Australian Securities & Investments Commission, In the Matter of Richstar Enterprises Pty Ltd [2007] FCA 35 (29 January 2007)

Australian Securities & Investments Commission, In the Matter of Richstar Enterprises Pty Ltd ACN 099 071 968 v Carey (No 12) [2007] FCA 35

CORPORATIONS – appointment of receivers to property of directors and officers of corporate group – asset preservation orders - pending investigation by Australian Securities and Investments Commission – possible liabilities of defendants to third parties – extension of appointment of receivers and of associated orders – whether extension warranted – whether lesser form of orders not involving Court appointed receivers should be made – orders for continuation of appointment of receivers made

Corporations Act 2001 (Cth) s 1323

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v NORMAN PHILLIP CAREY, GRAEME JOHN RUNDLE, CEDRIC RICHARD PALMER BECK, JOHN NORMAN DIXON, RICHSTAR ENTERPRISES PTY LTD (ACN 099 071 968), WESTPOINT REALTY PTY LTD (ACN 050 218 954), BOWESCO PTY LTD (ACN 117 947 805), REDCHIME PTY LTD (ACN 117 947 805), KEYPOINT DEVELOPMENTS PTY LTD (ACN 115 507 232), SILKCHIME PTY LTD (ACN 066 849 429), ROLD CORPORATION PTY LTD (ACN 009 358 276) and HEALTHCARE PROPERTIES PTY LTD (ACN 075 401 955)
WAD83 OF 2006

FRENCH J
29 JANUARY 2007
PERTH

IN THE MATTER OF RICHSTAR ENTERPRISES PTY LTD (ACN 099 071 968)
WESTPOINT REALTY PTY LTD (ACN 050 218 954)
BOWESCO PTY LTD (ACN 008 915 357)
REDCHIME PTY LTD (ACN 117 947 805)
KEYPOINT DEVELOPMENTS PTY LTD (ACN 115 507 232)

BETWEEN:

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
Plaintiff

AND:

NORMAN PHILLIP CAREY
First Defendant

GRAEME JOHN RUNDLE
Second Defendant

CEDRIC RICHARD PALMER BECK
Third Defendant

JOHN NORMAN DIXON
Fourth Defendant

RICHSTAR ENTERPRISES PTY LTD (ACN 099 071 968)
Fifth Defendant

WESTPOINT REALTY PTY LTD (ACN 050 218 954)
Sixth Defendant

BOWESCO PTY LTD (ACN 117 947 805)
Seventh Defendant

REDCHIME PTY LTD (ACN 117 947 805)
Eighth Defendant

KEYPOINT DEVELOPMENTS PTY LTD (ACN 115 507 232)
Ninth Defendant

SILKCHIME PTY LTD (ACN 066 849 429)
Tenth Defendant

ROLD CORPORATION PTY LTD (ACN 009 358 276)
Eleventh Defendant

HEALTHCARE PROPERTIES PTY LTD (ACN 075 401 955)
Twelfth Defendant

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

BETWEEN:

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
Applicant

AND:

1 The Australian Securities and Investments Commission (ASIC) has moved for the extension of orders appointing receivers to the property of various of the defendants, officers and members of the Westpoint Property and Finance Group (the Westpoint Group). It also seeks the extension of orders for the preservation of the assets of certain other defendants. The orders were, for the most part, originally made on 20 April 2006. They have been varied and added to since that time. Additional corporate defendants associated with the Westpoint Group have been joined in the proceedings and further orders made against them.

2 ASIC sought the orders under s 1323 of the Corporations Act 2001 (Cth) (the Corporations Act) to protect the position of potential claimants against the property of the defendants pending the outcome of its investigations into the conduct of individuals and companies within the Westpoint Group. The investigations have been long and complex. As the evidence now before the Court indicates, much remains to be done. ASIC seeks an extension of the orders. Some extensions have already been made by consent. Others are contested to the extent that the continued appointment of receivers to the property of the defendants is opposed.

3 For the reasons that follow, I am of the opinion that the Receiver Orders and Asset Preservation Orders, where applicable, should be extended to 30 June 2007. I will extend the existing orders which expire tonight, for seven days in order to allow ASIC to bring in appropriate minutes to give effect to these reasons. I will also make a new Receiver Order in relation to Silkchime Pty Ltd (Silkchime) and an Asset Preservation Order in relation to Healthcare Properties Pty Ltd (Receiver and Manager appointed) (Healthcare). The application in respect of Rold Corporation Pty Ltd (Rold) is to be heard on Wednesday, 31 January 2007. The costs of the extension application are reserved and may be the subject of further submissions.
Factual and procedural background

4 On 20 April 2006 orders (Receiver Orders) were made on the application of ASIC under s 1323 of the Corporations Act appointing receivers to the property of a number of corporations and individuals associated with the Westpoint Group: Australian Securities and Investments Commission; In the matter of Richstar Enterprises Pty Ltd v Carey (No 3) [2006] FCA 433; 57 ACSR 307. The application was brought in respect of the first to eighth defendants. The individuals against whom the orders were made were officers or former officers of companies in the Westpoint Group. Each of the individuals and companies in respect of whom receivers were appointed was required to produce affidavits setting out, inter alia, their assets and liabilities and the detail of property held by them. Travel restraint orders were made against the individual defendants. The Receiver Orders were not made against the seventh defendant, Bowesco Pty Ltd (Bowesco), as it had privately appointed receivers in place under a debenture. It was however the subject of an asset Preservation Order preventing disposition of its assets and requiring a detailed inventory of its assets and liabilities and of all its property in the same terms as required of the other defendants.

5 The orders of 20 April 2006 were expressed to be effective "until 20 October 2006 or further order". They have subsequently been varied and extended in time. Receiver Orders were made in relation to the ninth defendant, Keypoint Developments Pty Ltd (Keypoint) on 10 May 2006. The tenth and eleventh defendants, Silkchime and Rold were joined on 7 August 2006 and interim asset preservation orders made against them. Interim orders were also made in relation to Healthcare to take effect upon termination of its private receivership. Those orders were extended to 29 January 2007 in line with other orders subject to the extension application by ASIC. The bulk of the orders made in relation to the various defendants, as extended, expire at midnight tonight.

6 The originating application was filed by ASIC on 29 March 2006 and sought orders under s 1323 of the Corporations Act. ASIC had made determinations in 2005 and early 2006 pursuant to s 13 of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act) to investigate suspected contraventions of the Corporations Act, the ASIC Act and the Criminal Code of Western Australia by companies and individuals associated with the Westpoint Group. The corporate entities in respect of which the determinations were made comprised three groups which ASIC referred to as "the companies", "the Mezzanine companies" and ‘the wider Westpoint Group". At the time of the application the Westpoint Group had undertaken property development including the construction of apartment blocks in various parts of Australia. It obtained funding for its undertakings from banks and other institutions subject to first ranking securities and, in the case of a number of the developments, from individual investors through so called "Mezzanine Companies" which issued promissory notes. Finance raised through the Mezzanine Companies was supported by securities offered by companies in the Group. Those securities ranked after the first ranking securities held by lending institutions. The funds raised by the Mezzanine Companies were projects specific. Each mezzanine company related to a particular project.

7 Mr Norman Carey is and was the principal officer of the Westpoint Group. He was the only director and shareholder of the Westpoint Corporation Pty Ltd. He was a director or the sole director of many of the companies in the Group. He was also directly or indirectly their owner. Graeme John Rundle was the chief financial officer of the Group and the secretary of many of the companies in it. Cedric Richard Palmer Beck and John Norman Dixon were directors of the Mezzanine Companies.

8 At the time of its application to the Court ASIC had conducted examinations under s 19 of the ASIC Act of a number of persons associated with the Group. They were Messrs Rundle, Carey, Beck and Dixon and a former director, Ms Schiftan. Many documents were produced to ASIC in the course of its investigation. It also undertook searches of property registered in the names of the various defendants.

9 Siopis J made interim orders on 30 March 2006 restraining the defendants from removing any of their property from Australia or otherwise dealing with it except to the extent set out in the order. The individual defendants were also directed to surrender their passports: Australian Securities and Investments Commission, In the Matter of Richstar Enterprises Pty Ltd (ACN 099 071 968) v Carey [2006] FCA 366. The interim injunctions granted by Siopis J were extended on 7 April 2006 until judgment on the substantive application brought by ASIC which was delivered on 20 April 2006.

10 In delivering judgment on 20 April 2006 I referred to affidavits filed by ASIC and by certain of the defendants. The affidavits relied upon by ASIC were those of Oran Zohar sworn 29 March 2006, 6 April 2006, 12 April 2006 (two affidavits on that date), Richard Warren Gomm sworn 29 March 2006 (two affidavits), the affidavits of Kevin Chin sworn 30 March 2006, 6 April 2006 and 11 April 2006 and the affidavit of Marcus Essex Claridge sworn on 30 March 2006. The defendants variously relied upon the affidavits of Calogero Tindaro Triscari sworn 11 April 2006, Glenn Anthony Tully sworn 11 April 2006, Cedric Richard Palmer Beck sworn 11 April 2006, John Norman Dixon sworn 11 April 2006 and Wayne John Carl Zappia sworn 11 April 2006.

11 The reasons for judgment delivered on 20 April 2006 set out in broad terms, based on the affidavit evidence, the composition and modus operandi of the Westpoint Group. The treatment of "mezzanine finance" raised by the Mezzanine Companies from retail investors was also set out. It is not necessary to repeat those matters in these reasons. The evidence more recently filed on behalf of the defendants does not lead me to a different view of the operation of the Group.

12 The reasons also described particular transactions and practices within the Westpoint Group were questionable. These included:

Evidence from Oren Zohar included evidence of information received from Ms Tracey Fox who worked for the Westpoint Group that, between December 2005 and January 2006, she had been instructed by Mr Carey and by Mr Greg Nairn, the General Manager-Financial Accounting for the Group, to effect assignments of loans between entities within the Group in anticipation of Westpoint Corporation being placed into voluntary administration. The purpose of the assignments was said to have been to:

The evidence is now contested in the light of what is said to have been conflicting evidence given by Ms Fox in the course of an examination by ASIC under s 19 of the ASIC Act. Mr Zohar also referred to inter-company loan transfers recorded in a document located at the offices of Westpoint Corporation and entitled "The $2 million run around". This was a reference to payments made by Westpoint Corporation to Bowesco between 11 July 2005 and 15 December 2005 totalling $2,160,932.99. According to Mr Zohar it represented loan repayments for funds allegedly advanced by Bowesco to Westpoint Corporation.

13 After referring in the reasons for judgment given on 20 April 2006 to the evidence of Messrs Gomm and Zohar and other evidence relied upon by ASIC, I said (at [82]):

The reasons referred also to other areas of potential contraventions of statutory obligations which might give rise to liability on the part of individual defendants. Information Memoranda issued by Mezzanine Companies in order to attract retail investors to the Westpoint Group were arguably misleading or deceptive in various important respects. They arguably misrepresented the total funds to be used as mezzanine finance for the respective developments to which they related. For example, the Information Memoranda issued by York Street Mezzanine may have falsely represented that moneys raised would be applied specifically by way of a cash loan to Scots Church Development Pty Ltd, the relevant development company responsible for the Scots Church Apartment development.

14 The defendants did not make any substantive or detailed response to the ASIC evidence. Mr Carey himself put on no affidavit evidence at the original hearing. Mr Rundle said, through his solicitor, that he was a person of limited means and had not travelled overseas since August 2000. Mr Beck denied the allegation that as a director of the Mezzanine Companies he had acted in accordance with instructions from Messrs Carey and Rundle. Mr Dixon also denied that he acted under instructions from Messrs Carey and Rundle. Mr Carey says, in responding to the extension application, that the voluminous materials provided in support of the original ASIC application and the difficulties he had in accessing documents seized by ASIC, together with the short notice on which the application was brought, meant that his capacity to respond to the evidence against him and the corporation was severely limited.

15 In my reasons for decision I concluded that ASIC had demonstrated that it was necessary and desirable, within the meaning of s 1323(i) of the Corporations Act, that the Court make orders to protect potential claimants against the defendants in respect of liabilities for contraventions of the Corporations Act and other statutes and for breach of common law and fiduciary duties. I accepted that the appointment of receivers was a drastic step but was satisfied that in the serious circumstances of the case it was justified. I did not consider that the necessary protection could be achieved simply by way of freezing orders or by the acceptance of undertakings. Further, the administration of freezing orders in such a complex corporate group would have required frequent interventions by the Court. The appointment of receivers with appropriate discretions to allow the corporations to continue operating, subject to solvency issues, was intended to allow for a degree of administrative flexibility that would not have been possible through comprehensive freezing orders. As it is, there have been a significant number of applications about the administration of the orders. I am satisfied, however, that applications in relation to freezing orders would in all likelihood have been more numerous and involved considerably more expense than under the receivership regime.

16 The orders made on 20 April 2006 related to the first to eighth defendants respectively. On 26 May 2006 similar orders were made in respect of Keypoint, which was added as ninth defendant. Additional affidavit evidence was adduced by ASIC in support of those orders, they being the affidavits of Brian Keith McMaster sworn 4 May 2006, Nicholas Gvozdin sworn 5 and 18 May 2006 and Rodney James Edgell sworn 9 May 2006. ASIC relied upon five matters warranting the appointment of receivers to Keypoint. They were:

I was satisfied that the circumstances disclosed by the affidavit and the five transactions asserted made it necessary and desirable for the purpose of protecting the interests of creditors of companies in the Westpoint Group that a receiver be appointed to the assets of Keypoint in terms similar to the appointment of receivers to other defendants: Australian Securities and Investments Commission, In the Matter of Richstar Enterprises Pty Ltd v Carey (No 4) [2006] FCA 644.

17 On 1 June 2006 further orders were made including an order that Mr Carey attend before a Registrar of the Court on a date to be fixed by the Registrar and thereafter as directed by the Registrar from time to time for examination on oath by ASIC and the receivers on matters relevant to:

Mr Carey was required to produce such books, documents, records or other papers which he might be directed by the Registrar from time to time to produce in aid of such examination. In making that order I said:

18 On 28 June 2006 orders were made giving liberty to ASIC to apply for variations to the receiver orders allowing them, inter alia, to extend the application of the individual receiver orders to trust property held under trusts in respect of which the defendants were beneficiaries including discretionary trusts of which a defendant had effective control: Australian Securities and Investments Commission, In the Matter of Richstar Enterprises Pty Ltd v Carey (No 6) [2006] FCA 814; (2006) 153 FCR 509.

19 On 5 September 2006 I made orders directing Mr Carey to produce various documents to ASIC relating to offshore banking arrangements and to authorise and request a Channel Island company, Mercator Trust Company Ltd (Mercator) to forward to the Registrar of the Federal Court in Perth copies of documents concerning the engagement of Mercator by another Channel Island company, Halter Ltd, and by a trust known as the Hilton Trust and by Mr Carey. The orders followed a motion by ASIC arising out of Mr Carey’s examination before a Registrar of the Court. In the reasons for decision in relation to those orders I said:

20 On 15 September 2006, I made orders, in these proceedings, that Bowesco held an option over the Warnbro Shopping Centre assigned to it by Westpoint Corporation subject to a fixed charge in favour of Perpetual Nominees Ltd as trustee of the ING Mortgage Pool. The option had been assigned for a consideration of $100. An offer of $1 million to acquire the option was made by a third party: Australian Securities and Investments Commission, In the Matter of Richstar Enterprises Pty Ltd v Carey (No 9) [2006] FCA 1242; 58 ACSR 721.

21 Other orders varying the Receiver Orders to meet particular contingencies were made on 23 November 2006 and 12 January 2007: Australian Securities and Investments Commission, In the Matter of Richstar Enterprises Pty Ltd v Carey (No 10) [2006] FCA 1617 and Australian Securities and Investments Commission; In the matter of Richstar Enterprises Pty Ltd v Carey (No 11) [2007] FCA 21.
The application for extension of the receiver and associated orders

22 ASIC seeks an extension of the Receiver Orders and Asset Preservation Orders as against Mr Carey, the fifth to tenth and twelfth defendants. At the time that the extension application was heard, on 18 December 2006, ASIC had almost completed negotiating with the representatives for Messrs Beck and Dixon, a final form of orders and undertakings. Orders were made by consent on 22 December 2006 effective to 30 April 2007. In respect of the second defendant, Mr Rundle, orders had been made by consent effective to 15 June 2007.

23 The remaining defendants, other than Rold, which is the subject of an extension application to be heard on 31 January 2007, proposed orders involving the following elements:

24 In addition to the affidavits filed in support of the original application, ASIC relied upon the following evidence:

25 The subject matter of each of those affidavits may be summarised as follows:
(a) Affidavit of JH Jacobson sworn 7 August 2006

26 This affidavit exhibited transcript of Mr Carey’s examination before a Registrar of the Court on 5, 24 and 25 July 2006. It also exhibited records of properties of which Silkchime is shown as registered proprietor.
(b) Affidavit of JH Jacobson sworn 29 August 2006

27 This affidavit exhibited correspondence and documents relating to Mr Carey’s dealings in connection with Halter Ltd and Mercator, both based at Guernsey in the Channel Islands, and a Singapore-based bank called ING Asia Private Bank Limited (ING). The affidavit was used to support an application for the orders which I made on 5 September 2006 requiring Mr Carey to, in effect, give discovery of documents relating to those dealings and to instruct both ING and Mercator to send relevant documents to the Registrar of the Court: Australian Securities and Investments Commission, In the Matter of Richstar Enterprises Pty Ltd v Carey (No 8) [2006] FCA 1208. The effect of Mr Jacobson’s evidence and associated affidavits is set out in those reasons and need not be repeated here.
(c) Affidavit of JH Jacobson sworn 5 September 2006

28 This affidavit exhibited documents obtained by ASIC from Westpac Banking Corporation Ltd pursuant to a notice which it issued on 18 August 2006 under s 30 of the ASIC Act. The documents were received on 4 September 2006. They were relevant to the off-shore dealings with which the judgment of 5 September 2006 was concerned and included written instructions given by Dosius Pty Ltd, a company of which Mr Carey was managing director, for the transfer of funds from the Challenge Bank in Perth to Citibank NA Singapore.
(d) First Affidavit of JH Jacobson sworn 14 December 2006

29 The first affidavit comprised some 674 pages in two volumes. It exhibited documents relating to the off-shore Channel Island dealings and in particular a letter from Mercator dated 20 October 2006, as well as documents constituting the Hilton Trust and Hilton Trust financial statements for the years ended 31 December 2003 to 31 December 2005. Correspondence between Mercator and Mr Carey in connection with Halter was also exhibited. A large number of documents relevant to Halter were also exhibited.

30 The first Jacobson affidavit also exhibited a transcript of Mr Carey’s further examination before a Registrar of this Court on 7 and 8 December 2006. That examination related to the Mercator documents. One of the letters exhibited was from Mr Carey dated January 1989 to Balchan Trustee Limited as trustee of the Hilton Trust. The Hilton Trust is a discretionary trust. In the letter Mr Carey wrote:

Mr Carey went on to request that Balchan have regard to his wishes during his lifetime in the exercise of its powers under the trust. He also requested that all money received by the trust be deposited in the non-resident bank account of the trust opened at the Hill Samuel Merchant Bank Asia Ltd in Singapore under the name of its nominee company.

(e) Second affidavit of JH Jacobson sworn 14 December 2006

31 In his second affidavit Mr Jacobson referred to Mr Turton’s affidavit. In that affidavit Mr Turton said that ASIC had recently instructed the Australian Government Solicitor (AGS) to make inquiries of each of the external controllers of companies in the Westpoint Group seeking information on whether:

Mr Jacobson deposed that the AGS had received 12 responses to the letters written to external controllers. These responses were exhibited to his affidavit. They may be summarised as follows:

32 Mr McMaster’s affidavit exhibited a Report prepared by the Court appointed receivers, on the receiverships of the first, fifth, sixth, eighth and ninth defendants.

33 The receivers considered that overall their receiverships had been an effective method of achieving the identification, preservation and securing of property for the benefit of potential creditors. However the extent of the effectiveness of the receiverships varied from entity to entity and in some instances their full effectiveness had not been able to be realised. They identified access to books and records as one of the key difficulties in their receiverships. The orders made on 20 April 2006 required the various defendants to immediately deliver up all books and records in their respective possession. They did not do so. In previous affidavits sworn by Mr McMaster evidence was given of delays in the delivery of books and records which required applications to the Federal Court for directions to compel compliance with the Court order. Their staff did not gain access to some of the books and records of Richstar and Redchime until 22 May 2006.

34 According to the receivers’ Report Mr Carey and other Westpoint Group directors had maintained that they had provided access to all relevant documents. In several instances, however, the receivers became aware of material transactions or liabilities, and documents relating to those matters, from alternative sources. They did not consider it possible to say that they had been given access to all the relevant books and records. The problem had been exacerbated by the fact that ASIC is in possession of a substantial portion of Group records.

35 The Report then went on to deal with problems associated with access to the Redchime computer system which contains many of the books and records of the corporate defendants. Records relating to other defendants are also contained on that system. There have been claims for legal professional privilege in relation to some of the data and the process of identifying and excluding potentially privileged documents has proven difficult. The large quantity of data and steps taken to protect privileged documents and those that might belong to other entities has significantly hindered the receivers’ ability to utilise the data on the system to conduct their investigations. Appropriate procedures were recently agreed and implemented to streamline the process.

36 The Report referred to apparent deletions from the Redchime computer system of some 27,055 files. In excess of 97 per cent of the deleted files were erased late the night before and on the morning of the imaging process. 4,148 of the deleted files contained references to Mr Carey; 599 to Mr Ray Ellis; 49 to Mr Glen Tully; 53 to Ms Karen Carey-Hazell; 6,488 to Mr Graeme Rundle; 63 to Redchime; 171 to Richstar; 219 to Keypoint and 866 to Westpoint Realty. The receivers’ Information Technology Division set about reconstructing and analysing the electronic transactions within the Redchime computer system including the 27,000 deleted files. This resulted in significant delay in attempts to interrogate the Redchime computer system.

37 ASIC has taken possession of a large amount of hard copy books and, according to the receivers, has approximately 1,500,000 documents in its possession. It has been scanning the documents and creating a database to enable electronic searches to be done. At the time of the Report ASIC had informed the receivers that the processes would shortly be completed. The records in ASIC’s possession were likely to assist the receivers in their investigations.

38 The receivers also complained that Mr Carey and his companies had failed to cooperate with them and with their staff and that this had resulted in the receiverships being unnecessarily difficult and cumbersome. They were concerned that there had been insufficient disclosure for them to accurately and completely report on the current asset and liability position of each of the entities. They referred, as examples of this behaviour, to the difficulties they had faced in obtaining access to books and records and the apparent deletion of computer data immediately prior to the image taking process. They complained also that they and their staff had been subjected, inter alia, to threats of litigation, allegations of wrong-doing and other accusations.

39 The receivers reviewed the operation of their receivership in respect of Mr Carey and each of the corporate defendants in respect of which they had been appointed. It is not necessary for present purposes to set out in detail the receivers’ Report so far as it related to each of the defendants. General factors affecting the conduct of the receivership have already been referred to.

40 In relation to Mr Carey, the receivers reported on his lack of cooperation and their serious doubts about the completeness of the disclosures made by him. I agree, having regard to the way in which the proceedings have progressed thus far and the evidence that has been put before me from time to time in the course of these proceedings, that the receivers’ concern that they have not been able to form a complete picture of Mr Carey’s asset situation is well-founded. Part of that outcome is attributable to Mr Carey’s defensive and uncooperative approach to disclosure. In so saying, I have regard to Mr Carey’s defence of his own position in his affidavit to which I will refer later. Part of the difficulty is attributable to the sheer volume of documents and information which it may yet be necessary for the receivers to consider and which are either held by ASIC or are to be found in the Redchime computer system.

41 The receivers consider the Richstar receivership to have been "mostly effective" in achieving the objective of the orders made in relation to that company. The company’s assets have been identified and substantially secured and preserved. Richstar has continued to carry out property development activities. A sum of $875,000 which was transferred by Richstar to Keypoint on 31 March 2006, notwithstanding the orders made by Siopis J on 30 March 2006, was refunded to Richstar on 15 May 2006 by order of this Court made on 10 May 2006.

42 According to the receivers’ Report, shortly after their appointment to Richstar, Mr Carey asked that they authorise a transaction by which Richstar would transfer its remaining cash at bank to Keypoint to enable it to buy and develop land at Ascot. They declined the request. They say they were threatened by Mr Carey and his sister who is the sole director of the company, with an action for damages on behalf of Keypoint. Neither Richstar nor Keypoint applied to the Court for any variation to the orders made on 20 April 2006 to authorise the proposed transaction. Keypoint and a related company, Keyworld Pty Ltd, have commenced proceedings in the Supreme Court of Western Australia against Richstar. Ms Karen Carey-Hazell is the sole director of all three companies. According to the receivers, Richstar has threatened third party proceedings against them.

43 The receivers’ view of Richstar’s financial position is that it has assets with an estimated recovery value of $2,861,250 and no liabilities. The assets are represented by cash at bank. Loans receivable from Bowesco, Keypoint and Lanepoint are estimated to have a recovery value of nil.

44 The receivers complain that without their prior consent Ms Carey-Hazell engaged employees in the name of Richstar. There was a question whether this was a breach of the Court’s orders. However, it seems to have been agreed that Richstar staff were involved in work for other entities in the Westpoint Group. The receivers requested that the other entities undertake to reimburse Richstar on a pro rata basis. Two of the entities are subject to privately appointed receivers. Any cost reimbursement regime would require their authorisation. Ms Carey-Hazell has been asked to confirm their authorisation but no response had been forthcoming at the date of the Report. From 4 July 2006 Richstar requested that Ms Carey-Hazell be paid director’s fees. In the event the receivers agreed to authorise payments of $2,000 per fortnight to her.

45 The receivers recommend the continuation of the present orders relating to Richstar without any amendment to their powers.

46 The receivers consider that their receivership of Westpoint Realty has been effective in achieving the objectives of the orders in terms of identification, preservation and securing of assets and the continuation of the business in the ordinary course. Mr Carey swore an affidavit on 5 May 2006 identifying assets to a value of $1,467,990 and liabilities to a value of $212,367. The receivers however formed the view that his affidavit did not adequately disclose the assets and liabilities of Westpoint Realty. The receivers’ concerns had been set out in an affidavit sworn by Mr McMaster on 23 May 2006. They expressed their concern that Realty might be insolvent.

47 In recent proceedings relating to the payment of insurance premiums by Realty in respect of property owned by other entities, Mr McMaster gave oral evidence before the Court that Westpoint Realty was not solvent. Westpoint Realty was not represented on that occasion but has subsequently appointed a voluntary administrator. As to the short reasons for judgment authorising payment by Westpoint Realty of a premium for short term insurance in relation to property belonging to other owners see: Australian Securities and Investments Commission, In the matter of Richstar Enterprises Pty Ltd v Carey (No 11) [2007] FCA 21. The receivers were of the view prior to the appointment of the administrator that the current orders represent an appropriate regime to preserve the company’s assets.

48 In relation to Redchime the receivers say that the receivership has been effective in achieving the objectives of the orders so far as they related to identification, preservation and securing of assets. Their summary of Redchime’s current financial position based on their assessment of the estimated realisable value of its assets and liabilities shows total assets of an estimated recoverable value of $132,355 and total liabilities of $659,813. They discount to nil the recoverable value of loans receivable from Keypoint and from Westpoint Finance. They also discount trade debtors from $924,581 to $129,404. That amount includes $795,177 outstanding for property developments which may be subject to a commission dispute with Westpoint Realty. The receivers were of the view, at the time of writing the Report, that Redchime was insolvent. They observe that it is not actively involved in any business activities other than the litigation concerning the commission dispute. They recommend that the current regime remain in place pending the determination of that commission dispute.

49 So far as Keypoint is concerned, the receivers’ report that they have achieved the objectives of identification, preservation and securing of its assets. Their assessment of Keypoint’s financial position at the time of the report indicates total assets with an estimated recovery value of $134,588 against total liabilities of $2,052,402. On this basis it appears that Keypoint is insolvent. The receivers’ report that they consider the most appropriate regime going forward would be an extension of the existing order until their investigations were completed.
(g) Affidavit of Brian Keith McMaster sworn 18 December 2006

50 In this affidavit Mr McMaster responded to the affidavit of Karen Carey-Hazell sworn 14 December 2006. Some of the material was argumentative by way of response to argumentative material in Ms Carey-Hazell’s affidavit.

51 Mr McMaster dealt with the delivery up of books and records responding to Ms Carey-Hazell’s contention that the corporate defendants had tried to comply with the receiver orders regarding the delivery of books and records and that she had tried to respond to requests for information as quickly as possible. He referred to the history of attempts to obtain books and records as indicating that Ms Carey-Hazell’s characterisation of the corporate defendants’ response to their obligations was not correct.

52 Responding to Ms Carey-Hazell’s contention that the conduct of the receivers had hindered the ability of the corporate defendants to operate their businesses, Mr McMaster noted that Keypoint was dormant at the time of his appointment and Redchime ceased its business activities shortly after, save for asserting an entitlement to commissions. Healthcare was not the subject of the Receiver Orders and its dormancy could not be in any way attributable to the Receiver Orders or the Court receivers. Westpoint Realty was the subject of significant claims from third parties.

53 In relation to Ms Carey-Hazell’s alleged difficulties in communicating with the corporate receivers, Mr McMaster said that his practice was to personally respond to her inquiries or to have a senior member of his staff or one of his lawyers respond as quickly as reasonably possible. He and his staff diligently responded to correspondence they received from the Carey entities. Mr McMaster went on to deal with the detailed allegations relating to alleged lack of communication which he rebutted on a factual basis. I do not accept the claim that he failed to communicate with Ms Carey-Hazell or the Westpoint Group companies.

54 In responding to contentions by Ms Carey-Hazell about damage inflicted by the receiverships, he dealt with a number of issues:
1. Late payment of wages.
2. Richstar employees.
3. Ms Carey-Hazell’s salary.
4. The authorisation of Westpoint Realty expenditure.
5. The Keypoint/Richstar transaction.
6. The deletion of computer records.
7. Claims of legal professional privilege.
8. The alleged failure by the corporate defendants to cooperate with the receivers.
9. The allegations relating to Richstar.
10. The proposed purchase by Richstar of property owned by Eastlands Pty Ltd.
11. Richstar wages.
12. Allegations relating to Westpoint Realty.
13. Impact of the receiverships.

55 Mr McMaster’s affidavit contains persuasive responses to the various allegations made by Ms Carey-Hazell. In the course of the affidavit he said that investigations had been undertaken into the 27,000 documents said to have been deleted from the Redchime computer system. He had been informed, by Mr Wills from the Information Technology Division of KordaMentha, that approximately 24,500 documents had been removed from the Redchime server and moved to an external location then relocated to another area in the Redchime server between one and three hours later. Approximately 2,500 documents removed from the Redchime server were not replaced. Mr Wills had, however, managed to restore those documents. The deletion and transfer of data took place eight hours earlier than previously thought. The majority of movements took place between 2 pm and 5 pm on 8 June and 7.45 am and 10 am on 9 June.
(h) Affidavit of Allen James Turton sworn 16 November 2006

56 Mr Turton is Deputy Executive Director of the Enforcement Unit for ASIC. He operates from its New South Wales regional office. In his affidavit Mr Turton described ASIC’s investigation into Westpoint as one of national significance and of high priority. It is nationally resourced and extends to criminal, civil and administrative investigations and actions.

57 According to Mr Turton ASIC established a dedicated team of people in April 2006 to investigate the affairs of the Westpoint Group, including the conduct of its directors and officers. This necessitated recruitment, induction and training of internal and external investigators, lawyers, analysts, electronic forensic officers, document control officers and administrative staff. So much of the Westpoint investigation team as is based in Perth currently comprises about 30 people, a number of whom have been transferred from interstate ASIC offices. Some external service providers have also been engaged.

58 The size of the investigation has required ASIC to lease additional premises to accommodate the Investigation Team as well as documents associated with the Westpoint Group. It is one of ASIC’s largest investigations to date.

59 Mr Turton set out in his affidavit the chronology of orders made against the various defendants. He said that ASIC has identified possible contraventions of the Corporations Act, the ASIC Act and relevant State criminal legislation by defendants in respect of transactions designed to strip assets or transfer liabilities to the detriment of creditors and/or retail investors of the Westpoint Group. Analysis of numerous transactions has taken place by reviewing available documentary evidence, accounting records and electronic data.

60 Mr Turton set out various areas of investigation being undertaken by ASIC including a fund raising investigation relating to the raising of funds by Mezzanine Companies, an asset stripping investigation which focuses on a number of transactions in and associated with the Westpoint Group, a document destruction investigation and other investigations arising from the collapse of the Group. There are ongoing investigations into the alleged commission of serious criminal offences, however Mr Turton believes that disclosure of those investigations will jeopardise them.

61 Progress of the investigations referred to by Mr Turton has been impeded by logistical issues which he identified, in summary, as follows:

62 The affidavit referred to hard copy documents obtained by ASIC. According to Mr Turton, as at 14 November 2006, ASIC’s database contained 1,608,538 scanned hard copy documents and approximately 4,825,614 pages relevant to the Westpoint investigations. He also dealt in detail with the recovery of electronic records. Since 23 May 2006, ASIC has had to deal with approximately 43 requests from various entities or persons for the release or inspection of documents.

63 The affidavit then set out in a detailed chronology civil actions initiated by ASIC.

64 In support of the application to extend the orders made against the various defendants, Mr Turton said that ASIC seeks to ensure that the property the subject of the orders continues to be preserved for the benefit of creditors and investors. He is concerned that if the subject assets are not protected there is a continuing risk that the interests of creditors and investors will be negatively affected as the assets may be transferred away or used or dissipated for the benefit of others. ASIC requires more time to complete the investigations which it is currently undertaking, particularly having regard to the logistical issues which it faces.

65 External controllers of various of the companies in the Westpoint Group have indicated that they are likely to commence proceedings against some or all of the corporate defendants for the ultimate benefit of creditors of the Westpoint Group. Evidence of these indications was then set out, including evidence of the intentions of Mr McEvoy of PriceWaterhouseCoopers who are the liquidators of several of the Mezzanine Companies, the intention of the ING receivers of Westpoint Corporation to pursue assigned loans as charged assets, and the liquidators of Westpoint Corporation who have identified various claims against each of the defendants.

66 At par 91 of his affidavit, Mr Turton said that ASIC’s investigations may give rise to civil compensation claims. Depending upon the position taken by external controllers, ASIC will consider whether it should undertake a representative action under s 50 of the ASIC Act.

67 Mr Turton then proceeded to deal with each of the defendants and to set out the basis upon which orders should be maintained in relation to each of them for a further six month period, subject to review at the end of that time. In so doing he identified ongoing investigations and potential claims against each of the defendants.

68 The McEvoy affidavit which was referred to by Mr Turton in his affidavit does not require separate summary here. It is supportive of the proposition that there may be claims brought against various of the corporate defendants by the liquidators of the Mezzanine Companies.
Evidence relied upon by the defendants

69 Mr Carey and the corporate defendants, other than Rold, relied upon the following evidence:
1. Affidavit of Norman Phillip Carey sworn 14 December 2006.
2. Affidavits of Karen Sandra Carey sworn 13 December 2006 and 17 December 2006.
3. Affidavit of Gregory John Nairn sworn 14 December 2006.
4. Affidavit of Anthony Hayes Douglas-Brown sworn 18 December 2006.

Counsel for ASIC took objection to the material contained in some of these affidavits to the extent that it was argumentative. However, as indicated in the course of argument, I will disregard such material. The substance of each of the affidavits is summarised below:

Affidavit of Norman Phillip Carey sworn 14 December 2006.

70 Mr Carey denied the allegations which were set out in the ASIC affidavits upon which the original orders of 20 April 2006 were obtained. The volume of documents then put before the Court and the limited time within which counsel had to prepare for the hearing meant that it was impossible for him to respond to the allegations presented by ASIC. He has maintained at all times that he is not guilty of any wrong doing.

71 Mr Carey’s affidavit sought to set out the framework within which the Westpoint Group operated and its relevant history. That history included reference to the Westpoint Group’s successful development of properties throughout Australia for 20 years between 1985 and November 2005. Until 2000 the Group funded its developments by investing its own funds and by using conventional bank debt. Between 1985 and November 2005 it completed projects to a total value of $895 million and achieved approximately $182.4 million in project profit. According to Mr Carey the Group also had "an unblemished record of repayment of approximately $451 million in senior debt".

72 The total value of current projects using mezzanine funding was set out in a table exhibited to his affidavit. The table did not identify individual projects but asserted total sales value for current projects with mezzanine funding at $1.329 billion against total project costs of $1.0605 billion. A projected profit of $220.5 million was asserted. The projects were funded by "Senior Lender Funding" in the amount of $640.3 million and mezzanine financing in the amount of $373.6 million. Other current projects without mezzanine funding were said to have a total sales value of $962.9 million and projected profits of $345.4 million.

73 Mr Carey claimed that Westpoint was a sophisticated organisation built on a business model similar to the very successful "LendLease" business. He asserted that the operating structure, organisational capability, management and leadership systems were soundly based on tried and tested management methods. The Group essentially comprised three distinct businesses and a technical service group. Each business had a head responsible for that business. He was the head of the property group at all times. Mr Rundle was head of the financial services group from 1997. Mr Carey also asserted that the Westpoint Group had a "rigorous strategic planning process".

74 At all times Westpoint Corporation was the lead company in the Westpoint Group providing a shared services function and acting as a central treasury to the Group. The central treasury function was not set up by Mr Carey. It had, however, operated successfully in the Group for more than 15 years. Its design, development, structure and operation was carried out by former chief financial officers of the Group who were always experienced senior chartered accountants. It was initially set up by David Hewitt who was chief financial officer from 1992 to 1997. Mr Carey also referred to KPMG who were the Group’s auditors. He said they audited the Group each year and signed off on the accounts on an unqualified basis until 30 June 2004.

75 Mr Carey rejected the proposition reflected in the ASIC affidavits that the only funding model used by the Westpoint Group involved the use of mezzanine finance. He said the only debt carried by the Westpoint Group was debt funding property projects or property investments. He referred also to the marketing and sales function of the Westpoint Group and its focus on compliance.

76 Mr Carey said he relied on senior management. This reliance was part of what he described as the internal environment of the Group. As at 2005 the Westpoint Group had approximately 350 full time employees and 1,000 contractors with a monthly payroll of about $1.6 million. More than 70 per cent of the employees had tertiary qualifications and experience. He relied upon information provided to him by the senior managers. It was impossible for the Westpoint Group to operate without that kind of reliance. He also placed "total reliance" on a comprehensive range of external specialists including solicitors, accountants and auditors and a strategic management firm.

77 Mr Carey described how in 1995 at his direction the Boston Consulting Group was engaged by the Westpoint Group to provide it with a ten year strategic plan. This was the first major step in a deliberate move by the Group to change from a private group using a traditional funding structure to a group with a funding structure which would support a larger scale of operation and be acceptable for a major publicly listed company. Between 2000 and 2005 the Group took active steps to commence what he called a "Public Company Transition".

78 Mr Carey’s affidavit described the evolution of the Group’s funds management business. He formed the view, based on legal advice from Freehills in about 2000, that what he called the Funds Management Objective could be achieved by the creation of a funds management business based on unregulated product in the form of promissory notes. He said that ASIC had undertaken an early investigation into the use of promissory notes and advised in 2000 that it would take no enforcement action in relation to them. He also relied upon advice from Freehills and from counsel that the use of the promissory notes as an unregulated product was lawful. He said that the Westpoint Group did not itself issue or distribute them. They were distributed by Mr Beck and Kebbel Pty Ltd and the Kebbel Group of companies. They were distributed to licensed dealer groups and licensed independent financial advisors.

79 Mr Carey said market reaction to the promissory notes was substantial. Over a period of only four years between 2000 and 2004 approximately $280 million was raised using them He said that $190 million of these funds were raised between the date of what he called "ASIC’s Endorsement" and the date of the reinstitution of its investigations in July 2003. Mr Carey went on to refer to the Information Memoranda which were said to be based on a template, being the Information Memoranda prepared for the Bayview Port Melbourne development which commenced in late 1999. He spoke of commission arrangements in relation to the funds raised using the promissory notes. It is not necessary for present purposes to refer in any detail to these arrangements.

80 Mr Carey claimed that advice that he had received from Freehills in relation to the notes was "fundamentally flawed". If he had his time again he would never enter into the arena of unregulated product. He claimed never to have been warned of the likely consequences of that decision nor to have been aware of the distinction between regulated and unregulated product and its effect on the market of licensed advisors nor of the commercial impact that high commissions would have on the future establishment of a funds management business dependent on regulated product. He referred to ASIC’s early investigations and what he called "ASIC’s investigations re-ignited" in July 2003.

81 In 2004 Bayshore Mezzanine Pty Ltd, a member of the Westpoint Group, instituted proceedings in the Supreme Court against ASIC seeking declarations about the legitimacy of the use of the promissory notes. ASIC responded with Supreme Court proceedings of its own against Emu Brewery Mezzanine Ltd also seeking declarations. Judgment was given by Simmonds J in consolidated proceedings on 19 November 2004. Although, according to Mr Carey, 10 out of 11 issues were determined in favour of the Westpoint Group the Court determined that the promissory notes form part of a managed investment scheme. This, he said, was contrary to the advice that the Westpoint Group had received from its solicitors. An appeal was lodged against the declaration that was adverse to the Westpoint Group. Subsequently, however, the appeal was discontinued.

82 Mr Carey’s affidavit turned to the collapse of the Westpoint Group which he argumentatively attributed to ASIC. It had commenced what he called "a series of aggressive moves against the Westpoint Group" in June 2005. He accused ASIC of using its investigative powers to undertake a massive general inquiry in relation to the Westpoint Group. He said it took its action without warning. He accused ASIC of "callous disregard for investors" by applying to wind up York Street Mezzanine Pty Ltd and Ann Street Mezzanine Pty Ltd.

83 Under the heading "The Actual Cause of the Westpoint Collapse" Mr Carey said that before the winding up applications in relation to the York Street and Ann Street Mezzanine Companies the Westpoint companies’ financial position was manageable. It was solvent and profitable and undergoing what he called the "Public Company Transition". ASIC’s action in bringing the winding up application caused the calling up of guarantees against seven guarantor companies. This in turn caused 40 other Westpoint companies to become insolvent as a result of demands made on loans to them. Further Westpoint companies which owed those companies loans in turn became insolvent. This caused technical defaults to all lending facilities within the Westpoint Group allowing receivers to be appointed to complete property projects and to sell finished properties.

84 Much of what followed was argumentative in character. There was specific reference to the fact that the Mezzanine Companies did not form part of the Group. They were described by Mr Carey as completely separate special purpose vehicles for the sole purpose of lending funds to a development company to finance the project. Each of them was managed by a board of directors who had "systematic and well documented board meetings" which included a comprehensive set of bound board papers prepared by Mr Rundle for the meeting and formal minutes from those meetings.

85 Mr Carey referred to what he called "the asset stripping investigation". He described variations to the Mezzanine Companies’ loan agreements. He said that the maturity dates of the promissory notes were designed to coincide with the expected completion dates of the projects to which they referred. However "for various reasons" completion dates were extended so that the maturity dates of the promissory notes fell prior to the completion of the project. He negotiated as director of the development companies which were the borrowers, with the directors of the Mezzanine Companies, which were the lenders, to extend repayment dates to coincide with the settlement of the apartments required to repay the Mezzanine Companies. This was entirely consistent with the original agreement with the directors of the Mezzanine Companies. He denied that the variations were made with any ulterior or improper purpose.

86 Mr Carey referred to the creation of security interests in favour of entities controlled by him or his brother or sister. These things had been referred to in affidavit evidence from Mr Zohar. He asserted generally that it was in the normal course of business for funds to be loaned between entities.

87 Mr Carey also dealt with the question of the Westpoint Corporation’s solvency and responded to allegations made by Mr Zohar about the condition of the Corporation at the time of the appointment of the Court receivers. According to Mr Carey Westpoint Corporation had external creditors of approximately $15 million covered by assets of approximately $26 million providing a surplus of approximately $7 million. This excluded related party loans as they were not due and payable and were internal to the Group. The analysis did not include the contingent liability of the mezzanine guarantees.

88 By way of conclusion Mr Carey said that it was apparent that the advice relied upon by the Westpoint Group and ASIC’s actions had had massive and detrimental effects on investors. He "vehemently" refuted allegations that he had acted improperly. He said he had acted at all times on the best advice available to him and to the Westpoint Group.

89 Much of Mr Carey’s affidavit amounted to an elaborate argument for the proposition that the present parlous state of the Westpoint Group was attributable to the actions of ASIC and the Westpoint Group’s advisors. It did not allay concerns about the apparently misleading character of Information Memoranda relevant to the mezzanine funds, the rollover of the mezzanine funds into projects other than those for which they had been raised, the pre-invoicing arrangements by Westpoint Construction in relation to contracts it was engaged to carry out for the development companies and issues generally germane to the current protection of the assets of the defendants, including Mr Carey, for the purpose of creditor and other claims against them.

Affidavit of Karen Sandra Carey

90 Karen Sandra Carey, also known as Karen Sandra Carey-Hazell, is the sole director of Richstar, Bowesco and Keypoint. Mr Carey is the sole director of Westpoint Realty, Silkchime and Healthcare. Ms Carey-Hazell says she is authorised by Mr Carey to swear her affidavit on behalf of those companies of which he is a director and also on behalf of Mr Carey himself. Ms Carey-Hazell confirmed the statements made by Mr Carey in his affidavit of 14 December 2006 in relation to the ASIC investigations. She then set out the nature of the business which she said was operated by each of the corporate defendants. A table embodied in her affidavit set out the current status of the corporate defendants. Richstar, Westpoint Realty, Redchime and Keypoint all have Court appointed receivers. Bowesco has a privately appointed receiver as does Healthcare. Silkchime had no Court appointed receiver at the time of swearing of her affidavit. Since then Westpoint Realty has appointed an administrator.

91 Ms Carey-Hazell referred to the orders made in relation to the companies and then proffered an explanation of delays that may have occurred in fulfilling the obligations of the corporate defendants. She said that the corporate defendants delivered their books and records to the corporate receivers. She also said that since the end of May 2006 the corporate receivers have had an electronic copy of the Triumph Accounting System which stores all of the financial books and records for each of the corporate defendants.

92 Ms Carey-Hazell reflected on the conduct of the receivers. She accused them of exceeding their function which was limited to identifying, preserving and securing the assets of the corporate defendants. Rather, she said, they had in effect operated and run the businesses of the corporate defendants. Their conduct had obscured, slowed, and at times, prevented the corporate defendants from operating in the ordinary course of business. She said that Keypoint, Redchime and Healthcare are now dormant in their activities and that Westpoint Realty is subject to insolvency accusations. It is worth pointing out in this context that Healthcare does not have a Court appointed receiver. Its receiver is privately appointed. Westpoint Realty, as noted earlier, has subsequently appointed an administrator.

93 Ms Carey-Hazell claimed to have experienced difficulties in communicating with the corporate receivers. She accused them of adopting an aggressive and overpowering manner towards her efforts to build a reasonable working relationship with them. She pointed to what she called decisions or delays in making decisions by the corporate receivers that had caused loss to, or hampered the corporate defendants in the conduct of their business. She set out a list of examples of losses which she said had made dealings with the corporate receivers difficult and costly. There were delays in the payment of wages for employees of Westpoint Realty, Keypoint and Richstar. The corporate receivers had refused to honour a loan agreement between Keypoint and Richstar. She exhibited Keypoint’s writ issued in the Supreme Court of Western Australia against Richstar claiming approximately $9 million by way of damages. Some of Ms Carey-Hazell’s complaints related to the conduct of the private receivers of Bowesco and Healthcare.

94 Her affidavit then turned to the Receivers’ Report which was exhibited to Mr McMaster’s affidavit and which has already been outlined. In relation to the delivery of books and records she repeated what she had said earlier in her affidavit. She also took issue with the contention that there had been a deletion of the computer records. Because of difficulties with a computer server files were transferred under her instructions to a stand alone computer so that the pre-existing network which was crashing could be restored. When the transfer occurred the relevant server, presumably the Redchime server, recorded the files transferred as deleted. Ms Carey-Hazell denied that they had been deleted. They had merely been transferred and stored on another device. She said that Mr McMaster had at no time raised with her the issue of the transferred files. The first time she became aware that there was an issue was when he raised it in these proceedings. Had he simply asked her about the files she could have provided him with a CD Rom with the files on them. This could have been done within a matter of hours. She asserted that the reconstruction of the allegedly deleted files by the corporate receivers was unnecessary.

95 Ms Carey-Hazell dealt with claims of legal professional privilege. In that context she asserted that the Court appointed receivers had a conflict of interest because in several instances they were also the receivers and managers of entities with competing claims.

96 On her alleged failure to cooperate, Ms Carey-Hazell repeated what she had said in relation to the delivery up of documents. She denied that there had been any attempts to try to coerce the receivers to adopt certain courses of action. She said that the allegation that there had been no cooperation and that the corporate defendants had been confrontational with a disregard for the orders and the authority of the receivers, was surprising and concerning.

97 Ms Carey-Hazell offered responses to particular allegations relating to the transactions involving Richstar, including the employment of staff by it allegedly without the prior approval of the receivers. She dealt separately with allegations relating to Westpoint Realty and Redchime. She referred to a loan from Westpoint Corporation to pay for her legal fees in relation to a tort claim she brought in the Federal Court arising out of a heart operation. She said that she had provided security to Westpoint Corporation by way of mortgages over her personal properties. At the conclusion of the proceedings which were unsuccessful, she sold the properties and repaid the loan to Mr Carey. In or around 2004 she reached an agreement with Mr Carey under which Westpoint Corporation would forego the balance owing by her under the loan and she would transfer the right of Westpoint Corporation to tax the costs of the various solicitors and retain her funds received.

98 Ms Carey-Hazell dealt with allegations relating to Bowesco and the transfer of $1.15 million to it. She said that there were actually nine transactions from 1 July 2005 to 15 December 2005. Bowesco lent Westpoint Corporation $2,850,000 and Westpoint Corporation repaid Bowesco $2,106,932.99 pursuant to a charge. This demonstrated, she said, that Bowesco lent Westpoint Corporation $744,067.01 in excess of the funds repaid. This, she said, refuted the allegations of Messrs Turton, Gomm and Zohar that the transactions were done to deprive Westpoint Corporation of assets at a time when it was expected to go into external administration. She also denied that the repayment was made from funds belonging to the Mezzanine Companies. This relied on the assumption that the only source of funds into the Westpoint Corporation bank account were mezzanine funds. She said this was not supported when the cash deposits from Bowesco to Westpoint Corporation were considered.

99 Ms Carey-Hazell dealt with allegations concerning Richstar and in particular the transfer by Westpoint Corporation of $1,370,000 to Richstar and its loan of $1,891,268. The former transfer, she said, was pursuant to a loan agreement under security to facilitate a property development by Richstar’s subsidiary, Lanepoint. The $1,891,268 loan to Richstar was made in order to enable it to purchase a property at Point Piper. Ms Carey-Hazell referred to the company Renaissance Mezzanine. She said that Rold Corporation had entered into a debenture with Renaissance Mezzanine for $1.5 million in around September 2005. It was a condition that funds would be repaid on demand. Rold Corporation demanded repayment of the $1.5 million in December 2005 and that amount was repaid ".. using the Westpoint Corporation central treasury function".

100 Ms Carey-Hazell made some general contentions about the effect of the involvement of the receivers. She said that it had resulted in a curtailment of the businesses of the corporate defendants and had impacted on the profitability and sustainability of those businesses. She said that the corporate defendants had suffered loss and damage and that their assets had been diminished. She set out a table which she said illustrated the position of the corporate defendants before the Receiver Orders as against their current position.

101 Ms Carey-Hazell set out figures relating to the costs of receiverships or external administration of some 33 entities within the Group. She observed that KordaMentha had been appointed to 15 of them. The relevance of this material was not clear. Presumably it meant to support a proposition that there are uneconomic costs associated with the use of Court appointed receivers.
Affidavit of Gregory John Nairn sworn 14 December 2006

102 Mr Nairn worked in the role of General Manager-Special Projects in the Westpoint Group from 7 April 2004 until July 2005 when his title changed to General Manager-Financial Accounting. After the collapse of the Westpoint Group on 23 January 2006 he was retained for a short period by KordaMetha to assist them with their inquiries. He had been released by KordaMentha on 10 March 2006 and since then had worked for Mr Carey for a total of five days.

103 Mr Nairn referred to recording arrangements within the Group. He talked about the difficulties of getting access to books and records seized by ASIC and gave general responses to allegations contained in the ASIC affidavits. He asserted that to his knowledge there was never any attempt to dissipate assets or transfer assets outside the reach of creditors or to defraud creditors. He was not aware of any transactions that related to the acquisition of private assets in the name of any of the corporate defendants nor of any transfers to offshore or unrelated bank accounts. He gave responses to a number of issues raised in ASIC affidavits including the assignment of loans, the so-called "$2 million run around", the "Central Treasury Issue" and the Lanepoint/Kingdream transfer. He mentioned in the course of his affidavit that Mr Anthony Douglas-Brown had been engaged in September or October 2005 to review the Westpoint Group and make recommendations.

104 In relation to the loan assignment issue Mr Nairn referred to Mr Zohar’s evidence that Tracey Fox, an accountant who worked under Mr Nairn’s supervision, said that Mr Nairn and Mr Carey had instructed her to effect the assignment of loans in anticipation of Westpoint Corporation being placed into voluntary administration. Mr Nairn rejected the suggestion that he had advised Ms Fox to effect the assignment of loans in anticipation of Westpoint Corporation being placed into voluntary administration. He referred to answers that Ms Fox had given in her s 19 examination on 13 February 2006. As to that I make no finding. He asserted that the $11 million odd alleged to have been transferred to the benefit of Carey controlled entities had a nil effect on the net asset position of Westpoint Corporation as at 30 June 2006. He recreated a balance sheet which he exhibited to his affidavit to show that the net asset position after the loan assignments was exactly the same as the net asset position before then. Nothing had been transferred out of Westpoint Corporation from a net asset perspective. The intention of the loan assignments was never to enhance the asset position of specific entities to the detriment or exclusion of others. He denied that there had been any loan assignments in respect of amounts owing by Keypoint and Keyworld. He said, however, that there was an accounting error which required reversal.

105 Mr Nairn defended what he called the "central treasury issue". He said it was mischievous to infer that development companies lent funds to the Westpoint Corporation. Funds transferred from Mezzanine Companies to Westpoint Corporation on behalf of development companies were to repay amounts already expended by Westpoint Corporation and owing by the development company to Westpoint Corporation. At no time did Westpoint Corporation receive loans from, or owe money to, the development companies. He also dealt with the Lanepoint/Kingdream transfer of funds.

106 Mr Nairn attributed the collapse of the Westpoint Group to ASIC for being "bloody minded" and "working against the Group" rather than "with the Group".
Affidavit of Anthony Hayes Douglas-Brown sworn 18 December 2006

107 Mr Douglas-Brown is an experienced liquidator and trustee in bankruptcy. He was associated with the Westpoint Group when asked to advise on the preparation of Deeds of Company Arrangement for York Street Mezzanine Pty Ltd and later for Westpoint Corporation. He was also engaged by Richstar, Silkchime and Healthcare to advise with respect to a workable, commercial alternative to having receivers appointed to supervise their operations.

108 Mr Douglas-Brown described the appointment of receivers as "an option of last resort for most lenders". He referred to the negative effects of the appointment of a receiver on a company’s business. Receivers, while having financial skills, would not necessarily have the detailed knowledge or skills to make all decisions for operating businesses on a long term basis unless they could work effectively with management. Even then, they might never reach a position where they would operate the business as effectively as management staff. In the current commercial environment, according to Mr Douglas-Brown, many lenders use the voluntary administration process, restructuring or refinancing to resolve issues regarding their debts. This is particularly so where there is a trading business involved.

109 While Mr Douglas-Brown did not know all the details of the business operations of the corporate defendants and had not been involved in any management or business decisions, he was provided with an overview. He referred also to the affidavits of Mr McMaster sworn 24 November 2006 and that of Ms Carey-Hazell sworn 13 December 2006. On the basis of those affidavits he expressed his opinion that the current Receiver Orders appear to be stifling the commencement of any new projects as the receivers have not and will not authorise new ventures without considerable due diligence. He said that the receivers seem to have been effectively undermining the businesses of the corporate defendants.

110 Much of what appears in Mr Douglas-Brown’s affidavit was by way of argument which does not seem to fall readily within any area of expertise. Indeed, I think it better to be treated as submission than as expert opinion. In that vein Mr Douglas-Brown proposed the alternative form of order reflected in the minutes submitted on behalf of Mr Carey and the corporate defendants.

111 In my opinion there is, with respect to Mr Douglas-Brown, as air of unreality about the premise upon which his opinions are based. That premise seems to be that there are substantial on-going businesses which would continue to operate if it were not for the ham fisted intervention of the receivers. This stands in contrast to Mr Carey’s own theories about the cause of the Westpoint collapse in which he pointed out that ASIC’s action in bringing winding up applications in relation to the Mezzanine Companies caused the calling up of guarantees which in turn forced 40 other Westpoint companies to become insolvent as a result of demands made on loans to them. There were flow-on technical defaults to all lending facilities within the Westpoint Group allowing receivers to be appointed to complete property projects and to sell finished properties.

112 In my opinion and with all due respect to Mr Douglas-Brown, his contentions, based in part upon the commercial impact of privately appointed receivers, do not establish a reliable foundation upon which to base the orders proposed on behalf of the defendants.
Whether the Receiver Orders ought to be extended

113 The statutory framework and principles relevant to the making of the Receiver Orders and ancillary orders were set out in the reasons for judgment given on 20 April 2006. It is not necessary to repeat them here.

114 In substance ASIC submits that, having regard to the complexity and scale of its investigations and the less than fulsome level of cooperation which it has so far received from Mr Carey, the Receiver Orders ought to be extended for six months and be subject to review at that time. There is evidence of potential claims that may be brought against Mr Carey and the possibility of claims against the corporate defendants.

115 The evidence of the receivers is to the general effect that their receiverships have met their object of identifying and securing the assets of the corporations and individuals to whom they apply. The receivers’ inquiries are on-going having regard to the volume of documents relevant to each of the corporations to which they seek access. They support the extension of the Receiver Orders.

116 Mr Carey and the corporate defendants rely upon the extraordinary character of the discretion conferred by s 1323 of the Corporations Act. They contend that the discretion should only be exercised in extreme circumstances. They argue that there must be uncertainty about the existence and location of assets and the number and identity of potential claimants. There must be continuing activity in the business operations of the relevant entity and allegations of serious fraud. None of these requirements appear in terms of s 1323 as a necessary condition of the power to make orders under it albeit they may be relevant factors to be taken into account: Australian Securities and Investments Commission v Burke [2000] NSWSC 694 at [8]. But the power cannot be read down for all cases by reference to factors which may be appropriate for one subset of case. In the present proceedings the Court is dealing with the collapse of a major national property development group and potential claims of many small and not so small investors and other creditors against the members of the Group.

117 I accept the evidence given on behalf of ASIC, through Mr Turton, as to the state of the investigations it is undertaking. I also accept that there may be claims against one or more of the defendants. I accept that the Receiver Orders were appropriate means, in the circumstances of this case, of identifying, securing and preserving the assets of the defendants to whom they applied. Counsel for the defendants argued that I should accept, on a prima facie basis, the matters deposed to by Mr Carey, Ms Carey-Hazell and Mr Nairn. It is acknowledged, however, that the Court cannot, in the time available, reach any firm conclusion regarding issued such as the assignment of loans.

118 The Court cannot, on the basis of conflicting, and otherwise untested affidavit evidence, arrive at definitive findings of fact on the many disputed issues. It is sufficient to say that I continue to apprehend a risk to potential claimants in relation to the assets of Mr Carey and of the corporate defendants. In my opinion, absent appropriate restraints, the assets may be dissipated to the disadvantage of creditors. The defendants do not in fact contend that preservation or control orders of some sort should not be made. Their objection is to the ongoing appointment of the receivers. As noted above, they rely upon the evidence of Mr Douglas-Brown in that respect. I have already indicated that I do not accept the critique offered by Mr Douglas-Brown as a foundation for the proposed alternative orders.

119 There is sufficient reason, given the ongoing ASIC investigations and their scope and complexity, to support the continuance of the Receiver Orders. The alternative proposed by the defendants does not, in my view, constitute a sufficient protection of the assets. I do not accept that the ongoing difficulties of the corporate defendants can be laid at the door of the receivers or at the door of ASIC. The events surrounding the collapse of the Westpoint Group are suggestive of significant financial vulnerability and internal organisational weakness that cannot simply be sheeted home to ASIC and poor legal advice.

120 The Court was presented with separate submissions relating to Silkchime and Healthcare. The making of orders in the form proposed by the defendants effectively concedes, and counsel did not dispute, the appropriateness of some form of protective order under s 1323 of the Corporations Act and s 232 of the Federal Court of Australia Act 1976 (Cth). I do not propose to canvass the evidence relied upon to support the orders sought by ASIC. The justification for making Receiver Orders in relation to Silkchime is the same as the justification for continuing the Receiver Orders in relation to the other corporate defendants to which they apply. Healthcare has receivers and managers appointed. I am inclined to make Asset Preservation Orders in respect of Healthcare along the lines of the orders made in respect of Bowesco.

121 The question of the costs of the receivership is still open. It is not an obvious proposition that the fees of receivers appointed to carry out a public statutory function of identifying and protecting the assets of individuals and corporations for creditor and other claims should be taken out of the assets to be protected. The appointment of the receivers is inextricably linked to the discharge by ASIC of its statutory and regulatory functions in the public interest.

122 The other question that was agitated although not at great depth, was the question of possible conflict of interest where the receivers have also been appointed as private receivers in respect of other entities which are associated with the defendants or may have claims against them. I accept that a conflict of interest or duties is not necessarily going to arise given the limited cope of their duties as Court appointed receivers. Clearly, however, it is a possibility. In one case where a conflict did arise there was an application to the Court by the receivers for directions relating to the expenditure of legal fees in connection with the QBE litigation. In my opinion it would be prudent to establish in each of the Receiver Orders a mechanism for ensuring that any occasion of possible conflict is identified and is the subject of advice from counsel so that any necessary application can be made to the Court.
Conclusion

123 I am prepared to extend the Receiver Orders to such of the defendants to whom they may properly be applied until 30 June 2007 and to make appropriate asset preservation orders in respect of Healthcare. Other asset preservation orders will be extended. I will make orders allowing ASIC to bring in minutes of orders in respect of each of the defendants to give effect to these reasons. The extension of the orders will be until 30 June 2007. The position of Rold has been stood over for separate argument to Wednesday, 31 January 2007. The costs of the interlocutory application are reserved for further submission.

I certify that the preceding one hundred and twenty-three (123) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice French J.

Counsel for the Applicant:	Mr S Owen-Conway QC and Mr J Jacobson
Solicitor for the Applicant:	Australian Government Solicitor

Counsel for the Court Appointed Receivers:	Mr JA Thomson
Solicitor for the Court Appointed Receivers: Counsel for the First and Fifth to Tenth and Twelfth Defendants: Solicitors for the First and Fifth to Tenth and Twelfth Defendants:	Corrs Chambers Westgarth Mr MH Zilko SC and Ms ML Coulson Mony De Kerloy

Date of Hearing:	18 December 2006
Date of Judgment:	29 January 2007

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY	WAD83 OF 2006

JUDGE:	FRENCH J
DATE OF ORDER:	29 JANUARY 2007
WHERE MADE:	PERTH

JUDGE:	FRENCH J
DATE:	29 JANUARY 2007
PLACE:	PERTH