have explained at paragraphs 48 to 55, the reported cash at bank figure of $5,599,927 on 30 June 2016 was not cash generated through the ordinary trading of NSG, but was borrowed from Bendigo Bank for the purposes set out above.

160    ASIC submitted that nowhere in Mr Tzouvelis’ lengthy and detailed explanation of “why the figures in paragraph 44 above did not reflect the true financial position of NSG as at 30 June 2016 and why the net assets have decreased substantially as at 30 June 2017” did he explain that the figure of $4,878,629.09 was in fact made up in part by the capital distribution of about $2,916,888 which arose from a debt forgiveness in the same amount.

161    Mr Peters submitted to the contrary. He said that in his First Penalty Affidavit, Mr Tzouvelis included as annexure AT-3 draft financial statements for the period 1 July 2016 to 30 June 2017, which included the following note:

NSG SERVICES PTY LTD and Associated Entity

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017

NOTE 1: EXTRAORDINARY INCOME

NSG Services Pty Ltd is the Trustee of the NSG Services Unit Trust. Prior to the establishment of the NSG Services Unit Trust, NSG Services Pty Ltd traded in its own right. Once appointed as Trustee, NSG Services Pty Ltd transferred its assets and liabilities to the NSG Services Unit Trust. This created a loan between the Trust and its Trustee.

The Trustee foregave this loan to the Unit Trust on 1 July 2016, creating a Capital Gains Tax event.

Extraordinary income of $2,916,779 shown on the Statement of Comprehensive Income is this capital gain.

    NOTE 2: RECONCILIATION OF PAYMENT TO BC TRUST

On 1 July 2016, the company made a payment of $4,878,769 to its sole Unit Holder Belgian Court

Assignment of Prepaid Income liability        1,812,762

Income Distribution                             3,066,007    

                                                         4,878,769

162    ASIC’s retort was that the note was “buried” in the draft accounts and not explained or otherwise referred to anywhere in the body of the affidavit.

163    ASIC submitted that the “apparent inconsistency” between what Mr Tzouvelis said in his First Penalty Affidavit about Golden Financial’s limited means, on the one hand, and the emails of July 2017, urging “we need to explain to ASIC what has been done so it doesn’t look like it is profit” and “the less we show the less the fine”, on the other hand, created reasonable grounds to believe that Mr Tzouvelis’ evidence with respect to the sum of $4,878,629.09 and the omission of any sufficient explanation of the capital distribution and/or corresponding debt forgiveness of $2,916,888 was intended to mislead.

164    ASIC submitted that I should be satisfied on a prima facie basis that Mr Tzouvelis gave misleading evidence and caused to be filed misleading written submissions as to Golden Financial’s financial position in the penalty phase of the proceeding before Moshinsky J.

165    At paragraph 57 of his First Penalty Affidavit, Mr Tzouvelis under the heading “Decline in gross revenue” deposed that:

57    Since the financial year ended 30 June 2014, NSG’s gross revenue has been on a constant decline, primarily due to:

(a)    the reducing number of authorised representatives;

(b)    the impact of the publication of the events the subject of this proceeding; and

(c)    the consequential drop in new business revenue.

166    Mr Tzouvelis deposed further at [62] that:

62    There are two other major threats to [Golden Financial’s] financial viability. These are:

(a)    the loss of its major referral relationship with H&R Block; and

(b)    the size of the penalty imposed on it in these proceedings.

167    ASIC submitted that Mr Tzouvelis did not identify in that affidavit, in his Second Penalty Affidavit, or otherwise in the course of the civil penalty proceeding, that a significant reason for Golden Financial’s gross revenue being in decline, at that point and in the future, was because trailing commissions payable under distribution agreements it held with various insurance companies were being transferred to Premium for no consideration. Nor did Mr Tzouvelis identify that this was a “major threat” to Golden Financial’s financial viability.

168    In its written submissions to the court on the question of penalty, filed on 22 September 2017, Golden Financial submitted that the combined penalty for all contraventions should be no more than $100,000, because:

[Golden Financial]’s present financial circumstances reflect a constrained capacity to pay a pecuniary penalty. Its net assets are only $159,249. Its future prospects are affected by the fact that its business and financial standing have suffered considerably. The widespread adverse publicity associated with the proceeding, including the declarations of contravention, has led to a substantial loss of clients, staff and reputation. It has lost its major referral relationship. Significant costs in relation to the proceeding have already been incurred by [Golden Financial], and it has agreed at mediation to pay ASIC’s costs, including its costs of the investigation pursuant to s 91 of the ASIC Act. All these matters serve to establish a sound foundation for both general and specific deterrence, even before any pecuniary penalty is awarded.

169    ASIC also submitted that there are reasonable grounds to believe the evidence given (and omissions made) in Mr Tzouvelis’ First Penalty Affidavit were for the improper purpose of presenting a misleading picture about Golden Financial’s financial position to support a submission mitigating its liability for a pecuniary penalty. This is supported by the evidence that:

(a)    the assignment of trailing commissions under Golden Financial’s distribution agreements was occurring in the months prior to Mr Tzouvelis giving his evidence, and was a continuing process with respect to some insurance companies;

(b)    Mr Tzouvelis was closely involved in this assignment process; and

(c)    the value of the assigned trailing commissions was significant (on ASIC’s calculations it amounted to $7,808,784.71 over an approximately four-year period to September 2021), and was “therefore unlikely to be a factor too trivial to mention”.

170    The respondents submitted that ASIC’s case amounted to little more than “that more evidence could have been given by Mr Tzouvelis”; that the evidence given as to Golden Financial’s financial position was correct; and that there are no reasonable grounds on which to believe otherwise.

171    The respondents further submitted that ASIC’s submissions “simply do not found the allegation that there were reasonable grounds to believe that certain omissions from the affidavit evidence made the evidence misleading. All that the emails show is that Mr Tzouvelis was trying to work out what the correct financial position was …”.

172    The respondents also submitted that “[t]here was no obligation on [Golden Financial] or Mr Tzouvelis to provide evidence that one of the reasons for the decline (much later, from June 2017 onwards) was the legitimate transfer of commission entitlements to [Premium] – that reason could not rationally have affected the Court’s decision as to the penalty. In any case, only the relatively small amount of $50,000 of AFSL-related income had been received by [Premium] to 30 June 2017” (citing Mr Tzouvelis’ First LPP Affidavit at [35]).

173    The respondents also submitted that “[n]ot stating one of multiple reasons for the decline in revenue does not constitute misleading evidence, and so there could have been no documents prepared in furtherance of the purpose of providing misleading evidence”.

174    The respondents further submitted:

Moreover, evidence on the decline in revenue after 30 June 2016 became irrelevant and was thus of no significance given that the parties only put forward agreed facts as to the position up to 30 June 2016, and not thereafter. Further, the question of the capacity of [Golden Financial] to pay was not of any, let alone sufficient, significance in the Penalty Proceeding because Moshinsky J noted the payment plan in the Penalty Decision at [8] and therefore that [Golden Financial’s] ‘capacity to pay’ was not a relevant consideration in determining the pecuniary penalty. Thus … even if the Court accepts that by not referring to the arrangements with [Premium] the evidence was misleading, the evidence on that topic did not concern “a matter of significance” in the proceedings [citing Roberts-Smith v Fairfax Media Publications Pty Ltd (No 32) [2022] FCA 419 at [43] (Abraham J): “It may be readily accepted that if it is established that there is a prima facie case of witnesses having colluded to give inaccurate or false evidence on a matter of significance in proceedings, that conduct could fall within the fraud exception, so as to defeat a claim of privilege”].

In other words, the transfer of the trailing commissions could not in any rational way have affected the Penalty Decision made by this Honourable Court. Thus, there was not anything improper in not referring to the arrangements that were being put in place to transfer the trailing commissions to another entity.

Has ASIC established a prima facie case in respect of the second alleged purpose?

175    In my view, ASIC has made out a prima facie case that Mr Tzouvelis and the other respondents acted with the improper purpose of causing Golden Financial to file and serve misleading evidence and written submissions about its financial position in the penalty phase of the civil penalty proceeding.

176    In my view, in circumstances where Mr Tzouvelis wrote to Mr Kypreos and Mr Donohue urging them to “explain to ASIC” that “what has been done [the creation of the $3m in equity] doesn’t look like a profit” because “the less we show the less the fine”, and that ASIC had to be told how “the Net Asset” issue was addressed “otherwise, as at 30 June 16, NSG has $3m available to pay a penalty”, it is open to infer that the course NSG and Mr Tzouvelis adopted when they filed their evidence and submissions (including “burying” any reference to the sum of $4,878,629.09 and any explanation of the capital distribution and/or corresponding debt forgiveness of $2,916,888) was in furtherance of that objective of ensuring that ASIC was led to believe that NSG had good reasons why it had limited resources to pay a fine.

177    Further, the omission of any mention of the fact that trailing commissions worth many millions of dollars had been assigned from Golden Financial to Premium over the four years prior to September 2021 seems to me, on a prima facie basis, an obvious enough matter to have mentioned if a complete explanation of Golden Financial’s limited capacity to pay a penalty had been sought to be provided.

178    In forming that view, I have again, of course, had regard to each of the matters relied on by Mr Peters to the contrary. It may be the various explanations proffered by Mr Tzouvelis, including that the loss of Golden Financial’s major referral relationship with H&R Block and the size of the penalty imposed on it by Moshinsky J were possible reasons underlying its “constrained capacity to pay a pecuniary penalty” and the fact that it had net assets of only $159,249. It may also be possible, as Mr Tzouvelis also deposed, that its constrained capacity to pay and its net asset position were attributable to Golden Financial’s reduced number of authorised representatives, the impact of the publication of the events the subject of the civil penalty proceeding; and the consequential drop in new business revenue. But, as I said earlier, it is not the court’s function on the hearing of an application of this type to decide such matters. I am satisfied, for the reasons that I have given, that the there is a prima facie case that the respondents acted with the improper purpose of causing Golden Financial to file and serve misleading evidence and written submissions about its financial position in the penalty phase of the civil penalty proceeding.

disposition

179    I will make orders as follows:

(1)    Senior National Judicial Registrar Legge be appointed as a referee pursuant to s 54A of the Federal Court of Australia Act 1976 (Cth) to inquire and report in accordance with the Federal Court Rules 2011 (Cth) on the questions whether any of the documents referred to in exhibit YH-4 to the affidavit of Yu-chiao Hsueh affirmed 7 December 2022, in respect of which the first respondent claims legal professional privilege, contain or evidence communications between the respondents, or any of them, and their legal advisors in furtherance of, or as a step preparatory to, either or both of the improper purpose of:

(a)    diverting assets from the second respondent to the third respondent in order to minimise the assets available to it to pay a pecuniary penalty that ASIC was seeking against it in the civil penalty proceeding brought against it by the applicant in proceeding no. VID 585 of 2016;

(b)    causing the second respondent to file and serve misleading evidence and written submissions about the financial position of the second respondent in the penalty phase of proceeding no. VID 585 of 2016.

(2)    The solicitors for the respondents provide in electronic form and marked “confidential” a copy of each of the documents referred to in exhibit YH-4 to the affidavit of Yu-chiao Hsueh affirmed 7 December 2022 to the chambers of Senior National Judicial Registrar Legge by no later than 4:00pm on 16 May 2023.

(3)    Senior National Judicial Registrar Legge provide to the chambers of O’Callaghan J, marked “Confidential”, a copy of the report referred to in order 1 by no later than 4:00pm on 16 June 2023.

(4)    The further hearing of the applicant’s originating application filed on 24 October 2022 otherwise be adjourned to a date to be fixed.

(5)    The costs of the hearing on 30 and 31 March 2023 be reserved.

Associate:

Dated:    9 May 2023

SCHEDULE OF PARTIES