Re: Risqy Limited[2008] QSC 107

SUPREME COURT OF QUEENSLAND

SUPREME COURT OF QUEENSLAND

CIVIL JURISDICTION

DAUBNEY J

No BS 10408 of 2006

BRISBANE 

DATE 29/02/2008

JUDGMENT

HIS HONOUR:  The first respondent, Risqy Ltd ("Risqy") is a company incorporated in New Zealand.  The applicant Australian Securities and Investments Commission contends that a scheme, to which I will refer in more detail shortly, conducted by Risqy in 2006 was a managed investment scheme that was required to be, but was not, registered under the Corporations Act ("the Act") and that the scheme should, therefore, be wound up.

ASIC today seeks that winding up order, an order that Risqy be wound up pursuant to section 583 of the Act, and certain declaratory relief.

On the material before me, the scheme operated as follows:

(a) from January to November 2006 some 266 investors (whose identities are disclosed in the material) deposited amounts of money totalling $14,446,834.19 into Risqy's accounts with the Bank of New Zealand ("BNZ accounts").

(b) Some of those funds were transferred from Risqy's BNZ accounts to other accounts including the so-called "OEC account" (more properly described as an open E'cry account) which was held in the United States of America.  This was to enable Risqy to trade in foreign exchange trading and in futures markets which, it was said by Risqy, would enable investors to receive a fixed rate of interest on their money  of 4.23 per cent per month.

(c) Investors received a monthly e-mail and spreadsheet from Risqy's account managers (who are identified in the material)which purported to inform them of the return earned by that investor for the previous month.

(d) Risqy applied the funds deposited at its own discretion

(e) no investors were signatories either to the BNZ accounts or to the OEC account or, for that matter, to any other accounts operated by Risqy.

The registration of managed investment schemes is regulated by part 5C.1 of the Act.  The first inquiry obviously is to determine whether the scheme I have just described was a managed investment scheme which fell for regulation under that part.

The term “managed investment scheme” is relevantly defined in section 9 of the Act to mean a scheme that has the following features:

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

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

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

As to the first of these elements, the evidence is that the investors contributed money into the scheme by depositing funds directly into the BNZ accounts as consideration for acquiring rights to the benefit, or at least the prospective benefit, of earning interest at the rate of 4.23 per cent per month compounding.

As to the second element, it is to be noted that the word "pooled" in this context is given its ordinary meaning and that it occurs when moneys are paid into or collected in an account - see ASIC v. Enterprise Solutions 2000 Pty Ltd [2005] ACSR 620.  The payment of the investor’s money into the BNZ accounts satisfies that element in this case.

In relation to the third element, I am satisfied that in this case the evidence is clear that the investors did not have day-to-day control over the operation of the scheme.  None of them was a signatory to any of the accounts into which their funds were deposited. None of them had any input into how the funds would be invested or utilised.  The material suggests that the trading on behalf of Risqy was conducted by the second respondent, Mr Whitford, but it is unnecessary for present purposes for me to make a concluded finding on that particular point.

Accordingly, this scheme was a managed investment scheme within the meaning of that term in the Act.  Section 601 ED (1)(a) relevantly provides to the effect that a managed investment scheme must be registered under part 5C.1 of the Act if it has more than 20 members.  This scheme clearly had many more than 20 members, but it was not registered.

The fact of non-registration invokes the operation of section 601 ED (5) which provides:

     "A person must not operate in this jurisdiction a managed investment scheme that this section requires to be registered under section 601 EB unless the scheme is so registered."

Section 601 EE(1) relevantly provides that if a person operates a managed investment scheme in contravention of subsection 601 ED(5), ASIC may apply to have the scheme wound up. By section 601 EE (2), the Court may make any orders it considers appropriate for the winding up of the scheme.

The conduct prohibited by section 601 ED(5), which is the necessary precondition for a winding up application under section 601 EE, is the operation of the scheme in this jurisdiction.  No technical gloss needs to be given to the word "operate" in this context.  It is an ordinary word which  carries its ordinary meaning.  I accept the submission that this jurisdiction need not be the only jurisdiction in which the scheme operates.  If the scale and the nature of the activities conducted by the scheme within this jurisdiction are such as to lead to the conclusion that it is operating here, even if it is also operating elsewhere, then it is caught by section 601 ED(5).  See for comparison ASIC v. Edwards [2004] QSC 344.

Whilst it is apparent in this case that the actual pooling of funds and investment of funds occurred outside Australia, the evidence discloses significant activities of  the scheme undertaken within Australia, namely:

- the introduction of the scheme to persons in Australia operating bank accounts in Australia,

- the transmission of funds from Australia in Australian dollars,

- the payment of monies out of the scheme to contributors in Australia by Australian dollars

- the scheme’s system of "gathering" investors in Australia

- the scheme’s organisation of Australian investors to make payments to the BNZ accounts in Australian dollars

- the provision of scheme documents to potential investors  in Australia.

These factors collectively are sufficient, in my view, to lead to the conclusion that this scheme was operating in  Australia.  Absent registration, its operation was prohibited  by section 601ED(5). ASIC is entitled, as it now does, to  apply to wind up the scheme.

Both Risqy and Mr Whitford have been given notice of this application.  A receiver was appointed to the scheme by order of this Court made on 29 November 2006.

The receiver has reported that there is a shortfall between the assets and liabilities of Risqy (which are in truth the assets and liabilities of the scheme) of nearly AUD $17 million.  There is a fund of some AUD $4.5 million frozen under the order of 29 November 2006 which is awaiting disbursement to investors upon a winding up of the scheme. There is no good reason not to order the winding up of the scheme. On the contrary, there is every reason to do so, at least to permit the investors to salvage what they can from  the scheme's wreckage.  I propose ordering that the scheme be  wound up.

The applicant seeks further declaratory relief concerning Risqy and applies for an order that Risqy be wound up.  The declarations sought are:

- that in contravention of section 601 CD of the Act, the first respondent has carried on business in this jurisdiction without being registered to do so under part 5 B.2 of the Act and without having applied to be so registered

- that in contravention of section 601 ED (5), the first respondent has operated a managed investment scheme that was required to be registered under section 601 EB of the Act and was not so registered

- that the first respondent is a part 5.7 body within the meaning of the Act.

The affidavits of service make it clear that both the first and second respondents have been served with the originating process. Neither has filed a notice of intention to defend and both are, therefore, in default under the Rules of Court.

Rule 288 of the Uniform Civil Procedure Rules permits the applicant to apply in cases of relief such as that claimed for in these proceedings  for judgment in default and "on the application the Court may give the judgment it considers is justified on the pleadings even if the judgment was not claimed".

The material before me further discloses that:

- the respondents have been properly served with the material relating to the current application

- the winding up proceedings have been properly advertised as required by the rules

- a consent to act has been provided by the proposed liquidators, one of whom is presently the receiver.

The winding up of Risqy is sought pursuant to section 583 of the Act, which relevantly provides that a "Part 5.7 body" may be wound up under chapter 5 of the Act (which relates to external administration) if, inter alia, the Part 5.7 body is unable to pay its debts or if the Court is of the opinion that it is just and equitable for the Part 5.7 body to be wound up.

The term "Part 5.7 body" is defined in section 9 of the Act to be "a registrable body that is a foreign company and:

(i) is registered under Division 2 of Part 5B.2:   or

(ii) is not registered under that division, but carries on business in Australia".

Risqy was incorporated in New Zealand and is clearly a foreign company (as that term is defined in section 9).  It was not, however, registered to carry on business in Australia pursuant to Division 2 of Part 5 B.2.  In that regard it is to be noted that section 601 CD(1) provides to the effect that a foreign company must not carry on business in this jurisdiction unless it is, or has at least applied to be, registered under Part 5 B.2 Division two.

In order to ascertain whether Risqy is a part 5.7 body under the second limb of the definition it is, therefore, necessary to inquire whether it "carried on business in Australia".

Section 21(2) of the Act relevantly provides that carrying on business in Australia means, inter alia, "administering, managing or otherwise dealing with properties situated in Australia...as an agent, legal personal representative or trustee whether by employees or agents or otherwise".  It is necessary in this context that the foreign company’s conduct within the jurisdiction amounts to "a succession of acts designed to advance some enterprise of the company pursued with a view to pecuniary gain" - Luckins v.  Highway Motel (Canarvon) Pty Ltd [1975] 133 CLR 164 at 178.

The evidence to which I have already referred in connection with the operation of the scheme in Australia by Risqy makes it equally clear that Risqy was carrying on business in Australia. As it was not registered pursuant to and under part 5 B.2 division 2, Risqy is a part 5.7 body.

I have already referred to the evidence of insolvency put before me by the receiver.  It is clear on the material that Risqy is unable to pay its debts as when they fall due and payable and that it ought be wound up.  For the reasons that I have given I also consider it appropriate to make the declaration sought.

Accordingly, I make the declarations and winding up orders relating to the scheme and Risqy which are set out in the draft order which I now initial and place with the papers.