Australian Securities and Investments Commission v International Unity Insurance Pty Ltd ACN 085 026 348 [2004] FCA 1059 (19 August 2004)

Australian Securities and Investments Commission v International Unity Insurance Pty Ltd ACN 085 026 348 [2004] FCA 1059

CORPORATIONS – winding up – just and equitable – insolvency – circumstances in which an order may be made winding up a corporation on just and equitable grounds – defendant previously carrying on business in Australia as agent for an insurer incorporated in the Solomon Islands – where defendant not authorised to carry on insurance business – where defendant failed to meet claims on policies written with foreign company – defendant entered into sham transactions to disguise divestment of assets – where divestments likely to put assets out of reach of creditors – where defendant involved in related party transactions.

Corporations Act 2001 (Cth) ss 311, 459P, 461, 462, 466, 911A
Australian Securities and Investments Commission Act 2001 (Cth) ss 13, 19
Insurance Act 1973 (Cth) ss 7, 10

Australian Securities Commission v AS Nominees Limited (1995) 62 FCR 504 applied
Australian Securities & Investments Commission v ABC Fund Managers (2001) 39 ACSR 443 applied
Australian Securities & Investments Commission v Austimber Pty Ltd [1999] FCA 566; (1999) 17 ACLC 893 cited
Australian Securities and Investments Commission v International Unity Insurance (General) Limited [2004] FCA 1060 cited

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v INTERNATIONAL UNITY INSURANCE PTY LTD ACN 085 026 348

VG 3216 of 2003

LANDER J
19 AUGUST 2004
ADELAIDE (HEARD IN MELBOURNE)

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIAN DISTRICT REGISTRY	VG 3216 OF 2003

BETWEEN:	AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION PLAINTIFF
AND:	INTERNATIONAL UNITY INSURANCE PTY LTD ACN 085 026 348 DEFENDANT
JUDGE:	LANDER J
DATE OF ORDER:	2 JUNE 2004
WHERE MADE:	ADELAIDE (HEARD IN MELBOURNE)

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIAN DISTRICT REGISTRY	VG 3216 OF 2003

BETWEEN:	AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION PLAINTIFF
AND:	INTERNATIONAL UNITY INSURANCE PTY LTD ACN 085 026 348 DEFENDANT

JUDGE:	LANDER J
DATE:	19 AUGUST 2004
PLACE:	ADELAIDE (HEARD IN MELBOURNE)

1 On 2 June 2004, on the application of the plaintiff, I made the following orders:

2 The plaintiff asked that I give reasons for those orders. There follows my reasons.

3 In January 2003 the Australian Securities and Investments Commission (ASIC) received notification from Mr Chooi San Beh, the then auditor of International Unity Insurance Pty Ltd (IUI Australia), pursuant to s 311 of the Corporations Act 2001 (Cth) (the Corporations Act). Section 311 requires an auditor conducting an audit or review to notify ASIC in writing if the auditor:

4 In his notification, Mr Beh raised a number of matters with which he was concerned, including:

5 On 13 March 2003 Mr Richard Vandeloo, a senior investigator of ASIC, suspected that IUI Australia, or its officers, agents or associates, may have committed or been involved in contraventions of ss 180 to 183, and s 588G of the Corporations Act. On that same day, he formally commenced an investigation into the affairs of IUI Australia pursuant to s 13 of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act) in relation to those suspected contraventions.

6 IUI Australia was incorporated as National Unity Insurance Co Pty Ltd on 4 November 1998. It became an unlisted public company on 1 January 1999 but reverted to a proprietary company on 6 September 2002. It changed its name to International Unity Co Ltd on 1 January 1999 and to International Unity Insurance Co Limited on 13 January 1999. When it reverted to a proprietary company it changed to its present name, International Unity Insurance Pty Ltd.

7 Between 4 November 1998 and 9 June 2002, the principal place of business of IUI Australia was at 30 Collins Street, Melbourne. Since 10 June 2002, it has given its principal place of business as Level 2, 49-51 Wellington Street, Prahran, Victoria 3181. Sometimes the suburb for that address is given as St Kilda and sometimes Windsor.

8 Its directors are Alex Chin, who was appointed on 4 November 1998, Alan Pawsey, appointed on 12 November 1998 and Michael Cahill, appointed on 1 May 2002. Messrs Chin and Pawsey are resident in Victoria. Mr Cahill is resident in Galway, Ireland. There is a dispute as to whether Mr Chin is a director. Mr Pawsey claims that Mr Chin resigned in about December 2002. However, no notification of his resignation has been entered in the national database maintained by ASIC. The secretary of IUI Australia is Mr Alex Chin.

9 The ASIC search discloses that the only shareholder is Mr Aex Chin, who holds 1,000 fully paid shares on trust for an unknown beneficiary. However, other documents suggest that both Mr Chin and Mr Pawsey are shareholders. In any event, all the evidence supports a finding that all the issued shares, whatever number, are held beneficially for Dr Ricky Allen.

10 IUI Australia has had previous directors; Grahame Sanders, who was appointed on 15 March 2002 and resigned on 1 May 2002; Nick Banicevic, who was appointed on 28 March 2002 and who also resigned on 1 May 2002; Kevin Charles Monssen, who was appointed on 18 June 1999 and resigned on 15 March 2002; Chooi San Beh (the auditor), who was appointed on 4 November 1998 and resigned on 18 June 1999; and Michael Anthony Blake, who was appointed on 12 November 1998 and resigned on 18 June 1999.

11 Apart from Mr Beh, to whom reference has already been made, Mr Sanders and Mr Banicevic figure in some of IUI Australia’s transactions.

12 Section 19 of the ASIC Act authorises ASIC to give written notice to a person who ASIC suspects or believes, on reasonable grounds, can give information relevant to a matter that ASIC is investigating. During the course of its investigation, ASIC gave notice to the auditor, Mr Beh, and to Mr Alan Pawsey, a director. Mr Beh was examined on 27 March 2003, and Mr Pawsey on 8 April 2003. Transcripts of both examinations have been tendered on this application.

13 The evidence suggests that International Unity Insurance Co Ltd (IUI Holdings) was incorporated in the Solomon Islands in December 2000. It had two subsidiaries, International Unity Insurance (General) Ltd (IUI General) and International Unity Insurance Life Co Ltd (IUI Life). The directors of the subsidiaries were Mr Pawsey, Mr Kevin Misi, an accountant practising in the Solomon Islands, and Dr Ricky Allen. Neither of those companies was registered in Australia. IUI Life did not write any business at any time. IUI General may have written business in the Solomon Islands and did write policies of insurance in Australia.

14 In a separate application, the plaintiff applied to wind up IUI General, notwithstanding that IUI General is not registered in Australia. On 2 June 2004 I made orders winding up IUI General. Today I have published separate reasons for why the plaintiff was also entitled to those orders: Australian Securities and Investments Commission v International Unity Insurance (General) Limited [2004] FCA 1060.

15 Both Solomon Island companies were licensed to write insurance business by the Solomon Islands authority, the Controller of Insurance. It is not entirely clear when IUI General and IUI Life became licensed. Mr Thompson, who was the principal of Misi and Associates and who had the responsibility of obtaining licences for those two companies, said the companies obtained their licences on 20 December 2000. Other evidence suggests that they obtained the necessary approval on 30 January 2001. Probably the best evidence is that provided by the authorities in the Solomon Islands which suggests that the companies were incorporated on 1 March 2001 and received their approval under the Foreign Investment Act (SI) in June 2001.

16 However, more importantly, their insurance trader’s licences were revoked, effective from 25 March 2002, which meant that no further insurance business could be written from that date.

17 On 1 March 2001 IUI General entered into broker agreements with Steel Pacific Insurance Brokers Pty Ltd (Steel Pacific) and Coronet Worldwide Insurance Brokers Pty Ltd (Coronet). Steel Pacific began placing insurance with IUI General through IUI Australia which may suggest that the authorities records are correct and that IUI General received its authorisation in the Solomon Islands in June 2001.

18 From the date of its incorporation, IUI Australia acted as IUI General’s agent and was authorised to manage and administer the insurance business of IUI General in Australia.

19 On 15 March 2001 Mr Pawsey, as Chairman of IUI Holdings, wrote to Mr Chin of IUI Australia appointing IUI Australia as manager and administrator to:

20 IUI Australia operated three bank accounts with Citibank in Melbourne; an operational account, a claims reserve account, and a premium account. The last mentioned account was opened for the purpose of transmitting monies in and out of Australia in different currencies. The claims reserve account was opened to hold money on behalf of IUI General in the Solomon Islands and to meet claims and other costs that were incurred for and on behalf of IUI General. The operational account was just that – an operating account.

21 On 23 March 2001 IUI Australia entered into a loan agreement with Renate and Christine Pty Ltd, a company of which Mr Pawsey was a director. The purpose of the loan agreement is not clear and the benefit to IUI Australia not obvious. Renate and Christine Pty Ltd is indebted to IUI Australia in the sum of $305,648.11.

22 On 21 May 2001 IUI Australia entered into a loan agreement with General and Marine Underwriters Sdn Bhd. Mr Chin is a director of that company. That company is not a registered Australian Company. It operates out of Brunei. It is indebted to IUI Australia in the sum of $127,196.74.

23 The plaintiff invited me to infer that both transactions were not in the ordinary course of business of IUI Australia and neither transaction was in that company’s best interests. Both inferences, in my opinion, arise on the evidence.

24 IUI Australia was not an insurer or an underwriter. It was certainly not entitled to act as an insurer, nor could it act as a broker.

25 Section 21(2) of the Insurance Act 1973 (Cth) (the Insurance Act) (as it applied prior to 1 July 2002) required any body corporate that carried on insurance business to be authorised under the Act and provided a penalty for any company which carried on insurance business without being so authorised. The Insurance Act provides for the Australian Prudential Regulation Authority (APRA) to give the necessary authority.

27 Section 7 of the Insurance Act, as amended, empowers APRA to determine that all or specified provisions of the Insurance Act do not apply to a particular person. No such determination has been made in favour of IUI Australia.

28 Section 911A of the Corporations Act obliges a company who carries on a financial services business to hold an Australian financial services licence covering the provision of the financial services. A financial service would include an insurance business. Such a licence is issued by ASIC.

29 IUI Australia was not authorised under the Insurance Act, or licensed under the Corporations Act, to carry on the business of an insurer. IUI General was not authorised under the Insurance Act, or registered under the Corporations Act, to carry on any business.

30 IUI Australia managed IUI General’s business in Australia and operated as the administrator of that business.

31 IUI General did not have a business office in the Solomon Islands but only a postal address, which was care of its accountants, Misi and Associates.

32 In its role as manager/administrator of the business of IUI General in Australia, IUI Australia issued insurance policies in the name of IUI General from its office in Australia. It also issued broker agreements in the name of IUI General. Insurance premiums paid in respect of policies underwritten by IUI General were collected in Australia and deposited in bank accounts in the name of IUI Australia and the monies held in Australia. IUI Australia and IUI General had a common letterhead and a common address within Australia.

33 IUI Australia and IUI General carried on their businesses in the manner which I have described in order that IUI Australia could avoid the need to be authorised by APRA as an insurer and to avoid the obligation to obtain a licence under the Corporations Act.

34 IUI General was licensed as an insurer in the Solomon Islands but not in Australia. It conducted its business in the way that it did in order that it could avoid seeking authorisation and licensing in Australia.

35 As I have already noted, IUI General did not have a business office in the Solomon Islands. Its only business office was shared with IUI Australia. IUI General, apparently, had no employees. It does not appear that IUI Australia had any employees but Mr Pawsey acted as an executive director.

36 The plaintiff tendered an affidavit of David Michael Clarke, who was a director of a company, International Underwriting Agency (Australia) Pty Ltd (IUAA), between 1 November 2001 and January 2003. Mr Clarke has some 38 years experience in the insurance industry and has worked for underwriters and brokers.

37 In about October 2001, Mr Clarke and a colleague, Christopher Vanderwert, met with Mr Pawsey and Mr Chin at 49-51 Wellington Street, Windsor. Mr Pawsey and Mr Chin told Mr Clarke and Mr Vanderwert at that meeting of the incorporation of the Solomon Islands companies and, in particular, IUI General and IUI Life, and also of the incorporation in Australia of IUI Australia which was to act as a managing agent for IUI General. They were told that Mr Pawsey, Mr Chin and Mr Graham Sanders were the directors of the companies.

38 At that time, Mr Clarke and Mr Vanderwert had access to business in the prestige vehicle market in Australia and they offered to generate further revenue for IUI General through that market. They were told by Messrs Pawsey and Chin that IUI General and IUI Australia already had a facility to place insurance risk for the heavy motor vehicle insurance industry in Australia which was then being managed by a London based company called AIM Underwriting Agency (AIM). Mr Pawsey and Mr Chin told Mr Clarke and Mr Vanderwert that the premiums collected for that risk were remitted, less broker’s commission to AIM, which, in turn, remitted the premiums less commission to IUI Australia.

39 Mr Pawsey and Mr Chin told Mr Clarke and Mr Vanderwert that all other general insurance risks, including public liability and property, were conducted directly by IUI Australia.

40 On or about 8 October 2001, Mr Clarke and Mr Vanderwert again met with Mr Pawsey and Mr Chin, who then introduced them to Stuart Lee, who they were told was a director of AIM.

41 Mr Clarke’s evidence establishes Mr Lee’s involvement with Mr Pawsey, and, in particular, with IUI General and IUI Australia, as early as October 2001.

42 At that meeting with Mr Lee, commissions were discussed and Mr Clarke and Mr Vanderwert were offered 22.5 per cent commission on the base premiums out of which they would have to pay a proportion to the brokers. It was agreed that they would collect the premiums and all statutory charges, including fire service levies, GST and stamp duties, all of which would be remitted to the relevant authorities and agencies.

43 IUAA was incorporated on 1 November 2001 to conduct that business. Mr Clarke and Mr Vanderwert were the directors of that company. Its principal place of business was at 49-51 Wellington Street, Windsor. In fact, IUAA operated from the same room as IUI Australia and shared the same facilities. Mr Clarke and Mr Vanderwert held 500 shares each in IUAA. IUI Australia purchased 600 shares in IUAA approximately one month after IUAA was registered as a company.

44 On 26 November 2001 Mr Lee, on behalf of AIM, wrote to Mr Clarke and Mr Vanderwert enclosing a (binding) authority agreement setting out the terms which had been agreed at the meeting in October. That agreement was signed in December 2001.

45 After the commencement of its business, IUAA, through Messrs Clarke and Vanderwert, remitted the premiums collected in the prestige car market to AIM after deduction of the commission payable to IUAA.

46 In December 2001 IUI Australia transferred US$250,000 to a bank account with Radzevena Bank, Bosnia in Herzegovina. It is not clear to whose account the monies were transferred. The transfer was facilitated by the former director of IUI Australia, Mr Nick Banicevic. Mr Banicevic is the director and controller of AMCO Insurance Management Group Pty Ltd (the AMCO Group).

47 Mr Pawsey was examined about this transaction. He said that monies were paid for the benefit of IUI General to ‘join forces’ with insurance companies in Eastern Europe. The status of the deposit and whether it still exists is now uncertain. Mr Pawsey said that IUI Australia had not drawn down on the fund. However, it is not clear that the funds were paid to the benefit of that company or IUI General.

48 On one understanding of Mr Pawsey’s evidence, the monies were paid to the benefit of the AMCO Group. The deposit does not appear as an asset on the IUI Australia balance sheet.

49 On 25 March 2002 IUI General’s authority to conduct an insurance business was revoked by the Solomon Islands authorities.

50 The plaintiff has relied on an affidavit of Gregory John Thompson, the manager of Misi and Associates Accountants in the Solomon Islands.

51 Mr Thompson advised Mr Pawsey, and others associated with Mr Pawsey, about the requirements to obtain an insurance licence in the Solomon Islands. He secured the approval of the Foreign Investments Board and the Controller of Insurance, and obtained insurance licences for IUI General and IUI Life on 20 December 2000.

52 In support of the application for approval of the Foreign Investments Board and the issue of the licences by the Controller of Insurance, Mr Thompson provided those authorities with a signed letter from Mr Beh, the auditor of IUI Australia, certifying that he had sighted two US Treasury notes, each valued at $70 million which was to be used as paid up capital for establishing an insurance company in the Solomon Islands.

53 Under Solomon Islands law, insurance licences are reissued annually. In March 2002 the Controller of Insurance wrote to Misi and Associates requesting that IUI Holdings, IUI General and IUI Life show him the US$140 million Treasury notes said to be in existence at the time of the issue of the first licence. Whilst the original certificate said that Treasury notes valued at $140 million had been noted, it appears later that there was talk of Treasury notes to the value of $170 million. The Controller also required a deposit of AU$400,000 to be made with the Central Bank.

54 The companies did not comply with the request and, on 25 March 2002, the Controller of Insurance cancelled the licences of IUI General and IUI Life. IUI General and IUI Life immediately stopped writing insurance policies in the Solomon Islands. The extent of IUI General’s business in the Solomon Islands is unclear. Whilst some deponents talk of that company issuing insurance policies in the Solomon Islands, there is other evidence to suggest that it did not carry on business in the Solomon Islands at all. As I have said, it did not have a business address but only a postal address care of its accountants. There is no evidence that it had any employees in the Solomon Islands who could write policies. It only operated in Australia through its manager and administrator, IUI Australia. IUI General also ceased writing insurance policies in the Australian market on about 25 March 2002. Of course, there were policies in existence in Australia. There may have been policies in existence in the Solomon Islands. On and after 25 March 2002, Mr Pawsey advised different people that IUI General would go into ‘run off’ mode to meet any claims under those policies. A ‘run off’ mode is where an insurer continues to meet claims but does not underwrite any new business.

55 On the same day, Mr Clarke was advised that IUI General’s insurance licence in the Solomon Islands had been revoked.

56 Both Mr Pawsey and Mr Chin subsequently told Mr Clarke that IUI General would go into ‘run off’ mode.

57 Between 25 March 2002 and June 2002, all claims which were approved for settlement by IUAA were paid by IUAA on behalf of AIM or IUI Australia from monies standing to the credit of IUAA in its account. When those monies were exhausted, Mr Clarke contacted Mr Lee for funds to settle those claims. He was advised by Mr Lee that AIM had remitted all premiums to IUI Australia.

58 Mr Clarke then approached Mr Pawsey for funds to settle those claims. Mr Pawsey said that he was attempting to obtain funds from AIM because, contrary to what Mr Clarke was told by Mr Lee, AIM had not remitted all monies to IUI Australia. He also told Mr Clarke he was attempting to obtain $150,000 from a broker, Richard Austin of Coronet. Mr Clarke was told that IUI Australia had entered into a joint venture partnership with Coronet to establish a reinsurance company in Hong Kong but the joint venture had not eventuated and Coronet owed IUI Australia the sum of $150,000.

59 In June 2002, Mr Pawsey told Mr Clarke that they were trying to sell the IUI General insurance portfolio to a person called Nick Banicevic, who was a director of a company ‘called Amco Insurance Management Group Pty Ltd’. However, Mr Clarke did not believe that there was any such sale of the portfolio because IUAA, AIM and IUI Australia were all attempting to obtain funds to settle outstanding claims between March 2002 and October 2002. If the portfolio had been sold, those entities would not have attempted to obtain funds to settle the claims because they would have no longer been liable to settle claims. Mr Clarke also said that, in about June 2002, he saw a letter from Mr Pawsey addressed to Mr Banicevic confirming that $570,000 had been paid to the AMCO Group for reinsurance. He thought that was odd because no assessment had been made of the risk attaching to the existing portfolio.

60 Mr Clarke first met Mr Banicevic in October 2002. Mr Vanderwert was then employed by the AMCO Group. Mr Vanderwert and Mr Beh were present at that meeting. Mr Banicevic told those present at the meeting that he had business connections with a number of insurance companies in the Balkans, namely, Dinara, Krajina Kopaonik, Ekvator and Grand. Later, Mr Banicevic told Mr Clarke that Mr Banicevic owned shares in those four insurance companies and, in particular, owned 91 per cent of Dinara. Mr Banicevic asked Mr Clarke to join the AMCO Group and to place insurance with Grand on behalf of the AMCO Group. Mr Clarke accepted the offer of employment and became operations manager of the AMCO Group. Later, a company, United Investment Funds Pty Ltd (UIF), was incorporated to place insurance risks with Grand on behalf of the AMCO Group and, in October 2002, Mr Clarke and Mr Vanderwert became employees of that company. Mr Clarke was also operations manager of that company. That company’s business was to place insurance with Grand. Again, it can be seen that the structure, which was put in place by Mr Banicevic, was the same structure which IUI Australia and IUI General had previously operated.

61 Whilst he was an employee of UIF, Mr Clarke saw Mr Banicevic in possession of the company seals, apparently of Krajina Kopaonik, Ekvator, Dinara and Grand. He also saw Mr Banicevic attach the company seals of Dinara and Grand to documents and sign his name adjacent to those seals. He also saw the company seals of Ekvator and Krajina Kopaonik on documents and Mr Banicevic’s signature appearing near those seals.

62 Mr Clarke said that in about December 2002 he saw documents relating to reinsurance for IUI General. The reinsurer was not identified but the broker was Ropner Insurance Services Limited.

63 The insurance policies underwritten by IUI General were issued in Australia at the offices of IUI Australia. Broker agreements were also issued in Australia by IUI Australia in the name of IUI General.

64 The premiums paid were collected by IUI Australia and deposited in IUI Australia’s bank accounts. Ms McLeod SC, who appeared for the plaintiff, submitted that it was a question of fact as to whether IUI General and IUI Australia were operating as one business. I accept that contention.

65 I find that there was, in fact, only one business. That business was conducted jointly by IUI General and IUI Australia. For the reasons already given, it was necessary to conduct that one business through two entities. IUI General was not entitled to conduct the business of an insurer in Australia without being registered as a foreign company and obtaining the necessary authorities under the Insurance Act and the Corporations Act. On the other hand, IUI Australia was not entitled to underwrite insurance in Australia, because it did not have the necessary authorities under those two Acts.

66 For that reason, the directors of the two companies pretended that the two companies were operating independently of each other whereas, in fact, the two companies were jointly running the one business.

67 Mr David Clarke said that, in his dealings with Mr Pawsey and Mr Chin, IUI General and IUI Australia operated as one entity. I accept that evidence. All of the evidence is to that effect. The two businesses were run as one. In those circumstances, both companies may have been in breach of the legislative provisions to which I have referred.

68 It follows from that finding that IUI General is a Part 5.7 body within the meaning of the Corporations Act.

70 IUI General is not a registrable Australian body because a registrable Australian body is defined ‘not to include a foreign company’.

71 It is, however, a ‘registrable body’, which is also defined in s 9 to mean: ‘a registrable Australian body or a foreign company’.

72 IUI General is a foreign company. ‘Foreign company’ is defined in s 9 to mean:

73 IUI General is a foreign company because it is a body corporate that is incorporated outside Australia and is not a corporation sole or an exempt public authority.

74 Because it is a foreign company and a registrable body, it is a Part 5.7 body for the purposes of the Corporations Act.

75 As a Part 5.7 body, IUI General is liable to be wound up pursuant to s 583 of the Corporations Act. I have addressed s 583 in reasons published today for the orders made winding up IUI General.

76 ASIC contends that the following facts and circumstances support its claim that IUI Australia ought to be wound up under the just and equitable ground.

77 On 11 November 2002 Mr Pawsey wrote for and on behalf of IUI General to Mr Steel, the principal of Steel Pacific, and said:

78 Notwithstanding those representations, IUI General has not met outstanding claims. In his affidavit, Mr Steel said that in September 2002 he became aware that a number of cheques issued to clients of his broking firm, in relation to claims lodged against IUI Australia or for pro rata refunds, had been dishonoured.

79 In May 2003, Mr Darroll Nelson wrote to Mr Steel advising that he had been appointed to act in the settlement of outstanding claims ‘against the abovenamed company’. He sought information concerning any claims which Mr Steel was handling. Mr Steel replied to that communication on 22 May 2003 setting out the claims made against the company. At that stage, claims for refunds totalled $93,448.42 and claims notified totalled $240,334.55. Other claims were notified to Mr Nelson in that letter.

80 Mr Steel did not receive any response to that letter. None of the claims have been met.

81 Between 11 January 2002 and the date upon which IUI General’s insurance licence was revoked in the Solomon Islands, IUI Australia paid $119,000 in nine separate transactions to AMCO Banka Financial Management Pty Ltd. All payments were made from the general operating account. The payments are shown as loans to AMCO. There is no evidence why the loans were made, or whether the directors of IUI Australia or IUI General made any assessment of the recoverability of such loans. There is no evidence that the monies were advanced in the ordinary course of business of those companies or that the loans were in the best interests of IUI Australia or IUI General.

82 After IUI General’s licence was revoked, IUI Australia continued to make payments to AMCO. Between 25 March 2002 and 30 June 2002 (the end of the financial year), IUI Australia paid to AMCO the sum of $982,290 in 13 separate transactions. Of that sum, $885,700 was paid from the claims reserve account and $25,200 from the premium account. The remainder was paid out of the general operating account.

83 I will return to those transactions a little later because some of those payments were said to have been made to effect a portfolio transfer or a reinsurance agreement of the whole of IUI General’s portfolio. It was suggested that AMCO acted as the agent for both IUI General and IUI Australia to effect a reinsurance contract with three insurers in Bosnia, Herzegovina.

84 Between 25 March 2002 and 30 June 2002 AMCO paid money to both Mr Chin and Mr Pawsey. AMCO paid Mr Chin $30,000 in two transactions, one of $20,000 on 31 May 2002 and the other of $10,000 on 28 June 2002. Those payments are recorded in AMCO’s general ledger as loans to Mr Chin. On 28 June 2002 AMCO paid $35,000 to Mr Pawsey. That sum is also recorded in AMCO’s general ledger as a loan to Mr Pawsey.

85 As at 30 June 2002 IUI Australia’s claims reserve trust account showed a cash balance of $341,905.72. Outstanding claims were then said to amount to $214,680.

87 On 30 July 2002 it paid AMCO $187,000 from its claims reserve account. On each of 6 September 2002 and 12 September 2002, it paid the sum of $60,000 from its claims reserve account to AMCO.

88 On 20 September 2002 IUI Australia paid $9,000 to AMCO from its general operating account.

89 One other transaction needs to be noted. On 2 August 2002 IUI Australia lent $240,000 to Halion Ltd. The money was paid from IUI Australia’s claims reserve account. Halion Ltd is not a related company. Mr Pawsey said in his examination that the loan was repayable on 13 August 2002, together with $10,000 interest. On 10 August 2002 an administrator was appointed to Halion Ltd. It appears that the monies are irrecoverable. There is no evidence that that transaction was in the best interests of IUI Australia or IUI General. There is no evidence why IUI Australia would have entered into the transaction at all. There is nothing to suggest that the loan was in the ordinary course of business of either IUI Australia or IUI General.

90 Mr Pawsey claimed in his examination that in May/June 2002 IUI General entered into a portfolio transfer transaction which involved the transfer of all existing insurance policies issued by IUI General to Dinara, an insurer located in Bosnia, Herzegovina. Mr Pawsey said that Mr Banicevic acted on behalf of Dinara and had authority so to do. Dinara was the lead reinsurer along with two other insurers, Krajina Kopaonik and Ekvator Insurance.

91 The effect of the transfer was, so it was claimed, that Dinara would become responsible for meeting all claims made against IUI General. To that end, all policies issued by IUI General were transferred to Dinara and IUI General paid $2.2 million from its claims reserve account to AMCO for the benefit of Dinara. The further effect of the transaction was that IUI General and IUI Australia were, therefore, left without any reserves to meet any other claim but, of course, there were to be no claims to be made against those companies because Dinara assumed responsibility for the payment of all claims.

92 Mr Pawsey said that Dinara was paid about $800,000. Mr Pawsey also said that he was unaware as to whether insurance brokers in Australia were made aware of what he described as the "portfolio transfer". There is, however, evidence from Australian brokers who dealt regularly with IUI Australia and, in particular, Mr Pawsey, who said they were never aware of a portfolio transfer having taken place. I accept the evidence of those brokers.

93 ASIC claims that the transaction, which was said to effect the portfolio transfer, was a ‘sham’. It claims there was never a transfer of any of the insurance policies issued by IUI General to Dinara or any other insurer. The claim of such a transfer was to disguise the wrongful payment by the defendant to AMCO.

94 The plaintiff has established that Ekvator Insurance was not carrying on the business of an insurer at the time this transaction was said to have been entered into. It is also established that no such arrangement was made with Dinara or Krajina Kopaonik.

95 The plaintiff relied on a number of affidavits from persons associated with the Balkan insurers. Dr Zdravko Todorovic, the Ambassador to Australia for Bosnia and Herzegovina deposed that AD Ekvator Osiguranje (Ekvator) was established on 3 November 1998 but is and always has been non-operational. It has never carried on any business.

96 Zoran Kalinic, the sole director of AD Insurance (Krajina Kopaonik), has sworn an affidavit which has been relied on by the plaintiff. No one else is authorised to represent Krajina Kopaonik in dealings with any third parties. He has deposed that Krajina Kopaonik is an insurance company in Bosnia which conducts the business of insuring property and persons. It has never been involved in reinsurance.

97 Mr Kalinic said that he met Mr Pawsey at the end of 2001 when Mr Pawsey was in the company of a director of Razvojna Bank from Banjaluka. Mr Pawsey told him that he was representing a company called AMCO which was based in Australia.

98 Mr Kalinic said that he did not enter into any transactions whatsoever with Mr Pawsey, the AMCO Group, IUI Australia or IUI General. He does not know Mr Banicevic. In particular, he has had no dealings with brokers, Collard and Partners Limited (Collard and Partners), who arrange reinsurance. He was shown documents said to have been issued by Collard and Partners. He says that the seal, which is said to be the seal of Krajina Kopaonik, is not the official seal of that company nor is the signature appearing under that seal the signature of any authorised representative of Krajina Kopaonik.

99 Miroslav Sekaric is the sole director of Dinara Osiguranje. His affidavit was tendered by the plaintiff.

100 Mr Sekaric is the only person authorised to make corporate level decisions on behalf of Dinara. However, he is not authorised to sell shares in that company. Its founding shareholders, being its holding company, Belgrade and Novosadska Banka, are the only parties entitled to sell shares. Mr Sekaric’s authority to make decisions is confined to Serbia. He can only make decisions in other countries with the approval of the founders.

101 Dinara commenced business on 7 November 2001 and is authorised to operate an insurance business by the Serbian Federal Ministry of Finance. It writes compulsory insurance. As at 31 December 2001, its total shareholders equity was US$1,287,627.

102 Mr Sekaric said that Dinara is not in the business of reinsurance. It has never, so Mr Sekaric deposes, provided reinsurance for IUI Australia or IUI General. It is not registered or authorised to provide reinsurance risk.

103 Mr Sekaric said that Dinara has not been paid any money by IUI Australia, IUI General, Mr Pawsey, or Mr Chin.

104 Mr Sekaric said that he has never met Messrs Pawsey or Chin, however, he has heard of them. Zdravko Acimovic approached Mr Sekaric, on behalf of Nikola Banicevic and a company, AMCO, said to be controlled by Mr Banicevic, with a proposal that AMCO invest funds in Dinara by purchasing 100 per cent of the issued shares. That approach was made in March or April 2002 in Belgrave. The proposal was that AMCO would purchase 100 per cent of the issued shares of Dinara for US$500,000.

105 On 12 April 2002 Mr Acimovic produced a draft contract which was written in English for the purchase of 100 per cent of the shares in Dinara for US$500,000.

106 Mr Sekaric has exhibited the draft contract to his affidavit. Apart from the terms to which I have already referred, the contract obliges the purchaser (AMCO Group Pty Ltd) to inject capital of US$10 million into the company within 90 days of purchase.

107 The draft contract is signed on behalf of AMCO Group Pty Ltd by its representative, Mr Nick Banicevic. It is also executed by Mr Pawsey and Mr Chin as managing director and group director of International Unity Insurance Co Ltd of Level 2, 49-51 Wellington Street, Windsor, Victoria, which is described in the execution clause as ‘Nominee’. International Unity Insurance Co Ltd is not mentioned in the body of the contract and there is no apparent reason why it would have executed this draft contract. In any event, it has not been executed by Dinara.

108 Mr Sekaric received a letter dated 29 May 2002 from Mr Banicevic enclosing the draft contract. In that letter he wrote:

109 The proposal replicates the manner in which IUI Australia and IUI General conducted their businesses to 25 March 2002. The underwriter is an offshore company licensed to conduct insurance operations in a foreign place. The managing agent is an Australian company which will manage the offshore company’s business in Australia. The managing agent receives a premium. The offshore insurance company writes a policy and assumes the risk.

110 The contract, to which I have referred, was returned signed by the AMCO Group on 26 June 2002. It was never executed by Dinara or anyone on behalf of Dinara.

111 Mr Sekaric also deposed that Dinara did not conduct any business with insurance brokers, AIM, or its director, Stuart Lee. Indeed, his evidence was that he had never heard of either AIM or Mr Lee.

112 He was shown four reinsurance cover notes, apparently issued by Collard and Partners. Those reinsurance cover notes claim that three Balkan insurers have accepted the reinsurance risk of the policies issued by IUI General within the documents.

113 Mr Sekaric’s evidence is that the seal marked as ‘Dinara’ on the document is not the authorised company seal of Dinara and that the signature, which appears next to the seal, is neither his signature, nor the signature of any authorised representative of Dinara.

114 Mr Sekaric also says that Dinara has not been paid any money by AMCO, Banicevic, IUI General, IUI Australia, Mr Pawsey, Mr Chin, AIM or Lee.

115 On the face of Mr Sekaric’s evidence, a serious question is raised in relation to the Collard and Partners’ document. If his evidence were accepted, then it may be that those documents are forgeries.

116 The plaintiff also relied on the evidence of Richard Emsom and Peter Lannon.

118 Collard and Partners commenced operation in January 1971 and operated an insurance broking business in London. It entered into administration on 27 March 2003.

119 In about May 2002, IUI General approached Collard and Partners seeking reinsurance with Dinara, Kopaonik and Ekvator using Collard and Partners as a broker.

120 Mr Emsom was approached by Stuart Lee of AIM, who claimed to be acting on behalf of IUI General, seeking to arrange reinsurance for IUI. Mr Lee was accompanied by Graham Sanders.

121 Mr Emsom was advised that IUI wanted Collard and Partners to arrange the reinsurance but that Mr Pawsey would forward the formal documentation to Collard and Partners outlining the reinsurance requirements and the designated reinsurance companies.

122 Mr Emsom said nothing was ever finalised. Collard and Partners did not receive any money from IUI General or IUI Australia to effect reinsurance with Dinara, Kopaonik or Ekvator.

123 No cover notes or debit notes relating to IUI General were ever issued by Collard and Partners.

124 Mr Lannon was also a director of Collard and Partners. He had been employed with the company since 1985.

125 Mr Lannon examined Collard and Partners’ documentation and said that, from a review of that documentation, in May 2002 IUI General sought to place reinsurance with Dinara, Kopaonik and Ekvator using Collard and Partners as a broker. He said that Mr Chin, Mr Pawsey and Mr Banicevic, who identified himself as the Chairman and CEO of the AMCO Group, initiated those enquiries.

126 Mr Lannon further said that he had reviewed Collard and Partners’ financial records and could confirm that Collard and Partners had never received any money from IUI General for the purpose of reinsurance with Dinara, Kopaonik or Ekvator. Collard and Partners does not hold valid reinsurance policies or cover notes relating to IUI General and no cover notes or debit notes have ever been issued by Collard and Partners.

127 Mr Lannon was shown a number of cover notes and documents relating to reinsurance placement purportedly issued by Collard and Partners. Those cover notes claim that reinsurance had been effected with Dinara, Kopaonik and Ekvator. He said the documents were not legitimate and were not created by Collard and Partners. He identified a number of other documents, none of which, he said, gave rise to any reinsurance arrangements with the three Balkan insurers.

128 I am satisfied, and I find, that no reinsurance arrangements were ever made with the three Balkan insurers. The transaction was, as is claimed, a ‘sham’ designed to explain the payments to the AMCO Group.

129 I am also satisfied, as the plaintiff has contended, that IUI Australia has divested itself of its assets by transferring monies to the AMCO Group and to Halion Ltd and to other parties and entered into sham transactions for the purpose of disguising its conduct.

130 ASIC applied, pursuant to s 461(1)(k) of the Corporations Act, to wind up the defendant, IUI Australia on the ground that it is just and equitable to do so. In the alternative, ASIC applied to wind up the defendant on the ground that it is insolvent.

131 Section 461(1)(k) of the Corporations Act empowers the Court to wind up a company if the Court is of the opinion that it is just and equitable that the company be wound up.

132 Section 462(2) of the Corporations Act authorises ASIC to make an application for winding up under s 461(1). ASIC is authorised to make the application where ASIC is investigating or has investigated a company under Division 1 of Part 3 of the ASIC Act in respect of matters relating to or connected with the affairs of a company.

135 The plaintiff is authorised to make an application for winding up on the just and equitable grounds where it is in the public interest to do so: Australian Securities Commission v AS Nominees Limited (1995) 62 FCR 504 at 532.

136 There are a number of separate grounds which justify the making of a winding up order under this head. If mismanagement, misconduct or lack of confidence in the conduct and management of the affairs of a company is established, it may be appropriate to wind up the company under this head: Australian Securities Commission v AS Nominees Limited at 532-533; Australian Securities & Investments Commission v ABC Fund Managers (2001) 39 ACSR 443 at 469.

137 If the plaintiff can establish that there have been breaches of the provisions of the Act, including, but not limited to, breaches of directors’ duties, inadequacy of accounts and inadequacy of record keeping, it may be appropriate to make an order under this head: Australian Securities Commission v AS Nominees Limited at 532-533; Australian Securities & Investments Commission v ABC Fund Managers at 469.

138 If there is a need to ensure investor protection, a winding up order may be made under this head: Australian Securities Commission v AS Nominees Limited and Others at 532-533; Australian Securities & Investments Commission v ABC Fund Managers and Others at 469.

139 An order may be made if a company has not carried on its business candidly and in a straightforward manner with the public: Australian Securities & Investments Commission v Austimber Pty Ltd [1999] FCA 566; (1999) 17 ACLC 893. Such an order would also be appropriate where the corporation has acted fraudulently or entered into sham transactions.

140 There are compelling reasons in this case to make an order under the just and equitable ground. The company is no longer trading. It has failed to meet its obligations in relation to meeting claims on policies which it wrote with IUI General. It has improperly divested itself of its assets. It has entered into sham transactions for the purpose of disguising those divestments. It has entered into the following transactions which might have the effect of putting its assets beyond the reach of its creditors:

141 Those transactions may mean that the company has put its assets outside the reach of its creditors. It is more likely than not that none of those transactions were in the company’s best interests.

143 The company also, in my opinion, is insolvent. It had a number of substantial debts to statutory authorities, including unpaid fire service levies. The affidavit of Mr Beh discloses that the company was insolvent as at 30 June 2002. It was not then able to meet its debts as and when they fell due. The draft balance sheet produced by Mr Pawsey in answer to Mr Beh does not represent the financial position of the company.

144 For those reasons, it was my opinion that the company should also be wound up in insolvency.

145 It was, for those reasons, that I also made the orders in par [1] of these reasons.

I certify that the preceding One hundred and forty five (145) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lander.

Counsel for the Plaintiff:	F McLeod SC with S Rubenstein

Solicitor for the Plaintiff:	Australian Securities and Investments Commission

Counsel for the Defendant:	No appearance

Date of Hearing:	31 May 2004; 1 and 2 June 2004

Date of Judgment:	19 August 2004

Federal Court of Australia

Australian Securities and Investments Commission v International Unity Insurance Pty Ltd ACN 085 026 348 [2004] FCA 1059 (19 August 2004)