Altmann v F N Management Pty Ltd
[2005] QSC 29
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- Unreported Judgment
- Appeal Determined (QCA)
- Altmann v F N Management Pty Ltd[2005] QSC 29
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Altmann v F N Management Pty Ltd[2005] QSC 29
Altmann v F N Management Pty Ltd[2005] QSC 29
SUPREME COURT OF QUEENSLAND
PARTIES: | |
FILE NO/S: | |
Trial | |
PROCEEDING: | Application |
ORIGINATING COURT: | |
DELIVERED ON: | 7 February 2005 |
DELIVERED AT: | Cairns |
HEARING DATE: | 31 January 2005 |
JUDGE: | Jones J |
ORDER: | 1.The managed investment scheme operated by the first respondent in connection with the Cairns Village Resort Community Title Scheme 18161 be wound up. 2.Gerard John Mier and Anthony James Jonsson be appointed as joint and several liquidators of the scheme. 3.The respondents pay the applicants’ costs of and incidental to the application to be assessed on the standard basis. |
CATCHWORDS: | CORPORATIONS – WINDING UP – managed investment scheme – where a finding that scheme is illegal has already been made – where winding up is in the public interest in preventing breaches of the Corporations Act and for the protection of investors – whether applicants’ rights of ownership and occupancy fall within definition of “property” in Corporations Act Corporations Act 2001 (Cth), ss 9, 601EE(2) Cumulus Wines v Huntley Management; Reynolds Wines v Huntley Management (2004) NSWSC 609 ASIC v Chase Capital Management Pty Ltd (2001) 36 ACSR 778 ASC v AS Nominees Ltd (1995) 62 FCR 504 |
COUNSEL: | Mr Philp SC for the applicants Mr Cooper for the respondents |
SOLICITORS: | Susan Henson, solicitor for the applicants Hillhouse, Burrough McKeown for the respondents |
[1] Each of the applicants is the holder of one or more lots in the Cairns Village Resort Community Title Scheme 18161. By this application, the applicants seek a winding up of a management rights scheme (“the scheme”) in which they participated with the first respondent.
[2] The first respondent was granted the letting and management rights of the subject lots pursuant to a “Letting Appointment Deed” entered into with each of the applicants.
[3] The second respondents are the directors of the first respondent. They have in their own right, or as directors of the corporate trustee of the Nason Family Trust, effective control over six lots in the Community Title Scheme. One of those lots – Lot 99 – contains the administrative and commercial facilities for the resort. These facilities include the reception area, manager’s office, shop, restaurant and manager’s residence.[1] They are of critical importance to the business of this resort, which provides only for short term occupation of accommodation units.[2]
Background facts
[4] In early 2001 the respondent invited the lot holders to participate in what I have found to be a managed investment scheme as defined in s 9 of the then Corporations Law and continued now in the Corporations Act 2001 (“the Act”). I have previously found that the scheme – being unregistered – was being carried on contrary to law.[3] The scheme was promoted in January 2001 when the respondent, who had acquired management and letting rights on a lease back arrangement with lot holders, decided to convert the arrangement to a managed rights scheme. To this end the first respondent prepared and distributed a Disclosure Statement and entered into the Letting Appointment Deed purportedly in compliance with ASIC Class Order – CO 00/570.
[5] The circumstances in which the management rights were granted to the first respondent have been referred to in earlier proceedings and need only to be briefly stated here. The events are detailed, for example, in the affidavit of Denis Croke filed on 25 January 2005. In 1999, Alongway Investments Pty Ltd, a company controlled by the Nason family took an assignment of leases over various lots from the previous resort managers. In June 2000 and July 2000 the second respondents wrote to lots holders proposing a restructure of the existing arrangements. They were effectively proposing a management rights scheme.[4] In August 2000 the proposal was advanced by the delivery of a Disclosure Statement and a draft Letting Appointment Deed. Revised copies of those documents were forwarded in December 2000.[5]
[6] The applicants rely upon various passages of those two documents to assert that there remains scheme property in the form of rights and benefits which can be dealt with upon a winding up process. In the Disclosure Statement Clause 1.1 the following paragraphs are included:–
“(f)At Cairns Village Resort, the reception area forms part of lot 99, which is currently owned by W. & J. Nason as trustees of the Nason Family trust, an associate of FN Management Pty Ltd ACN 094 226 829. It is better that an associate of FN Management Pty Ltd ACN 094 226 829 owns this lot to enable FN Management Pty Ltd ACN 094 226 829 to be the on-site manager.
(g)The “management rights” are the caretaking and letting agreements, together with lot 99. Throughout this disclosure statement we will refer to the owner of the management rights as the “on-site manager”.
As the owner of the management rights, owners of resort apartments may appoint the on-site manager as their agent to let their apartment to a guest of Cairns Village Resort. This is done by both the on-site manager and the owner entering into an agreement call a “Letting Appointment Deed”. A copy of the letting appointment is attached and the important terms are discussed in this disclosure statement.”
[7] The Disclosure Statement identified certain rights which would be included in the Letting Appointment Deed and in particular the right of a majority of lot owners to remove the manager by forcing a transfer of the management rights. A failure to transfer within nine months would allow the lot owners to nominate the person to whom the rights must be transferred with the following provision:-
“2.3 (b) If the on-site manager is forced to sell the management rights pursuant to section 2.2(f) of this statement, then the sale will be structured in such a way that the new on-site manager will be given control of all the property it needs to run Cairns Village Resort efficiently and effectively. This is an important safeguard for owners. It is important because the on-site manager should not be in a position where it controls property which inhibit the operation of Cairns Village Resort after its agreements with the body corporate have been terminated.”
[8] The Letting Appointment Deed contains, as background statements, the following:-
“E. Lot 99 on BUP 100437 at Cairns Village Resort (Lot 99) is owned by Nason Family Trust. Lot 99 has facilities which are incidental to the operation of management rights at Cairns Village Resort. Lot 99 is included in the definition of the management rights under clause 13.2 of this Deed.
- The agent and Nason Family Trust are associated for the purpose of a definition of the Managements Rights under clause 13.2 of this Deed.”
[9] Clause 13.2 of the Deed deals with the obligation of the first respondent upon termination as follows:-
“13.2 If we receive a Termination Notice then we must transfer any real or personal property (including contractual rights) held by us or any of our associates to facilitate the operation of the letting business (“the Management Rights”) to a person of our choice (other than an associate of ours) within 9 months of receiving the Termination Notice. The transfer is subject to the consent of the Cairns Village Resort Body Corporate according to clause 13 of the Letting Agreement between the Cairns Village Resort Body Corporate and the Agent.”
[10] In such circumstances the manager is required to transfer “any real or personal property (including contractual rights)…”[6] The clause also provides for the manner of fixing a price for the management rights upon such a forced sale. Clause 19 further provides that on such a forced sale the manager will as a priority “discharge the mortgage or any other security over lot 99”.[7]
[11] The Disclosure Statement and the Letting Appointment Deed appear to be the same for each lot holder who joined the scheme. The applicants who have deposed to the circumstances in which they agreed to participate in the scheme have expressed the importance of the safeguard of a retiring manager having to give up Lot 99.[8]
[12] In July 2002, a majority of lot holders gave notice of termination to the first respondent and the consequences of this step are the subject of other proceedings. By December 2004, the first respondent had ceased to operate the restaurant, the reception area and various other facilities.[9] The first respondent has also purported to lease certain areas of Lot 99 to related entities in transactions and on terms that have no commercial practicality.[10]
The application
[13] The applicants contend that the creation of the scheme gave rise to a benefit for the first respondent which is properly the subject of a winding up process. That benefit is the right of the manager to own and occupy Lot 99. That right is lost if the management function is no longer being undertaken. The fact that a majority of lot holders can force a sale of Lot 99 illustrates that there exists contractual obligations attaching to the management rights which can properly be dealt with in a winding up process.
[14] The respondents submit that the scheme has effectively been brought to an end by the termination of virtually all the letting appointments. They assert that there is no property left to be dealt with on any winding up of the scheme. The respondent also argues that the enforcement of those contractual rights are the subject of other proceedings and should be determined after a trial of the issues raised therein.
[15] This application is made pursuant to the Act in circumstances where a finding of illegal conduct has already been made. I do not accept that the court is constrained in determining this application by the fact that other remedies are also sought. The benefits which the respondents enjoy arose from their promotion of an illegal scheme which continues to operate whilst they continue to enjoy the benefits. This situation is intolerable for the lot holders as they have attested to in various affidavits.[11]
[16] In my view, the scheme’s incidental benefits which the respondents continued to enjoy fall within the definition of “property” for the purpose of the Act. In s 9 the term is defined as follows:-
“property” means any legal or equitable estate of interest (whether present or future and whether vested or contingent) in real or personal property of any description and includes a thing in action.”
[17] Mr Cooper of counsel for the respondents submitted that the scheme no longer possesses assets or liabilities, has no creditors or debtors and no constructive trusts can be made out. I reject this submission. It is clear on the material that the rights of ownership and occupancy of Lot 99 were significantly constrained by conditions which the applicants are entitled to enforce. The applicants’ rights fall within the definition of property referred to above.
[18] The terms of s 601EE(2) of the Act confer on the Court a wide discretion. The factors relevant to its exercise include the protection of investors and the public interest in preventing breaches of the Corporations Act. Per Austin J in Cumulus Wines v Huntley Management; Reynolds Wines v Huntley Management.[12]
[19] In ASIC v Chase Capital Management Pty Ltd[13] Owen J said at [74]:-
“Counsel for ASIC submitted that in exercising the discretion pursuant to s 601EE(2) I should be guided by the considerations that are relevant to the exercise of the discretion to wind up companies on the just and equitable ground under s 461(1)(k). Each case has to be assessed according to its own circumstances. However, in the context of this case I accept that the just and equitable ground is a sound base against which to test the proper exercise of discretion.”
[20] It is unnecessary to give particular consideration to the familiar principles upon which orders for winding up on the just and equitable ground are based. Such considerations have been identified in a number of cases, particularly see ASC v AS Nominees Ltd.[14] Here I am satisfied that the first respondent has gained and continues to enjoy benefits obtained in its promotion of an illegal scheme. In so doing, the entitlements of the applicants to the proper administration of the resort business are being denied. I am satisfied that the winding up of the scheme is a necessary step to enable the protection of the interests of the lot holders. Therefore I am satisfied the managed investment scheme operated by the first respondent in contravention of s 601ED(5) of the Act should be wound up. Messrs Gerard John Mier and Anthony James Jonsson, official liquidators, have consented to their being appointed as joint and several liquidators.
Orders
[21]1. The managed investment scheme operated by the first respondent in connection with the Cairns Village Resort Community Title Scheme 18161 be wound up.
2.Gerard John Mier and Anthony James Jonsson be appointed as joint and several liquidators of the scheme.
3.The respondents pay the applicants’ costs of and incidental to the application to be assessed on the standard basis.
Footnotes
[1] Para 6 Affidavit of Susan Henson filed 24 December 2004
[2] Para 6 Affidavit of Diane Johnson filed 24 December 2004
[3] (2004) QSC 426
[4] See ex 1 & 2 to affidavit of Denis Croke (supra)
[5] Ibid at para [8]
[6] Ibid at clause 13.2
[7] Ibid at clause 19
[8] See affidavits of Warren Altmann at para [8]; Paul Denis Croke at [9], Smith at [6], Gregory McNamara at [10] and William O'Sullivan at [8].
[9] See affidavit of O'Sullivan filed 28 January 2005
[10] See Affidavit Shane Quinn filed 28 January 2005
[11] See Affidavits of Warren Altmann, Dennis Croke, Gregory McNamara, Sandra Ozols, Clifford Burandt, and William O'Sullivan.
[12] (2004) NSWSC 609
[13] (2001) 36 ACSR 778
[14] (1995) 62 FCR 504