B. MATTERS ARISING AT PUBLIC HEARINGS
Sentencing of offenders
1.29 The Committee invited the Chairman of the ASC to comment on the
sentence imposed on Mr Alan Bond following his guilty plea to criminal
charges relating to the improper use of $1.2 billion of Bell Resources
Ltd funds. The sentence of four years gaol seemed, on the surface, to
lack parity with a much heavier sentence imposed on Ms Robyn Greenberg
for an offence involving the misappropriation of considerably less money.
Mr Cameron noted the dilemma faced by the ASC:
The Commission's dilemma was that, if the Commission had publicly
criticised the sentence, we felt that would be inappropriate because
we are an investigator, not the prosecutor. The traditional reason for
having a separate prosecutor is that the decisions on prosecution and
on sentence and so on are not those for the investigator to make. The
investigator by its nature tends to get too close to the subject matter
and cannot be objective.
So the Commission, at very short notice, allowed its senior investigator
in charge of the matter to be as neutral as he could about the sentence.
In due course, the Director of Public Prosecutions decided to appeal.
There is an appeal, and that appeal has the support of the Commission
in the sense that the Commissioner thinks that, with the benefit of
some time to reflect upon it, there are some inconsistencies in the
sentencing of some recent matters ...
We do not think it is our job to whip up public support for appeals
against sentences. Therefore, we were deliberately restrained in our
comment, and that is a policy we would seek to apply in the future as
well. [23]
ASC investigation into the Aust-Home Group
Introduction
1.30 Over recent months, the Committee has received extensive representations
from the Justice for the Aust-Home Group (JAG). These representations
concern an ASC investigation into the affairs of Aust-Home Investments
Ltd and related companies (Austhome). The ASC investigation commenced
in 1991 and did not conclude until 1995. While the ASC believes that the
investigation demonstrated "serious criminality", [24]
no prosecutions resulted. While it is not the Committee's practice to
sit in judgment on complaints concerning individual ASC investigations,
it nevertheless decided on this occasion to seek some preliminary information
from the ASC and the Australian Taxation Office (ATO). [25]
The Committee takes this opportunity to set out some relevant aspects
of that information.
The Austhome scheme
1.31 The Austhome scheme began in 1989 and continued until 18 March 1992,
when the ASC obtained an ex parte order in the Federal Court seeking the
appointment of receivers to Austhome companies and the assets of individuals
allegedly involved in the scheme. The ATO summarised the scheme, which
was essentially a negatively geared property investment scheme, as follows:
The Aust-Home investors had entered into an arrangement which
was advertised to operate through a group of companies with Aust-Home
Investments Limited (AHIL) undertaking to invest the investors' funds
in income producing assets. The investors were to be issued shares in
AHIL. The investors could borrow 100 per cent of the investment funds
from Aust-Home Securities Pty Ltd (ASPL) and these funds would be paid
direct to AHIL. The security for the loan funds was to be the assets
purchased with the loan funds. The interest on the loan was 20 per cent
per annum and was to be prepaid before July each year. The Loan Agreement
also provided that the lender had no right to recover the outstanding
capital amount from the borrower, that is, it was a non-recourse loan.
Further, the investors could borrow 100 per cent of the prepaid
interest from QGIS Finance Pty Ltd (QGIS) at 21 per cent per annum without
security and the lender had no right to recover the outstanding capital
amount from the borrower. QGIS would then pay the prepaid interest to
ASPL.
The extent of the repayment of the "prepaid interest"
loan was dependent upon the investor's marginal tax rate. Investors
would apply to the ATO to have their tax instalment deductions (TID)
varied down to take account of the expected interest deduction at the
end of the tax year. The amount by which the instalment was varied was
to be remitted to QGIS as the repayment amount for that year. Any balance
of the interest outstanding was to be settled from the profits of the
scheme or the scheme's management company. After 10 years the investor
was to reap the benefits of the expected increasing income and capital
growth of the investments made by AHIL less the principal loan amount
owing and any carried forward interest.
The TID variation applications advised with certainty that the
arrangements were in place and the transactions had occurred. Hence,
they were approved as a matter of course, as is established ATO practice.
Following extensive enquiries by the ATO and the Australian Securities
Commission (ASC), it was discovered that there were no monies paid by
investors to AHIL, either by direct contribution or by borrowings from
ASPL. In fact, ASPL and QGIS were insolvent as neither could meet its
obligations under the scheme arrangements. The only monies in the scheme
were the amounts investors paid by way of the TID variations, some small
out of pocket payments made by some investors and lump sums contributed
by elderly investors the promoter had assisted when employed by an agent
for Australia Fixed Trust. The properties purchased with these monies
were owned by other companies or individuals and there was no evidence
to indicate that AHIL had any legal or equitable interest in any of
those properties. As well, AHIL never had a registered prospectus under
which it could operate. [26]
1.32 It is the primary contention of the ASC that the Austhome scheme
was not implemented in the manner in which it was represented to potential
investors. In particular, the ASC contends that the false representation
of material facts induced investors to contribute money in the form of
interest payments to scheme companies when, in fact, no interest liability
arose because the represented loans had not been made and/or could not
be made. [27]
1.33 In response, JAG does not deny that the scheme involved a round-robin
series of transactions, but states that all legal and accounting experts
consulted by the scheme's promoters supported the scheme's validity and
its implementation.
The ASC's contentions
1.34 In October 1995, the ASC issued a Report on its investigation into
the affairs of Austhome. With regard to the conduct of the investigation,
the Report states that: [28]
- the ASC's investigation was prompted by the receipt of a liquidator's
report on QGIS Investment Services Pty Ltd - a scheme company - which
indicated that the company was involved in the conduct of a tax-based
investment scheme marketed by the Queensland Growth Investment Society
Co-Operative Ltd (which had itself been placed into liquidation);
- subsequent inquiries of the liquidator indicated that a substantially
identical scheme was being promoted by the same persons through a public
company identified as AHIL;
- following a review of the information provided by the liquidator,
a formal investigation commenced on 24 April 1991 to determine whether
AHIL had offered investment interests and circulated securities application
forms to members of the public without a registered prospectus;
- the investigation later widened to include the suspected dissemination
of false and misleading information to scheme investors; the suspected
failure of entities involved in the scheme to maintain proper or adequate
books and records; and suspected breaches of statutory and fiduciary
duties of officers of entities involved in the scheme;
- during its investigation the ASC obtained and seized documents and
records from companies and individuals involved in the scheme, and from
bankers and other parties;
- in addition, oral evidence was obtained from individuals involved
in the promotion and conduct of the scheme by the exercise of the ASC's
compulsive powers, and was also obtained from scheme investors and others
on the basis of voluntary interviews;
- in March 1992, the ASC obtained orders in the Federal Court under
s 1323 of the Corporations Law appointing interim receivers to
assets of 37 respondents who it had identified as either involved in
the promotion or conduct of the scheme, or as recipients of funds traceable
to investor contributions to the scheme;
- the interim receivers remained in control for more than 12 months;
- the ASC continued to investigate the scheme with a view to possible
criminal prosecutions;
- during 1994 and early 1995, and in spite of the ASC's belief that
there was ample evidence to support charges against the scheme promoter
relating to a number of serious criminal offences, the DPP advised that
the evidence gathered could not be used to found a prosecution given
the effect of "derivative use immunity" under section 68 of
the ASC Law as it existed prior to May 1992;
- the practical effect of the immunity in this case was to render inadmissible
in criminal proceedings against the likely accused all evidence obtained
directly or indirectly as a result of evidence given during an ASC examination;
- as a result, no criminal proceedings would be commenced.
1.35 With regard to the conduct of the Austhome scheme, the ASC's Report
states that: [29]
- the companies offering loans to Austhome investors ostensibly to finance
their participation in the scheme or to finance their interest prepayments
did not have the financial capacity to effect such loans, did not effect
such loans, and merely recorded the making of such loans by way of book
entries;
- investors were led to believe that their loan funds would be paid
to the investment vehicle on their behalf and invested in real property
and other income producing property when, in fact, no loan funds were
ever paid to the investment vehicle;
- properties represented to investors as assets of the investment companies
or assets in which investors held an interest were, with one exception,
actually held by third parties in which neither the investment companies
nor investors held any legally recognised interest (except, possibly,
under a resulting or constructive trust);
- in nearly all cases, properties were acquired by utilising investors'
interest contributions to finance only a small proportion of the total
purchase price of the property, with the balance of the purchase price
being raised by way of mortgage loans through major lending institutions;
- title to various properties which were represented as part of the
scheme's investment portfolio was held by numerous third parties under
arrangements variously involving "joint ventures" or "trust
relationships" - these features of the scheme were never adequately
addressed in the information given to intending investors during the
promotion of the scheme; and
- investors' contributions in excess of $450,000 were also utilised
(on an unsecured basis) to finance the operating expenses of an ice
cream business conducted by Hemglas Pty Ltd - in May 1992, the National
Australia Bank appointed receivers to Hemglas and, on satisfaction of
the bank's first ranking debenture charge, no surplus assets remained
available for distribution.
JAG's contentions
1.36 In general terms, JAG responds that:
- the conclusions reached by the ASC in its Report are false and misleading,
and the ASC has not been able to produce evidence to support its public
allegations;
- the ASC itself was predominantly responsible for investors' losses
and the hardship experienced by their families because, among other
things, it:
- prevented the issue of shares to investors by refusing to register
a prospectus, thereby preventing the proper execution of the scheme;
and
- unfairly instituted legal action against the wife of one of the
scheme promoters and her companies;
- there were no misrepresentations to investors about the "book-entry"
nature of the loans made;
- no investors in the scheme have ever complained about the promotion
of the scheme;
- conclusions reached by the ASC and the ATO about the validity and
legality of the scheme differ from all legal and accounting experts
consulted by the promoters;
- the ASC took an intimidatory and confrontational approach to the investigation
- terrorising investors in the scheme (rather than its promoters);
- in seeking the appointment of interim receivers, the ASC misled the
court and 'dumped' 3000 pages of documents on the defendants the night
before an ex parte hearing;
- there was a conflict of interest in the ASC appointing Coopers &
Lybrand as receivers to Austhome when it was a Coopers & Lybrand
report that prompted the ASC to investigate the scheme in the first
place;
- interim receivers were left in place for an excessive time;
- one judge indicated that the ASC appeared not to have understood the
underlying appointment of a receiver under s 1323 of the Law;
- receivers were appointed to companies (including the 'Berona' companies)
which had nothing to do with the Scheme; and
- those involved in the Scheme have never been given an opportunity
to properly argue their case.
ASC responses to JAG's contentions
1.37 The Committee put some of these contentions to the ASC through a
series of questions on notice. In general terms, the ASC relies on its
Report and further:
- it denies that it was responsible for investors' losses, arguing that
its intervention merely exposed the lack of money in the scheme, and
"brought forward only what would have happened anyway and prevented
other people from being involved"; [30]
- with regard to its treatment of Austhome group prospectuses, the ASC
states [31] that it refused to register
a prospectus for AHIL on 24 March 1991 because:
- the ASC database showed that substantial shares had previously
been issued by the company, but this had not been disclosed in the
prospectus; and
- in offering shares plus a "loan", the prospectus did
not comply with the requirements of the Law concerning offers of
shares and debentures; and
- on 24 January 1992, it sought an injunction to prevent the issue of
shares by Real Property Investments Ltd - another Austhome group company
- under a prospectus which had then expired because: [32]
- it had reason to believe that the company's promoters would either
proceed to complete the issue of shares which had previously been
illegally allotted, or would allot and issue shares after the expiry
of the prospectus - in Supreme Court proceedings, the company consented
to the Orders sought by the ASC and produced no evidence disputing
the ASC's allegations; and
- a number of false and misleading statements were identified in
the prospectus;
- with regard to the 'book entry' nature of the scheme, the ASC states
that the promoters: [33]
- never disclosed to the ATO, investors or lending institutions
that the purported loans were only book entries and had no monetary
value;
- falsely represented to credit providers that the 'loans' were
realisable assets of value; and
- represented that millions of dollars in "loans" on the
books of Austhome Securities Pty Ltd had been used to purchase income
producing assets, while these loans "were always retained by
Austhome Securities Pty Ltd and never vested anywhere except to
the credit of the participant in a book entry";
- the ASC agrees that it received no complaints from investors in Austhome,
but notes that these investors, at the time, had no concerns about the
efficacy of the scheme - indeed, many did not understand the operation
of the scheme - and any complaints made would have exposed investors
to the risk of having their deductions disallowed by the ATO; [34]
- with regard to conflicting legal advice, the ASC states that it has
not seen any legal advice relied upon by the scheme's promoters, and
that, while it is aware of some tax accountant's advice, the facts on
which that advice seems to have been based bore little similarity to
the way in which the Austhome scheme was actually conducted or portrayed
to investors; [35]
- with regard to the conduct of the investigation, the ASC states that
Austhome "was one of several early investigations from which the
ASC learnt valuable lessons" and that significant changes had taken
place since which affected the way in which it conducts investigations;
[36]
- with regard to the application for the appointment of interim receivers,
the ASC denies misleading the Court, and states that it acted properly
in pursuing this application on short notice because:
- it was aware of previous improper, evasive and deceitful conduct
of the promoters, and of the need to protect assets, and it acted
on the advice of Senior Counsel;
- only those regarded as the promoters of the scheme, or those who
held assets purportedly acquired with funds raised by the scheme,
were made parties to the proceedings;
- it considers that it was entitled to proceed ex parte (ie without
notice) and, while it chose to give minimal notice, it nevertheless
accepted the obligation to proceed as if its application had been
made without notice;
- the judge was fully apprised that short service had occurred and
that some parties had not been served at all; and
- notwithstanding the short notice, many of the respondents were
actually present at the hearing and represented by counsel; [37]
- it specifically denies misleading the Court through inaccuracies in
an affidavit sworn by one of its officers on 13 March 1991, apart from
a transcription error in an annexure to the affidavit "which incorrectly
identified, amongst a list of 41 companies, the shareholding of Berona
Investments Pty Ltd according to the ASC database at the time"
- and with regard to this company, the ASC goes on to note that:
- the Court was informed of the share structure of Berona according
to the ASC database;
- Berona was represented at the hearing by counsel who stated that
Mr and Mrs Bell both held shares in the company; and
- the true share position of Berona remains unclear because it admitted
to the Court that it had no share register, kept no minutes of meetings
and the share certificates in existence were not issued under the
seal of the company; [38]
- the ASC states that, while its investigation into Austhome was prompted
by a report from the liquidators of QGIS Investment Services Pty Ltd,
together with information provided by the liquidator of the Queensland
Growth Investment Society Co-operative Ltd:
- a number of securities industry participants also contacted the
ASC questioning the efficacy of the scheme and requesting that the
ASC make inquiries;
- many participants in the scheme were interviewed but none was
able to disclose any understanding of its workings;
- there was no conflict of interest in the appointment of Mr East
and Mr Wilde from Coopers & Lybrand as receivers and managers
to various Austhome companies because receivers and managers are
independent officers of the Court, owing a duty to the Court and
not to the applicant for their appointment;
- in a matter unrelated to the ASC application, both Mr East and
Mr Wilde were appointed provisional liquidators to another Austhome
company by the Queensland Supreme Court; and
- the knowledge and experience of the activities of the scheme's
promoters which was obtained by Mr East as a liquidator was of invaluable
assistance both to him and to Mr Wilde as receivers and managers
of Austhome; [39]
- the ASC states that interim receivership orders were made on 18 March
1992, but remained in force only until 1 April 1992, when the matter
was returned to the Court for further submissions - at that time many
respondents consented to the continuation of the interim orders and
those who objected were given hearing times, and hearings were held
on 1, 6, 8 and 13 April 1992; [40]
- the ASC accepts that Hill J, on 23 August 1993, did appear to question
its understanding of the appointment of an interim receiver under s
1323, but observes that its Senior Counsel advised that this decision
was wrong in principle, and, at a later hearing, the decision was distinguished
by Cooper J; [41]
- with regard to the allegedly "inappropriate" appointment
of receivers in some circumstances, the ASC:
- acknowledges that, on 23 August 1993, Hill J ordered the ASC to
pay $600 in relation to the costs of receivership involving property
belonging to Mr and Mrs Bunt, but states that Senior Counsel advised
that this decision was wrong in fact and law (given the comparatively
small sum involved, the ASC chose not to appeal the ruling); and
- points out that, at a later hearing on similar issues involving
the Berona companies, Cooper J distinguished Hill J's decision and
found that the ASC did not have to indemnify the Berona companies
in relation to their receivership; [42]
and
- the ASC states that the respondents to its action have had an opportunity
to argue their case:
- at the initial Federal Court hearings held on 17 and 18 March
1992 (while treated as ex parte hearings, affidavits were filed
and read, and submissions were made, by Mr Trevor Bell and Mr Kevin
Bradford, and counsel appeared for some other respondents);
- in affidavits and exhibits filed in the Federal Court by the respondents
on or before 25 March 1992;
- at the hearings when they recommenced on 1 April 1992 (the continuance
of the interim receivers in many cases was consented to by the respective
parties); and
- at further hearings which were held on 2, 6, 8 and 13 April 1992,
18 March and 24 April 1993, 23 and 26 August 1993, and 6 and 7 March
1995. [43]
JAG's reply to the ASC's answers
1.38 On 13 June 1997, JAG replied to the answers provided by the ASC.
In generally addressing the conduct of the Austhome scheme, the promoters
did not suggest that they had been blameless, and acknowledged that, with
the benefit of hindsight, they would have done many things differently.
[44] Specifically:
- with regard to the ASC's 'responsibility' for the collapse of the
scheme, JAG contends that: [45]
- the ASC's urgent ex parte applications for the appointment of
interim receivers were prompted by investors considering a proposal
to avoid the jurisdiction of the ASC by forming a limited partnership;
and
- the promoters were the only individuals involved who evidenced
interest in the well-being of the investors;
- with regard to the ASC's treatment of Austhome group prospectuses,
JAG states that the promoters at all times attempted to formalise the
interests of investors in assets and in the scheme, and that no amended
Real Property Investments Ltd prospectus was lodged as "ASC officers
indicated they would find reasons not to register it, and 'we would
be wasting our time'"; [46]
- with regard to the 'book entry' nature of the scheme, JAG states that:
[47]
- the scheme was in accord with a report obtained from Arthur Andersen
& Co, and the information given to and acknowledged by them
clearly states that "the gross monies lent by the finance company
did not exist except as provided by simultaneous cross investment";
and
- "no attempt was made to deceive participants that funds existed
except by cross investments and at least the majority of participants
recall having been told funds did not exist and loans were book
entry";
- with regard to the lack of complaints about the scheme, JAG notes
that: [48]
- the ASC's "assumption" that complaints would have exposed
investors to the disallowance of tax claims "remains unsupported
by any participant";
- an independent expert's report commissioned by investors concluded
that the scheme could have operated successfully, and
- the Trade Practices Commission commissioned a study of the scheme
by a qualified accountant and reported that they were happy with
the structure;
- with regard to the ASC denying that it had seen any legal advice relied
on by the scheme's promoters, JAG states "we believe they noted
advice by a barrister engaged by them that he believed the plan was
okay and workable ... it is more believable that the ASC did seek legal
advice but discarded it because it did not support their actions";
[49]
- with regard to the conduct of the ASC investigation, JAG observes
that: [50]
- the Austhome investigation rivalled that of Christopher Skase
in terms of public monies spent and ineptitude displayed;
- the 'valuable lessons' learnt by the ASC "came at a tremendous
cost to the investors of Aust-Home", and it is wrong "to
dismiss this whole travesty of justice just because the ASC were
just 'learning'";
- with regard to the appointment of interim receivers, JAG contends
that the process was prompted by panic in the face of the proposal to
reconstitute the scheme as a limited partnership - this "would
have taken the assets out of the control of the promoters and put them
in the hands of the investors" and would also "have removed
any question of alleged contraventions of the Law"; [51]
- with regard to allegations that the court was misled about the shareholding
structure of Berona Holdings, JAG states that: [52]
- Berona Investments and Berona Holdings were at no stage part of
the Austhome scheme;
- the ASC misstated evidence, including their own records, to convince
the court that these companies were 50% owned by one of the scheme
promoters - ASC records in fact showed that this promoter owned
less that 0.01% of the company and had no control or capacity to
exert control over it;
- it was later 'discovered' that a named employee of the ASC had
in her possession in the Federal Court a true copy of the ASC search
which contradicted the information provided to the court by the
ASC; [53]
- an ASC affidavit also informed the court that certain Berona properties
were represented to investors as comprising part of the scheme,
and that investors had an interest in them - "this was incorrect
and not supported by any evidence";
- costs and losses to Berona exceeded $500,000; and
- any matters of fact or allegations admitted by Berona did not
relate to Austhome investors;
- with regard to the appointment of the interim receivers, JAG states
that: [54]
- the ASC is "naive" in refusing to acknowledge any conflict
of interest; and
- denials that Austhome companies were targeted is contradicted
by an early threat made by one of the receivers that he "would
lodge a damaging report with the ASC if the promoters of QGIS etc
did not 'co-operate' with him";
- with regard to the conduct of the receivers, JAG states that: [55]
- various companies were wound up (by ex parte order without reference
to the shareholders or directors) on the grounds that they could
not pay their debts;
- these companies "were all solvent with net surplus assets
at the time of appointment of receivers";
- promises by the receivers to provide reports to members and account
for moneys collected have not yet been honoured; and
- numerous complaints were made to the ASC regarding the conduct
of the receivers;
- with regard to Berona's failure to obtain an award of costs in its
favour, JAG points out that the abandonment of the matter by the ASC
and the fact that a trial never took place meant that true responsibility
for costs never occurred; [56] and
- with regard to opportunities to properly argue its case, JAG states
that: [57]
- the promoters wanted charges laid on any matter where the ASC
thought breaches had occurred and advised the DPP accordingly; and
- the promoter was also willing to waive any rights to immunity
that existed and wished to publicly answer all allegations that
had been made.
The ATO's contentions
1.39 As noted in para 1.31 above, the ATO characterised the Austhome
scheme as, essentially, a tax-based negatively geared property investment
scheme. The ATO had initially issued a series of rulings to Austhome investors
and the scheme's promoters approving tax deductions for interest expenses
incurred. However, on making further investigations, the ATO found that
"the facts actually applicable to the arrangements were fundamentally
different to the facts set out in the rulings requests". Therefore,
the ATO revoked the tax instalment deduction variation approvals it had
given, and issued amended assessments to Austhome investors which disallowed
the interest deductions claimed between 1989 and 1992. These amended assessments
were issued "on the basis that the investors did not hold any income
producing assets, and there were no loans in existence that could give
rise to a deduction for interest". [58]
1.40 Some of the amended debit assessments were "quite large",
given the substantial reductions in tax instalment deductions that had
been granted to some investors. The average liability was around $15,000.
1.41 On 5 June 1992, the ATO held a meeting with Austhome investors and
their lawyers. The meeting canvassed the ATO's position, investors' objection
rights and the ATO's debt recovery mechanisms and options. After further
negotiations with solicitors for the investors, in February 1993, the
ATO agreed to a settlement arrangement. Under the arrangement:
- the ATO agreed to allow as a deduction all amounts paid by investors,
less any amounts received by the investors from the scheme, in each
of the income years between 1989 and 1992 on production of suitable
evidence of those amounts;
- amended assessments would be issued, with additional tax for late
payment not commencing until 30 days after these amended assessments
were issued;
- investors agreed not to lodge objections against the initial or subsequent
amended assessments (or to withdraw any objection already lodged) and
to pay any amount outstanding within 30 days of the issue of the latest
amended assessment; and
- investors facing financial difficulties could contact the ATO to discuss
mutually acceptable payment arrangements. [59]
1.42 The ATO reports that all but a handful of investors accepted the
settlement offer.
Judicial consideration of the Austhome matter
1.43 As indicated above, aspects of the Austhome matter were considered
by the Federal Court and the Queensland Supreme Court on a number of occasions.
Some aspects are still under consideration by the Administrative Appeals
Tribunal. [60] However, as yet, no court
or tribunal has definitively judged the merits of the scheme.
1.44 While it is difficult to draw unambiguous conclusions from the various
judgments that have been delivered, it would be fair to say that concerns
have been expressed about the conduct of the litigation, the conduct of
the receivers and managers, and the conduct of the scheme's promoters.
Given the effective abandonment of the ASC's application, these concerns
have been expressed in judgments relating to the costs of the litigation.
1.45 On 26 August 1993, Mr Justice Hill summarised his view of the balance
of conduct in the Austhome litigation in the following terms:
Having regard to my view that it was reasonable both for the
[Australian Securities] Commission to commence the proceedings and for
the respondents to defend them, that there has been no determination
of the merits, that there is nothing in the evidence which ultimately
displays behaviour of Mr and Mrs Bunt which should prejudice the exercise
of discretion for costs, the fact that the order for interlocutory relief
was continued by consent and that the parties acquiesced in the matter
ultimately not being litigated for a considerable time, I am of the
view that the appropriate order is that each side bear its own costs.
[61]
1.46 Mr Justice Hill was considering the issue of costs in relation to
Mr and Mrs Bunt, who were directors of certain Austhome group companies.
On 20 November 1995, Mr Justice Cooper similarly considered costs in relation
to the receivership of two Berona companies which had been included as
respondents in the Aust-Home litigation. His Honour noted that the conduct
of the Berona respondents, to the extent that it was revealed in the investigation
of the ASC, was a principal factor in the initiation of the proceedings
against them. This conduct, which was conceded by the Berona respondents,
included:
- abdication by directors of responsibility for the management of the
companies;
- the creation (or acquiescence in the creation) of false or misleading
security documents;
- attempting to defeat the court's appointment of receivers by causing
funds to be withdrawn from company accounts while the application was
being heard;
- failing to properly record and administer company shares;
- permitting others to intermeddle in the administration of the companies;
and
- failing to keep even the most rudimentary books or records and failing
to fulfil statutory duties to lodge documents. [62]
1.47 Again, His Honour ordered that, as between the ASC and the Berona
respondents, the parties should bear their own costs.
Parliamentary consideration of the Austhome matter
1.48 The Austhome matter has been raised directly in the Parliament,
[63] and, during 1995, representations
were made to the Parliamentary Joint Committee on Public Accounts. Also
during 1995, the matter was extensively considered by the Senate Legal
and Constitutional References Committee as part of its inquiry into The
Investigatory Powers of the Australian Securities Commission.
1.49 That Committee received many submissions dealing with Austhome,
[64] which it used as a case-history
on which to base recommendations for general changes to ASC investigative
procedures. Many of that Committee's procedural recommendations have since
been implemented by the ASC.
1.50 After examining the Austhome experience under section 1323 of the
Corporations Law, that Committee conceded that "ex parte applications
under section 1323 are sometimes necessary due to the reality of swift
movements of money in the corporate world", but concluded that the
section did not provide "any incentives for caution in the use of
the ex parte procedure" and that innocent persons might suffer loss
and damage without any right to compensation for the loss suffered. [65]
1.51 With regard to section 1323, that Committee recommended that, where
the ASC obtains an ex parte order under that section, and the order is
subsequently lifted, and no determinative order is made against the property
the subject of the order, and no successful civil or criminal prosecution
results against the respondent, then the respondent should have a statutory
right to recover from the ASC damages for any loss incurred as a result
of the original order. [66]
1.52 The Government of the day did not accept this recommendation, although
it did accept the need for a time limit on the duration of ex parte orders:
In all the circumstances, the Government is not satisfied that
the existing fetters on the grant of interim orders under subsection
1323(4) to the ASC are inadequate and, in view of its concern to ensure
that the ASC is encouraged to act without delay to secure assets in
the interests of investors and creditors, does not agree with the Committee's
recommendation. Nevertheless, the Government does see some merit in
ensuring that the procedures governing the grant of interim orders under
section 1323, where those orders are obtained following an ex parte
hearing, operate uniformly across all jurisdictions. Thus the Government
proposes to amend section 1323 to provide that where an interim order
is obtained as a result of an ex parte hearing, that order is returnable
on a day within 21 days of the making of the order or, in exceptional
circumstances, such further date as is determined by the Court. [67]
1.53 The Committee understands that no such reforms have yet been made
to section 1323.
The Committee's conclusions
1.54 The above outline indicates that the Austhome matter has had a prolonged,
complicated and somewhat unfortunate history. While it has been before
the courts, and assessed in detail by a Senate Committee, the promoters
of, and some investors in, the scheme remain unsatisfied. They reiterate
the view that what is required is a full public inquiry into the merits
of their case.
1.55 Unfortunately, this Committee is not equipped to sit as a surrogate
appellate court for each individual or organisation who seeks to challenge
the actions of the ASC in a particular case. Where a particular case illuminates
some urgent or more general or systemic concerns, the Committee may draw
the attention of the Parliament to those concerns.
1.56 There are a number of points to be made about the Austhome matter:
- the Austhome scheme collapsed more than 5 years ago;
- the Committee has significant doubts about the conduct and legality
of such a scheme, and the actions of some of its promoters, and would
have some concern if other versions of such schemes were to reappear;
- the conduct of the ASC in investigating the scheme and seeking the
appointment of receivers to scheme promoters has been discussed by the
courts and examined in detail by the Parliament on a number of occasions
in recent years; and
- as a result of these examinations, the ASC has acknowledged that "significant
changes have taken place since Aust-Home which affect the way in which
the ASC conducts investigations". [68]
1.57 Having examined the great mass of detail that has been provided
both by JAG and by the ASC, the Committee considers that, ultimately,
little would be achieved in again reconsidering the conduct of the Austhome
investigation - either from the point of view of general regulatory policy,
or of satisfactorily resolving the particular issues of concern to those
involved. Therefore, the Committee does not intend to undertake a further
formal investigation into Austhome.
1.58 However, the Committee notes that the potential problems inherent
in the grant of interim orders under section 1323 of the Corporations
Law, as identified by the Senate Legal and Constitutional References Committee,
do not yet seem to have been remedied. The provision has not been amended
as recommended by that Committee, nor as indicated in the government response
to that Committee's report.
Recommendation No 2:
The Committee recommends that time limits be imposed on the duration
of interim orders under section 1323 of the Law, where those orders are
obtained following an ex parte hearing.
Footnotes:
[23] Corporations and Securities Committee,
Committee Hansard, 21 March 1997, p CS 183.
[24] Australian Securities Commission, An
Investigation into the Affairs of Aust-Home Investments Ltd and Others:
A Condensed Report by the ASC under Section 17 of the ASC Law (hereinafter
Aust-Home Report), (19 October 1995), p 7.
[25] See Appendices 1 and 2 to this Report.
[26] Letter of 19 February 1997 from the Assistant
Treasurer. See Appendix 2, pp 95-96.
[27] Australian Securities Commission, Aust-Home
Report, p 10.
[28] Australian Securities Commission, Aust-Home
Report, pp 7-13.
[29] Australian Securities Commission, Aust-Home
Report, pp 10-11 and 25-27.
[30] Corporations and Securities Committee,
Committee Hansard, 21 March 1997, p CS 177 (Mr Cameron).
[31] See Appendix 1, p 51.
[32] See Appendix 1, pp 52-54.
[33] See Appendix 1, pp 58-60.
[34] See Appendix 1, p 48.
[35] See Appendix 1, p 60.
[36] See Appendix 1, p 69.
[37] See Appendix 1, pp 62-63.
[38] See Appendix 1, pp 61-62.
[39] See Appendix 1, pp 48-50.
[40] See Appendix 1, p 63.
[41] See Appendix 1, p 64.
[42] See Appendix 1, pp 65-66.
[43] See Appendix 1, pp 67-68.
[44] See Appendix 3, p 101.
[45] See Appendix 3, p 105.
[46] See Appendix 3, pp 105-6.
[47] See Appendix 3, pp 106, 109.
[48] See Appendix 3, p 103.
[49] See Appendix 3, p 107.
[50] See Appendix 3, p 108.
[51] See Appendix 3, p 106.
[52] See Appendix 3, pp 104-5.
[53] As described in an affidavit filed in
the Federal Court proceedings G3004 of 1992, a computer printout, believed
to have been produced directly from the ASC computer database, was contained
in a red folder found by a person connected with Austhome in the ladies
toilet near the court. This folder had previously been seen in the possession
of a "young fair skinned woman with short blond hair who had been
sitting in the courtroom during the proceedings." From this description,
the deponent believed that the person referred to was the named employee
of the ASC.
[54] See Appendix 3, pp 103-4.
[55] See Appendix 3, pp 104, 108.
[56] See Appendix 3, p 108.
[57] See Appendix 3, p 108.
[58] See Appendix 2, p 96.
[59] See Appendix 2, p 97.
[60] See, for example, Re Scott and Commissioner
of Taxation, AAT Taxation Appeals Division, No DT96/1.
[61] Australian Securities Commission v
Aust-Home Investments Ltd (1993) 44 FCR 194 at 203. His Honour did
order that the ASC should pay or indemnify Mr and Mrs Bunt for the costs
of the receivers.
[62] Australian Securities Commission v
Berona Investments Pty Ltd & Anor CLS 1995 FED 635. The ASC told
the Committee that counsel for the Berona companies had conceded, among
other things, that Austhome scheme moneys had been used to pay debts of
the Berona companies, and property belonging to the Berona companies had
been held out as property belonging to the Austhome scheme: see Appendix
1, pp 66-67.
[63] See, for example, Senate, Parliamentary
Debates, 12 November 1992, p 2998 (Senator W O'Chee).
[64] Approximately 30% of the 147 submissions
to the inquiry concerned the Austhome matter.
[65] Senate Legal and Constitutional References
Committee, The Investigatory Powers of the Australian Securities Commission,
(June 1995) p 39.
[66] Senate Legal and Constitutional References
Committee, The Investigatory Powers of the Australian Securities Commission,
(June 1995) p 40.
[67] Government Response to the Report by
the Senate Legal and Constitutional References Committee on the Investigatory
Powers of the Australian Securities Commission, (tabled in the Senate
on 29 November 1995) para 43.
[68] See Appendix 1, p 69.
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