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Australian Securities and Investments Commission, in the matter of Storm Financial Limited (Receivers and Managers Appointed) (Administrators Appointed) v Storm Financial Limited (Receivers and Managers Appointed) (Administrators Appointed) [2009] FCA 269 (26 March 2009)

Last Updated: 31 March 2009

FEDERAL COURT OF AUSTRALIA


Australian Securities and Investments Commission, in the matter of Storm Financial Limited (Receivers and Managers Appointed) (Administrators Appointed) v Storm Financial Limited (Receivers and Managers Appointed) (Administrators Appointed) [2009] FCA 269


CORRIGENDUM


IN THE MATTER OF STORM FINANCIAL LIMITED (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED) ACN 064 804 691;
AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v STORM FINANCIAL LIMITED (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED) ACN 064 804 691, EMMANUEL GEORGE CASSIMATIS and JULIE GLADYS CASSIMATIS
QUD75 of 2009


LOGAN J
26 MARCH 2009 (CORRIGENDUM DATED 31 MARCH 2009)
BRISBANE


IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
QUD75 of 2009

IN THE MATTER OF STORM FINANCIAL LIMITED (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED) ACN 068 804 691


BETWEEN:
AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
Plaintiff
AND:
STORM FINANCIAL LIMITED (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED) ACN 064 804 691
First Defendant

EMMANUEL GEORGE CASSIMATIS
Second Defendant

JULIE GLADYS CASSIMATIS
Third Defendant

JUDGE:
LOGAN J
DATE OF ORDER:
26 MARCH 2009
WHERE MADE:
BRISBANE

CORRIGENDUM

  1. On page 10 of the Reasons for Judgment paragraph 11 should read “18 March 2009” not “19 March 2009”.
  2. On page 33 of the Reasons for Judgment paragraph 57 should read “allow a tainted proxy” not “allow a trained proxy”.
I certify that the preceding two (2) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Logan.

Associate:


Dated: 31 March 2009

FEDERAL COURT OF AUSTRALIA


Australian Securities and Investments Commission, in the matter of Storm Financial Limited (Receivers and Managers Appointed) (Administrators Appointed) v Storm Financial Limited (Receivers and Managers Appointed) (Administrators Appointed) [2009] FCA 269


CORPORATIONS — application by ASIC to wind-up corporation either on just and equitable ground or in insolvency and appoint official liquidators — application to adjourn that application pending meeting of creditors — application to remove allegedly misleading memorandum to creditors on the deed of company arrangement proposal for that meeting on personal website of two directors — whether Court satisfied that it was in the interests of creditors to continue in administration rather than to wind-up the corporation — whether deed of company arrangement should be proposed to creditors’ meeting — Court not satisfied adjournment of winding up application in the interests of creditors — order that company be wound up on just and equitable ground — determination of other applications in respect of administrators’ reports to creditors unnecessary


STATUTES – Corporations Act 2001 (Cth) ss 435A, 435C, 439A, 439C, 440A, 440D, 445D, 447A, 447B, 459A, 459P, 461, 462, 464, 467, 513


Australian Securities and Investments Commission Act 2001 (Cth) s 1
Corporations Act 2001 (Cth) ss 435A, 435C, 439A, 439C, 440A, 440D, 445D, 447A, 447B, 459A, 459P, 461, 462, 464, 467, 513
Corporate Law Reform Act 1992 (Cth)


Australian Prudential Regulation Authority v Rural & General Insurance Ltd [2004] FCA 185; (2004) 136 FCR 149 followed
Australasian Memory Pty Limited v Brien (2000) 200 CLR 270 applied
Australian Securities and Investments Commission v International Unity Insurance Pty Ltd [2004] FCA 1059; (2004) 22 ACLC 1416 followed
Australian Securities Commission v AS Nominees Ltd [1995] FCA 1663; (1995) 62 FCR 504 followed
Australian Securities Commissioner v Marlborough Gold Mines Ltd [1993] HCA 15; (1993) 177 CLR 485 applied
Creevey v Deputy Commissioner of Taxation (1996) 19 ACSR 456 applied
Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 considered
Loch v John Blackwood Ltd [1924] AC 783 considered
National Exchange Pty Ltd v Australian Securities and Investments Commission [2004] FCAFC 90; (2004) 49 ACSR 369 considered
Re Octaviar Ltd (formerly MFS Limited) [2008] QSC 216 considered
Storm Financial Limited ABN 11 064 804 691 v Commonwealth Bank of Australia ABN 48 123 123 124 [2008] FCA 1991 considered
TCS Management Pty Ltd v CTTI Solutions Pty Ltd [2001] NSWSC 830 followed
Worrell; In the matter of Storm Financial Limited (Receivers and Managers Appointed) (Administrators Appointed) [2009] FCA 70 cited


McPherson BH, Winding Up on the “Just and Equitable Ground” (1964) 27 MLR 282


IN THE MATTER OF STORM FINANCIAL LIMITED (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED) ACN 064 804 691;
AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v STORM FINANCIAL LIMITED (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED) ACN 064 804 691, EMMANUEL GEORGE CASSIMATIS and JULIE GLADYS CASSIMATIS
QUD75 of 2009


LOGAN J
26 MARCH 2009
BRISBANE


IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
QUD75 of 2009

IN THE MATTER OF STORM FINANCIAL LIMITED (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED) ACN 068 804 691


BETWEEN:
AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
Plaintiff
AND:
STORM FINANCIAL LIMITED (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED) ACN 064 804 691
First Defendant

EMMANUEL GEORGE CASSIMATIS
Second Defendant

JULIE GLADYS CASSIMATIS
Third Defendant

JUDGE:
LOGAN J
DATE OF ORDER:
26 MARCH 2009
WHERE MADE:
BRISBANE

THE COURT ORDERS THAT:


  1. Pursuant to s 459P(2)(d) of the Corporations Act 2001 (Cth), the plaintiff has leave to apply to the Court for an order that the First Defendant be wound up in insolvency.
  2. The First Defendant be wound up in insolvency and under s 461(1)(k) of the Corporations Act 2001 (Cth).
  3. Mr Ivor Worrell and Mr Rajendra Kumar Khatri of 8th Floor, 102 Adelaide Street Brisbane be appointed jointly and severally as liquidators of the First Defendant pursuant to s 472(1) of the Corporations Act 2001 (Cth).
  4. The Second and Third defendants’ application filed on 19 March 2009 be dismissed.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using eSearch on the Court’s website.

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
QUD75 of 2009

IN THE MATTER OF STORM FINANCIAL LIMITED (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED) ACN 068 804 691


BETWEEN:
AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION Plaintiff
AND:
STORM FINANCIAL LIMITED (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED) ACN 064 804 691 First Defendant EMMANUEL GEORGE CASSIMATIS Second Defendant JULIE GLADYS CASSIMATIS Third Defendant

JUDGE:
LOGAN J
DATE:
26 MARCH 2009
PLACE:
BRISBANE

REASONS FOR JUDGMENT

Constructive or Creative Insolvency?

  1. Part 5.3A of ch 5 of the Corporations Act 2001 (Cth) (the Act) makes provision for inter alia, the administration of a company’s affairs with a view to the execution of a deed of company arrangement after its approval at a meeting of creditors. Its origins may be traced to amendments made to the Act’s predecessor, the Corporations Law (repealed) by the Corporate Law Reform Act 1992 (Cth) (Corporate Law Reform Act 1992).
  2. In the Explanatory Memorandum circulated by the then Attorney-General when introducing the bill which became the Corporate Law Reform Act 1992, it was noted (paras 14, 15 and 21) that the proposed Pt 5.3A would implement recommendations made in the Law Reform Commission’s Report No 45 in respect of the Commission’s General Insolvency Inquiry, popularly known as “the Harmer Report”.
  3. In the Harmer Report (Volume 1, para 52 and para 53) the following observations are made in relation to the then state of Australia’s corporations law:
Conservative legislation

  1. The Commission is also concerned that, apart from conclusions that might be suggested by statistical evidence, the legislative approach to corporate insolvency in Australia is most conservative. There is very little emphasis upon or encouragement of a constructive approach to corporate insolvency by, for example, focussing on the possibility of saving a business (as distinct from the company itself) and preserving employment prospects.
Creative alternatives to insolvency

  1. Constructive or creative insolvency is not a myth. However, it requires suitable procedures that encourage and offer a reasonable prospect of achieving that result. A constructive approach to corporate insolvency requires the preservation, if practical and possible, of the property and business of the company in the brief period before creditors are in a position to make an informed decision.
  2. For reasons which will emerge, the Deed of Company Arrangement (DOCA), both in its original and now amended form, proposed under Pt 5.3A of the Act for consideration at a meeting of the creditors of Storm Financial Limited (Receivers and Managers Appointed) (Administrators Appointed) (Storm Financial) on 30 March 2009, is certainly “creative”; whether it amounts to “constructive insolvency” is another thing entirely.

Background to the Present Applications

  1. Storm Financial was placed in administration under Pt 5.3A of the Act on 8 January 2009. Messrs I Worrell and R Khatri were appointed as administrators. A convenient background summary, which also details the opinions they have come to form, is offered by the administrators in the report which they prepared for the purposes of s 439A(4) of the Act. Though lengthy, it is desirable, including in light of the various applications made by Mr and Mrs Cassimatis, to set out the following excerpt from that report:
    1. Overview & Statutory Information

Storm was incorporated on 23 May 1994 and carried on the business of financial planning from its headquarters in Townsville and from other centres along the east coast of Australia. The company is the holder of an Australian Financial Services Licence.


Storm was the holding company for twenty-one wholly owned subsidiaries, which collectively made up the Storm Group of companies. Of the twenty-one subsidiary companies, only three carried on business or held assets in their own right. They were:


The role of Storm Financial Property Pty Ltd and Cassimatis Corporations Pty Ltd was to hold real properties from which properties Storm carried on business.


Victoria Families Retirement and Investment Group Pty Ltd carried on the business of investment advising in Victoria and received accounting and administration support from Storm.


For most relevant periods Storm operated under the direction of a board of six directors; however four of these directors resigned in mid December 2008 and an additional director was appointed on the 23rd of December 2008. A schedule showing the names of these directors is provided later in this report. The joint Chief Executive Offices of the company were Emmanuel Cassimatis (age 56) and Julie Cassimatis (age 42). Both Mr and Mrs Cassimatis were directors of Storm. Mr Cassimatis was designated Executive Chairman while Mrs Cassimatis held the title of Managing Director.


The accounting records of Storm and the Storm Group were prepared by qualified personnel, appear to have been properly kept and were subject to independent audit. The last audited financial report prepared was in respect to trading for the financial year ended on the 30 June 2008. The relevant audit report for that period was dated 24 October 2008 and contained no adverse comments. The audit report noted that the audit “did not involve an analysis of the prudence of business decisions made by directors or management”.


A financial snap shot of the Storm Group taken at 30 June 2008 provides a very positive view of its financial position. In regard to the year ended 30 June 2008 the Group:


It also appears that at that time the Group had excellent relations with its bankers and clients. Further, internal marketing reports submitted to the board of directors suggested that the “pipeline” of potential clients remained healthy, and consequently an ongoing income stream could be anticipated.


And yet, just over six months later, Storm was insolvent and had appointed Voluntary Administrators, which culminated in a cessation of business, the Commonwealth Bank of Australia (the Groups bankers) had appointed Receivers to take control of the most of the Group’s assets and many clients held Storm liable for losses on the share market that they had incurred amounting to many millions of dollars.


The initial catalyst for the dramatic reversal of Storm’s financial position was, without a doubt, the very large and sustained drop in the Australian share market. Whether the company could have withstood the drop in the share with the assistance of its bankers, whether the investments recommended by Storm to its clients were appropriate in most cases; whether the Fund Managers managing client investments acted appropriately and whether the actions of Strom and its directors following the drop were appropriate, are all issues that have been called into question. They are also issues which will require detailed and sustained inquiry, perhaps with the assistance of the courts, before a final judgement can be made. In this report the Administrators can do no more than identify the issues and provide commentary regarding some of the factors that may go towards reaching conclusions in regard to each of them.


As detailed later in this report Emmanuel and Julie Cassimatis and Storms sole shareholder have provided to the Administrators a proposal for a Deed of Company Arrangement. Acceptance of the proposal by creditors will preclude the company being placed into liquidation. It is a matter for creditors to decide whether the company should be placed into liquidation or the proposal for the Deed of Company Arrangement accepted. However the Administrators are required by law to make a series of recommendations to creditors regarding the future of the company. For the reasons disclosed in this report the Administrators recommended that the proposal for a Deed of Company Arrangement be rejected and that the company be placed into liquidation.


This report should be read in full.


Statutory Information


Company Name:
Storm Financial Limited
Directors:
Emmanuel Cassimatis
Julie Cassimatis
Thomas Meakin (resigned 14 December 2008)
Stuart Nelson (resigned 14 December 2008)
Geoffrey Williams (resigned 12 December 2008)
Peter Hutley (resigned 15 December 2008)
Dawn Maree Collett (appointed 23 December 2008)
Secretary:
Lauren Davies
Auditor:
PriceWaterhouseCoopers
Shareholders:
Emmanuel Cassimatis and Associates Pty Ltd (as trustee)
Date of Incorporation:
23 May 1994
Registered Office:
382-432 Sturt Street, Townsville, QLD
Principal Place of Business:
382-432 Sturt Street, Townsville, QLD
Registered Charges:
Commonwealth Bank of Australia
Fixed and Floating
Acting as Trustee?
No
Associated Companies:
Storm Financial Property Pty Ltd
Victorian Families Retirement Investment Group Pty Ltd
Storm Financial Holdings Pty Ltd
Storm Financial (One) Pty Ltd
Storm Financial (Two) Pty Ltd
Storm Financial (Three) Pty Ltd
Storm Financial (Four) Pty Ltd
Storm Financial (Five) Pty Ltd
Storm Financial (Six) Pty Ltd
Storm Financial (Seven) Pty Ltd
Storm Financial (Eight) Pty Ltd
Storm Financial (Nine) Pty Ltd
Storm Financial (Ten) Pty Ltd
Storm Financial (Eleven) Pty Ltd
Storm Financial (Twelve) Pty Ltd
Storm Financial (Thirteen) Pty Ltd
Storm Financial (Fourteen) Pty Ltd
Storm Financial (Fifteen) Pty Ltd
Storm Financial (Sixteen) Pty Ltd
Storm Financial (Seventeen) Pty Ltd
Cassimatis Corporation Pty Ltd

4. Current Financial Position and Realisation of Assets


The Administrators are not in a position to state with certainty what the present financial position of the company is because:


The Administrators are however able to provide the following information regarding the company’s financial position.


  1. Debt due to the Commonwealth Bank (CBA).

At the date of the Administrators’ appointment Storm was indebted to the CBA for:


Equipment Finance
$ 1,521,060
Margin Loan
$ 1,797,459
Commercial Bills
$ 7,447,055

$10,757,574

In addition to these borrowings Storm had guaranteed advances by CBA to Storm Financial Property Pty Ltd of $16,329 million. The prime security for the advances by CBA to Storm Financial Property Pty Ltd consisted of real property mortgages over the premises from which Storm carried on business and which were owned by Storm Financial Property Pty Ltd or Cassimatis Corporation Pty Ltd.


The total obligation which Storm had to the CBA at the closure of Storm’s business was $27,094,574.


The directors of Storm dispute that any amount is due to the CBA in respect to the Margin loan and allege that the CBA failed “to execute instructions of Storm, given in writing on 26 October 2008 to redeem the underlying securities in Storms margin loan from the CBA”. They say that “had it done so the securities would have been realised the difference to Storms account with CBA would have been approximately $3 million in favour of Storm”. No statement or documentation has, as yet, been provided to the Administrators to support the directors’ contention that CBA failed to follow instructions, or to support the amount of the losses which the directors say were wrongly incurred as a result of such failure. Further, senior staff members of Storm have volunteered information to the effect that any instructions given to CBA were ambiguous and may have been withdrawn and/or varied.


Storm provided CBA with a Fixed and Floating Charge over all of its assets and undertaking to secure the advances and guarantees set out above. The CBA also held certain fixed charges. CBA appointed the Receivers to protect its interest in the assets over which it held security.


The assets available to the Receivers to satisfy the CBA debt consist of:


  • Real property having a cost price of
$27.543 million.
  • Plant and equipment with a book value of
$4.362 million.
  • Loans to clients of Storm with a book value of
$3.525 million.
  • “Intangibles” with a book value of
$42.023 million.
  • Potentially, the recovery of a dividend paid on 15/12/08 of
$2.0 million
  • Potentially, the recovery of “prepayments” totalling
$324,293
  • Security deposits held by various landlords of
$750,000

The Receivers also have available to them cash funds of slightly over $1 million. However, as the Corporations Act requires that these funds be used to pay priority employees claims the funds will not be available for reduction of the CBAs debt.


The Administrators are not able to make any assessment regarding the realisable value of the real property or the plant and equipment.


As regards the sum of $3.525 million described as “Loans to Clients” the Administrators advise that this represents advances to, or security provided for, Storm clients who were unable to “correct their positions” or “in situations where the clients LVR were high”. The Administrators have been advised that these advances were unsecured, interest free and repayable “in due course”, that is without a fixed repayment date, and that they relate to at least 117 separate clients. Internal documents of Storm record that “As the market recovers Storm will recoup these funds in full”.


Given that the advances are unsecured, were made to clients who were apparently suffering some degree of financial difficulty, and may have relied upon the market recovering for repayment, the collectability of much of the advances sum must be in doubt.


In regard to the item “Intangibles” with a book value of $42.023 million the Administrators’ understand that this item from the accounting treatment of cost and future income streams associated with a series of business acquisitions from Authorised Representatives, undertaken by Storm. Given the reduction in trading which culminated in the closure of the business and the adverse publicity which Storm has since attracted it would not be realistic to expect the Receivers to recover any more than a very small part of the amount carried in the books of the company for this item.


On the 15 December 2008 the company paid a dividend of $2 million to Emmanuel Cassimatis and Associates Pty Ltd (E C and A). The Australian Securities and Investment Commission (ASIC) has commenced court action which has resulted in the $2 million held by E.C. and A being temporarily frozen and which seeks the repayment of the funds to Storm. The payment of the dividend was made at a time when the company had less than the statutory minimum of three directors. Following the appointment of Dawn Collette (the sister of Mrs Julie Cassimatis) as a director on the 23 of December 2008 a resolution confirming the dividend payment was passed by the board. Legal advice received by the Administrators suggest that it is likely that the ASIC will be successful in its application to have the funds returned to the company and that, if the funds are returned, they will be property of the company and so subject to the CBA Charge.


Inquiries conducted by the Administrators disclosed that on the 15 December 2008 (that is the same day as the dividend was paid) the directors of the company directed Storm’s CFO to pay the following amounts, which were classified in the accounts of Storm as “prepayments”.


  • $74,293.71 to Third Person, a PR Consulting firm
  • $150,000.00 to Mallesons, a firm of Solicitors
  • $50,000.00 to PriceWaterhousecoopers, Storms Accountants and Auditors
  • $50,000.00 to J. Samaha, a Solicitor

As far as the Administrators’ have been able to determine none of the parties shown above had unpaid invoices outstanding by Storm for services already provided to the company, at the date of payment. Further, the opportunity for providing services between the date of payment and the appointment of Administrators’ would have been very limited given the intervention of the holiday period. It is not clear to the Administrators why these payments were made and the payments appear to have been made other than in the normal course of business. The Administrators also note that the payments were made at a time when the company did not have the statutory minimum number of directors. Details of these payments have been provided by the Administrators to the Receivers to facilitate collection by the Receivers, if the payments were in fact payments.


Taking a very broad approach, the Administrators believe that it is possible that the value of realisable assets available to the Receivers will approximate the amount of the debt due to the CBA, but with the real possibility of a shortfall.


  1. Victorian Families Retirement Investment Group Pty Ltd (Victorian Families)

As advised above, Victorian Families is a wholly owned subsidiary of Storm. All of the directors of Victorian Families have resigned and the business of that company has effectively ceased. Victorian Families is not in receivership although the shareholding of the company is subject to control by the Receivers. The Receivers have declined to take control of Victorian Families as they are, quite properly, concerned that the company may be subject to a series of large claims from clients. Further, they point out that they are the Receivers of the company controlling the premises from where the Victorian Families carries on business and this might give rise to a perception of conflict. In the circumstances the Administrators have instructed their solicitors to seek the appointment of liquidators to Victorian Families. Further information regarding this matter may be provided at the next meeting of creditors.


  1. Claims Received to Date

In addition to the debt claimed by CBA, at the date of this report the Administrators have received Proofs of Debt or other information regarding claims against the company which may be summarised as follows:


Claims by the Australian Taxation Office
9,640,282.50
Claims by related parties
8,545,314.61
Claims by vendors of financial planning firms
23,618,819.29
Claims by trade and sundry creditors
501,662.95
Claims by clients of storm
18,713,916.33
Claims by employees entitled to priority
1,164,447.03
Total claims received to date (excluding CBA)
$43,470,526.38

The debt claimed by the Australian Taxation Office comprises of income tax payable by Storm in respect to the year ended 30 June 2008 less certain credits shown in Storms accounts.


Claims by related parties include claims by way of loan account and in respect to wage entitlements where no priority is provided by the Companies Act.


Claims by the vendors of financial planning firms includes, in some instances, a claim for a share of income earned from clients introduced by those firms.


Claims by clients of Storm are either in respect of damages claimed against Storm arising from alleged negligent advice and/or in respect to fees for services which the client claims were not provided. The amount shown is claimed by 54 clients; however the Administrators’ have been advised by Mr Damien Scatinni of Slater and Gordon, Solicitors, that his firm acts for approximately 1000 clients and that very substantial claims will be lodged by his clients.


[Emphasis added]

  1. Receivers and Managers were appointed to Storm Financial at the behest of the Commonwealth Bank, a secured creditor, on 15 January 2009.
  2. On 11 February 2009 and at a time after the Australian Securities and Investments Commission (ASIC) had intervened in the proceeding, on the application of the administrators and for reasons which I then published (Worrell; In the matter of Storm Financial Limited (Receivers and Managers Appointed) (Administrators Appointed) [2009] FCA 70) I ordered, inter alia:
  3. In the result, there was no application for any further extension of the convening period. As a result, the administrators came to give notice for the holding on 23 March 2009 of the creditors’ meeting.
  4. Since the report was prepared and as foreshadowed in it, the administrators have made application for the winding up of Storm Financial’s subsidiary, Victorian Families. On 18 March 2009 I appointed them as the provisional liquidators of that company (Storm Financial Limited (Receivers and Managers Appointed) (Administrators Appointed) v Victorian Families Retirement & Investment Group Pty Ltd QUD 73 of 2009).
  5. Having been provided, for its consideration, with a copy of the DOCA in the form reported on by the administrators, the ASIC was not initially disposed to seek the winding up of Storm Financial. It was offered an opportunity so to do by the Court prior to the dispatch by the administrators of notices calling the meeting of creditors for 23 March 2009. What avowedly caused ASIC later to change its mind and to seek the winding up of Storm Financial were a document entitled “A Simple English explanation of the DOCA” and “Storm Financial Limited – The Simple Solution” (the Information Memorandum) and other commentary concerning the DOCA published by Mr Emmanuel Cassimatis and his wife Mrs Julie Cassimatis on a web site maintained by them. That publication came to the attention of ASIC on 16 March 2009. As is evident from the excerpt from the administrators’ report, Mr and Mrs Cassimatis may be described as the founders of Storm Financial. They are two of its remaining three directors. The other, who joined its board on 23 December 2009, is the sister of Mrs Cassimatis.
  6. As a result of this change in position by ASIC and its winding up application filed by leave in Court on 19 March 2009 it became necessary for the Court to order the adjournment of the creditors meeting from 23 March 2009 to 30 March 2009.
  7. ASIC seeks the winding up of Storm Financial either on the basis of insolvency (s 459A and s 459P(1)(f) of the Act) or on the basis that it is “just and equitable” that the company be wound up (s 461(1)(k) of the Act). Alternative relief directed to the correction prior to the creditors’ meeting of the alleged mischief in the “Information Memorandum” is also sought.
  8. One riposte made by Mr and Mrs Cassimatis to this turn of events was to seek relief in respect of what were alleged to be deficiencies in the report made to creditors by the administrators for the purposes of the second meeting of creditors. Another was to seek the adjournment of the hearing of the winding up application so as to enable the creditors’ meeting to proceed.
  9. The applications by ASIC and Mr and Mrs Cassimatis were heard together. The receivers and managers appointed by the Commonwealth Bank under its security appeared on each application, as did the administrators.
  10. The relief sought in the respective applications is as follows:
(a) On the part of ASIC:

  1. It be granted leave pursuant to section 440D of the Act to begin this proceeding.
  2. Storm Financial be wound-up pursuant to sections 232, 459A, 459P and 461(1)(k) of the Act.
  3. Mr Worrell and Mr Khatri of Worrells be appointed jointly and severally as liquidators pursuant to section 472(1) of the Act.
  4. Pursuant to s 447B of the Act the meeting of creditors, prescribed by section 439A of the Act, to be held on 23 March 2009, be adjourned until further order.
  5. Pursuant to s 447B of the Act that the Mr and Mrs Cassimatis immediately remove the document titled “A Simple English explanation of the DOCA” and/or “Storm Financial Limited – The Simple Solution” (“the Memorandum”) from the website http://www.cassimatis.com.au.
  6. Pursuant to s 447B of the Act that Mr and Mrs Cassimatis publish on the website http://www.cassimatis.com.au in a form approved by the Court a notice correcting the misleading nature of the Memorandum.
  7. Pursuant to s 447B of the Act that Storm Financial forward to creditors a document in a form approved by the Court correcting the misleading nature of the Memorandum.
  8. Liberty to apply.
  9. Such further or other order or relief as the Court considers appropriate.

Costs.


(b) On the part of Mr and Mrs Cassimatis and pursuant to under Sections 447A, 447B(2) and 447E(1)(b) of the Act:

  1. That the administrators of Storm Financial provide a supplementary report to their report dated 16 March 2009 provided pursuant to s 439A of the Corporations Act 2001 to the same persons to whom their earlier report was provided addressing the matters determined by the Court.
  2. Such consequential orders concerning the dissemination of the report and the adjourned meeting as the Court considers appropriate.
  3. Costs.

The relief sought by Mr and Mrs Cassimatis detailed in para 15(b) was predicated upon a continuance of the process whereby either on 30 March 2009 or on such later date as the Court might appoint the meeting of creditors would occur.

  1. In its conception (Harmer Report, Vol 1, para 54 and Explanatory Memorandum, para 449) and, consequentially, in its prima facie time frames for the length of a convening period and for the holding of creditors’ meetings, Pt 5.3A was intended to offer an expeditious procedure whereby creditors might, after consideration of a report by administrators, come to decide that, even if it were not possible for a company or its business to continue, there existed a way of administering the company that resulted in a better return to creditors and members than would result from an immediate winding up of the company. That the latter are the ends to which the procedures are directed is made plain by the statement of the objects of Pt 5.3A found in s 435A of the Act. The case law since its original enactment concerning whether and to what extent the times for which Pt 5.3A prima facie provides should be extended evidences a recognition of the expedition of administration intended by Parliament and also the flexibility of approach to what may in the circumstances of a particular case constitute due expedition of administration leading up to a creditors’ meeting. Especially given the length to date of this administration, that had necessary ramifications as to a need for an expeditious hearing and determination of the present applications.
  2. Insofar as it relies upon the just and equitable ground, ASIC does not need leave to bring its winding up application. It has standing to bring such an application (s 462(2)(e) of the Act). The necessary condition precedent for which s 464(1) of the Act provides is met in that ASIC has been conducting an investigation of the kind described in that subsection since December 2008.
  3. ASIC’s ability to apply for an order that Storm Financial be wound up in insolvency is dependent on a grant of leave (s 459P(2)(d) of the Act). Such leave may only be granted if the Court is satisfied that there is a prima facie case that the company is insolvent (s 459P(3) of the Act). Subsection 459P(3) looks to the present. The administrators voice the opinion in their report (p 24) that Storm Financial is presently insolvent. No one sought to challenge that opinion. I am, to say the least, satisfied that there is a prima facie case that Storm Financial is presently insolvent.
  4. The impact, in part, of a requirement for leave notwithstanding, it remains the case that the Court at least has before it an application brought as of right for the winding up of the company on the just and equitable ground. Irrespective of the ground upon which it is brought, s 440D does not give rise to any separate requirement for a grant of leave to ASIC in order for it to bring the application: Australian Prudential Regulation Authority v Rural & General Insurance Ltd [2004] FCA 185; (2004) 136 FCR 149. That being so, the first issue which necessarily arises is whether ASIC’s winding up application should be adjourned?

Should the winding up application be adjourned?

  1. Subsection 440A(2) of the Act provides:
(2) The Court is to adjourn the hearing of an application for an order to wind up a company if the company is under administration and the Court is satisfied that it is in the interests of the company’s creditors for the company to continue under administration rather than be wound up.
  1. It was common ground that it fell to those who opposed the hearing of the winding up application to satisfy the Court that it is in the interests of Storm Financial’s creditors for it to continue under administration rather than be wound up. If that satisfaction is engendered, the language of s 440A(2) dictates that the Court must adjourn the winding up application. The converse does not automatically follow. The Court would possess a discretion nonetheless to adjourn the winding up application.
  2. Of the parties, only Mr and Mrs Cassimatis opposed the winding up application. While the administrators did not resile from the recommendation made in their report, they did not, appropriately in my opinion, actively press for such an order, as opposed to endeavouring to assist the Court as to the present position in relation to Storm Financial’s affairs and the construction and application of the Act. The receivers and managers supported the application made by ASIC in separate submissions. They also alternatively contended for the making of remedial orders in respect of the Information Memorandum.
  3. Mr and Mrs Cassimatis sought the adjournment of the winding up application either as a matter of obligation on the basis of satisfaction as envisaged by s 440A(2) of the Act or in any event as a matter of discretion. In either case, it was submitted that the winding up application should be adjourned until such time as it could be seen whether or not the DOCA had failed according to its terms, in the event that it was approved at the forthcoming creditors’ meeting. The prospect that the DOCA either might not be approved by the creditors or that an extension of the fulfilment of an essential term might not granted in accordance with the terms of the DOCA could doubtless be accommodated by a reservation generally of liberty to apply to relist the winding up application. Of course, if the winding up application were to be adjourned, its relisting might be rendered unnecessary were the creditors to resolve at the meeting that Storm Financial should be wound up.
  4. What is entailed under s 440A(2) in satisfying the Court that it is in the interests of the company’s creditors for a company to continue under administration rather than to be wound up has been the subject of judicial consideration.
  5. In Creevey v Deputy Commissioner of Taxation (1996) 19 ACSR 456 at 457 McPherson JA, with whom Pincus and Davies JJA agreed, observed of s 440A(2):
It is evident from the terms of that subsection that before it applies the court must be satisfied not only that there is an administration but also as the subsection says, that it is in the interests of the company's creditors for the company to continue under administration rather than be wound up. ...

The question of whether an administration should continue, rather than that there be a winding up, is obviously closely related to the further question of whether the creditors could hope to get more by way of payment of their debts from one form of process or administration than from the other.

In order to satisfy the court of the matter referred to in s 440A(2) of the Corporations Law, one would expect that there would have to be some persuasive evidence to enable it to be seen that there were assets which, if realised under one form of administration rather than the other, would produce a larger dividend, or at least an accelerated dividend for the creditors.

These are observations made by an intermediate appellate court in respect of Commonwealth legislation adopted, under the co-operative scheme then prevailing, by the various States. The provision concerned has been taken up in the Act in respect of analogue facts and though not, strictly, bound by a decision given in the Court of Appeal Division of the Supreme Court of Queensland, it is incumbent on me not to depart from the interpretation of s 440A(2) of the Act evident in these observations unless convinced that that interpretation is clearly wrong: Australian Securities Commission v Marlborough Gold Mines Ltd [1993] HCA 15; (1993) 177 CLR 485. To be convinced that a judge of the eminence of McPherson JA was clearly wrong in a matter touching upon corporate insolvency is a considerable step, especially when his Honour’s observations commanded the concurrence of Pincus and Davies JJA. As it happens, not only do I respectfully agree with the observations but also I did not understand any party to seek to persuade me that those observations were clearly wrong, as opposed to Mr and Mrs Cassimatis urging that they were distinguishable on the facts of this case.

The quoted observations made by McPherson JA in Creevey’s Case were not though made in a vacuum, as the following statement made by Philip McMurdo J in Re Octaviar Ltd (formerly MFS Limited) [2008] QSC 216 at [55] serves to remind:

There are two matters to be noted about that passage from Creevey. The first is that read in context, it is referring to the absence of evidence of any assets whatsoever. Secondly, it is not possible to read this passage as a statement of some principle that in every case, for a court to be satisfied in terms of s 440A(2), there must be some detailed comparison of the dividends from one regime or the other. It will often be the case where not enough is known about what is likely to come from one or both regimes for that comparison to be made at this stage. As McDougall J said in SGB Raffia v Gammacon (No 2) [2007] NSWSC 1510, McPherson JA in Creevey

“was not purporting to reframe the statutory test but, rather, to state its application firstly in the case before the court and secondly by reference to more general considerations.”


McDougall J there referred to what was said by Campbell J in Deputy Commissioner of Taxation v Bradley Keeling Management Pty Ltd [2003] NSWSC 47; (2003) 44 ACSR 377 at 380 in a passage which I respectfully adopt:

“[18] Ultimately what the court needs to do is to be persuaded. The amount of proof which can result in persuasion, differs with the circumstances in which litigation comes before the court. It is common enough, in applications under s 440A, for an administrator to need to seek an adjournment very soon after his or her appointment, at a time when he or she knows very little about the affairs of the company. In that sort of situation, comparatively little material might be needed to justify a short adjournment. As time goes on, however, and the occasion that there has been for the collecting of evidence increases, so the amount of material which might need to be put before the court before it is persuaded, will increase.”


In Re Octaviar Ltd [2008] QSC 216 the occasion for the deciding whether the Court was satisfied that it was in the interests of creditors that the administration proceed was a decision by the directors of the company concerned to appoint administrators (subject to the discharge or expiry of injunctions then in place) after the hearing of an application for the winding up of the company had commenced. Necessarily, the Court did not at that time have the benefit of the considered views of those administrators as to the relative worth of what was offered under the DOCA compared with a liquidation so far as the interests of creditors were concerned. Further, the present is not an adjournment application by Storm Financial’s administrators but rather by two of its directors and members, who are also creditors. They wish to promote a known DOCA to a creditors’ meeting following an administrators’ report which recommends the contrary.

  1. Mr and Mrs Cassimatis drew attention to observations concerning s 440A(2) made by Hamilton J in TCS Management Pty Ltd v CTTI Solutions Pty Ltd [2001] NSWSC 830. After noting that Creevey’s Case was the only intermediate appellate authority, Hamilton J conducted a critical analysis of later authorities in various original jurisdictions concerning the subsection. His Honour (at [18]) reached this conclusion:
    1. What I derive from a consideration of the foregoing authorities ... is that it is dangerous, as in so many cases, to place any gloss upon the statute. The sole consideration posited as the criterion for the Court's decision in s 440A(2) is the interests of the company's creditors. It is clear that the onus is on the person seeking the adjournment to establish to the satisfaction of the Court that the adjournment is in the interests of those creditors. In general terms, that will be difficult to do unless there is a good case that there will be a greater or more accelerated return from the course contended for. But considerations beyond mere quantum may be relevant to take into account in determining what is in the interests of the creditors and whether it is established that an adjournment may be said to be in the creditors' interests. Where there are advantages in either course, in general terms it may well be the proper course to give such adjournment as will allow the creditors themselves to vote upon the proposal and determine which course they prefer.

I respectfully agree with this conclusion as to what is to be derived from the authorities to which he refers. Further, there is nothing in it which is inconsistent with the observations made of s 440A(2) in Creevey’s Case. The long and the short of it is that s 440A(2) means what it says; it is for the person seeking the adjournment to satisfy the Court that in the circumstances of the particular case, it is in the interests of the company’s creditors for it to continue under administration rather than be wound up. In some cases that may be able to be done by a comparative exercise as between prospective returns to creditors; in others such an exercise may be premature but it may nonetheless be in the interests of creditors for there to be a short adjournment so as to allow the position to be investigated. These are but non-exhaustive examples.

  1. TCS Management Pty Ltd v CTTI Solutions Pty Ltd [2001] NSWSC 830 has present utility for another reason. I was informed that, even were the DOCA approved at the creditors’ meeting, it was “highly likely” that ASIC would seek its termination under s 445D. ASIC is an eligible applicant for such an order: s 445D(2)(ba) of the Act. Of this contingency and its relevance Hamilton J observed (at [19]):
It is no part of the Court's function to decide prospectively a s445D application which has not been made, or to consider whether or not in considering such an application it would require a guarantee to assure the dividend of third party creditors who wished the DCA to proceed before it would grant the application. However, the determination of a party, whose word in the context is not lightly to be doubted, offers yet another complicating factor in the situation in which the interests of the creditors must be assessed. I do not accept Mr Hayter’s submission that these considerations are wholly irrelevant. They seem to be yet another factor to be taken into account in determining whether an adjournment is in the interests of the creditors.

Again, I respectfully agree with his Honour. The contingency, in this case the “high likelihood”, of an application under s 445D is another factor which it is not irrelevant to take into account in determining whether an adjournment is in the interests of creditors.

  1. It was conceded in the written submissions made on behalf of Mr and Mrs Cassimatis that it was “unclear” whether an administration under the DOCA (and I understood this also to be as it was proposed to be presented in amended form) would result in a better return to creditors than an immediate winding up. For their part, the administrators went rather further in their report. They do not see the DOCA as offering the prospect of a better return. Though the further excerpt is lengthy, it is again desirable that their opinion be set out:
8. The Administrators Recommendations

The options available to creditors are:

(a) To accept the proposed deed of company arrangement;
(b) To wind up the company; or
(c) To end the administration and hand the company bank to its directors

Under Section 439A, Administrators must provide a recommendation to creditors based on the information available to them.

Whether to Accept the Proposal for a Deed of Company Arrangement

The Administrators recommend that creditors do not accept the proposal for a Deed of Company Arrangement.

The Administrators reasons for recommending against accepting the proposal for a Deed of Company Arrangement are as follows:

  1. The proposal is subject to a condition precedent which, on the basis of legal advice received by them, the Administrators do not expect to be fulfilled. The condition precedent states, in effect, that the sum of $2 million to be paid in under the proposal will only be paid if the current injunction over those funds (which was obtained by the ASIC) expires or is removed and the CBA takes not step to prevent the monies being paid to the Deed Administrators.
  2. In the event that the condition precedent is fulfilled (within up to 120 days), that is the injunction expires or is removed and the CBA takes no action, again on the basis of legal advice received the Administrators believe that it is likely that a liquidator of storm would be able to recover the $2 million for the benefit of creditors, and to do so without agreeing to conditions such as are contained in the proposal. The proposal therefore provides no extra benefit in terms of the payment of the $2 million.
  3. In the event that the proposal is rejected and Storm is placed into liquidation priority employee entitlements will be paid by the Receivers or through the federal government funded General Employee Entitlement & Redundancy Scheme (GEERS). The proposal therefore provides no additional benefit to employees.
  4. Although the Administrators agree that a Public Examination of all relevant parties should be carried out, and agree that any decision to commence or continue litigation should be based primarily on evidence gathered at such Public Examination, they are of the view that such a process can be carried out, at least as efficiently, by a liquidator as a Deed Administrator.
  5. In the vent that Storm is placed into liquidation it is likely that the liquidators will be able to seek recovery for the payment of $444,711 paid on the 22 of December 2008 to the Westpac Bank, from Emmanuel and or Julie Cassimatis. That benefit will be lost if the proposal for a Deed of Company Arrangement is accepted.
  6. In the event that Storm is placed into liquidation the liquidators will be able to seek compensation from the directors of the company for any debts incurred after the commencement of the insolvency and which remain unpaid. That benefit will be lost if the proposal for a Deed of Company Arrangement is accepted.
  7. In the opinion of the Administrators the directors of Storm (defined in the proposal as being Emmanuel and Julie Cassimatis) have an inappropriate level of control. For example:

(a) By clause 11 of the proposal the Deed Administrators must obtain the directors written agreement by the 17 of April 2009 (that is a date before the expiration of the date on which the $2 million is required to be paid in) for a budget for the costs and expenses of the proposal examinations or alternatively accepted the budget contained in that clause. Bearing in mind that the directors will be among the parties to be examined this limitation is, in the opinion of the administrators, inappropriate.

(b) By clause 21 of the proposal any legal action taken by Storm against the CBA will be conducted by the directors, but subject to such assistance and supervision of the Administrators and their independent solicitors as the Administrators think fit. It is not clear to the Administrators what the terms “conducted by” and “supervision” mean for the purposes of the proposed Deed and they are concerned that, in effect the directors will have full control (see below). Further, given that the directors may be joined as a party in any action commenced by Storm (or any action by Storm on behalf of clients of Storm) in the opinion of the Administrators the directors may lack the required level of independent to conduct such proceedings.

(c) The event that a dispute arises between the directors and the Administrators regarding any decision of the Administrators (see clause 31) and that dispute is not settled by the process set out in the clause 34 the directors may by clause 34 replace the Administrators as trustees of the Storm Client Recovery Fund and require the Deed Administrators’ to repay the balance of the funds held by them.

(d) The general scheme of the proposal provides for action on behalf of clients to be conducted by the directors but subject to such assistance from and supervision of a Client Committee assisted by an independent legal advisor or advisors. It is not clear to the Administrators what the terms “conducted by” and “supervision” mean for the purposes of the proposed Deed and they are concerned that, in effect that directors will have full control of the proceedings. Further, given that the directors may be joined as a party in any action commenced by Storm (or any action by Storm on behalf of clients of Storm) in the opinion of the Administrators the directors may lack the required level of independent to conduct such proceedings.


Whether to liquidate the Company

It is the Administrators’ recommendation that the company then be wound up.

The company is insolvent in that it has insufficient current assets to meet its commitments. Placing the company into liquidation will also provide the Liquidator with powers to conduct further investigations into the affairs of the company; look at the matter of Insolvent Trading; recover any Preferential Payments made to creditors; examine and recover any other Insolvent Transactions and examine the general affairs of the company.

In liquidation the possibility exists that the liquidators may have access to funding to recover assets and prosecute claims from:

Whether to End the Administration

In the Administrators view it would not be in the interest of the creditors for the Administration to end. Should the company’s creditors resolve that the Administration be ended, the control of the company would revert to the directors. The company is insolvent and the affairs of the company should be formally resolved.

It is likely that a creditor would apply to have the company wound up shortly after the Administration is ended as the company is unable to pay its debts.

Other Information

We confirm that pursuant to Section 439A(4)(b) of the Corporations Act, there is no other information that we are aware of at this time that will assist creditors in making the decision as to whether or not they should accept the proposal for a Deed of Company Arrangement that has been put forward.

9 Dividend Possibilities

Priority employee creditors will be paid their entitlements by the Receivers and, to the extent necessary, by GEERS, should the company be placed into liquidation. Should the proposal for a Deed of Company Arrangement be accepted priority employee creditors will be paid their entitlements by the Receivers and by the Deed Administrators.

Storm carried Professional Indemnity Insurance. Clients of Storm who are able to demonstrate that they have incurred losses as a result of negligence by Storm may be paid, or partly paid, by Storms insurers provided the claims lodged are not subject to any of the policies exclusions.

Any dividend to ordinary creditors is dependent upon:

  1. Read on behalf of Mr and Mrs Cassimatis was an opinion provided by a Mr W J Hamilton, a chartered accountant. Like Messrs Worrell and Kahtri, he is an experienced insolvency practitioner and official liquidator. He offers a critique of their report. Though directed to the subject of the relief sought in the separate application made by Mr and Mrs Cassimatis, its tender on their behalf was not limited to that context. For reasons he sets out in his opinion, he expresses the view that it “is difficult to readily arrive at a decision on reading [the administrators’ report] as to creditors’ best interests, a winding up or a DOCA. A great deal of homework needs to be done in arriving at the status of all classes of creditors claiming, secured and unsecured, with likely comparative returns, cents in the dollar ($1.00) and over what period in the winding up or DOCA”. Mr Hamilton, I note, was not set any such “homework” by Mr and Mrs Cassimatis.
  2. An affidavit in reply sworn by Mr Worrell was read on behalf of the administrators. In that Mr Worrell states (para 15):
In considering whether I should attempt a range of estimates, I reached the conclusion that it was not in the interests of creditors to attempt such a comparison. The reasons for that conclusion were:

(a) the outcome in terms of the asset and liability potentials were so broad as to be impossible to determine on almost any scenario;
(b) the range of scenarios was so broad as to mean that there would need to be a very large number of potential alternatives suggested, giving a very large number of possibilities which in itself may be confusing;
(c) in each of the scenarios it was, in any event, impossible to estimate the potential recoveries with any degrees of certainty;
(d) it was impossible to estimate the quantum of creditors with any certainty;
(e) it was impossible to estimate the possible costs of all of the potential pieces of litigation and their outcomes with any certainty.

There is, with respect, much force in this statement. The views expressed in the administrators’ report under the heading “Dividend Possibilities” strike me as a fair assessment in the prevailing circumstances, which include a necessarily compressed timeframe for reporting. For just the reasons Mr Worrell expresses in the passage quoted, I doubt, for example, whether, had I had the benefit of Mr Hamilton’s opinion at an earlier stage, I should have been disposed further to extend the convening period so as to allow the administrators to undertake the work he describes.

  1. One way of highlighting the difficulties faced by the administrators in assessing dividend possibilities under the DOCA and the weight one gives the DOCA proposal when considering whether it is in the interests of creditors to allow the administration to proceed is by a consideration of its centrepiece, “the DOCA sum”. As defined, this is a sum of $2 million which is to be advanced by Emmanuel Cassimatis & Associates Pty Ltd (ECA) to the deed administrators (to be the present administrators) from account no 35 - 0685 with Westpac Banking Corporation. ECA is a company controlled by Mr and Mrs Cassimatis.
  2. It is common ground that the DOCA sum is the subject of litigation in the Supreme Court of Queensland – originating application No. 1020 of 2009 (See Ex 3). In its present form, it is Storm Financial as applicant, at the behest of the receivers and managers, which seeks relief against Mr Cassimatis as first respondent, Mrs Cassimatis as second respondent and ECA as third respondent. The relief sought by the applicant in those proceedings is as follows:

A. DETAILS OF APPLICATION


The application is made under:

  1. section 1324 of the Corporations Act 2001 (Cth) (“the Corporations Act”).
  2. section 1317H of the Corporations Act;
  3. section 47 of the Supreme Court Act 1995.
  4. The Applicant seeks the following injunctive relief:
  5. The Applicant seeks to the following further relief:

The underlining is referable to amendments made to the Supreme Court application. At the time when the administrators made their report, ASIC was the applicant in those proceedings. The receivers and managers have recently caused Storm Financial to assume that role.

  1. Mr and Mrs Cassimatis and ECA are presently subject to interlocutory injunctive restraint in terms of para 1(a) of the Supreme Court application in respect of the DOCA sum. That restraint was initially granted on an interim basis by the Supreme Court on the application of ASIC. It has to date been consensually extended. That has occurred without, it seems, any concession by the respondents as to the merits of an entitlement to such interlocutory relief. The present term of the interlocutory injunction will expire on 8 April 2009. At that time, at least according to their present disposition, Mr and Mrs Cassimatis and ECA propose to contest its continuance. In that regard, it was conceded before me on their behalf that there exists a serious question to be tried in originating application No. 1020 of 2009. It seems that the contest on 8 April 2009 will be whether or not the balance of convenience favours the further continuance of the interlocutory injunctive relief.
  2. The DOCA makes the following provision in respect of the obligation of ECA to advance the DOCA sum and the sequel in the event that it is not advanced:
    1. The obligation of ECA to advance the DOCA Sum to the Administrators is subject to and conditional upon the happening of the following events:

(a) The expiry or dissolution of the injunction in the ASIC Proceedings granted on 30 January 2009; and

(b) The CBA takes no step that prevents ECA from advancing the DOCA Sum;

(c) No event beyond the control of ECA occurs which prevents it from advancing the DOCA Sum.


  1. If ECA does not advance the DOCA Sum to the Administrators within 60 days after the creditors vote for this DOCA, ECA may give notice to the Administrators either extending such period for a further 60 days, or terminating this Deed.
  2. If, at the expiry of such further period of 60 days, ECA has not advanced the DOCA Sum to the Administrators, this Deed will be terminated.
  3. If this Deed is terminated in that manner:
(a) Storm will be wound up under a creditors voluntary winding up; and
(b) the Administrators will become its liquidators.

The expression “the ASIC proceedings” is defined in the DOCA to be Supreme Court proceeding No 1020 of 2009.

  1. The obligation of ECA to advance the DOCA sum at all is contingent upon the events described in cl 2. This aside, the maximum period for the advancing of the DOCA sum is 120 days after any vote of the creditors in favour of the DOCA. Any extension of the payment period beyond 60 days to that maximum requires a positive decision by ECA: cl 3.
  2. In the circumstances prevailing, that the DOCA sum is not presently freely available is clear on the face of the DOCA (cl 2(a)). In their report and with the benefit of legal advice the administrators opine that it is likely that ASIC will be successful in its application for the return of the $2 million, the DOCA sum, to Storm Financial. If so, they further opine that it will constitute property of the company which will be subject to the charge in favour of the Commonwealth Bank under which the receivers and managers have been appointed. Since then, as noted, Storm Financial has become the applicant in those proceedings, but one might apprehend that event is unlikely materially to diminish the administrators’ assessment of prospects.
  3. Thus, the first difficulty in assessing what dividend might flow under the DOCA is that it requires the assessment of a contingency as to the prospect of the DOCA sum being available for ECA to pay at all, having regard to the forensic controversy in the Supreme Court. A further contingency is that that controversy must be resolved within, at most, 120 days.
  4. These contingencies aside, upon the assumption that the DOCA sum is paid, the amount of any dividend under the DOCA is inherently bound up with the claims which may come to be made under its terms. Very large questions not only as to liability but also quantum with respect to such claims would have to be answered in any such dividend assessment. It is quite impossible to answer them with any precision at present. Mr and Mrs Cassimatis made no serious attempt so to do.
  5. Mr and Mrs Cassimatis did point to an interlocutory judgement given by Greenwood J in Storm Financial Limited ABN 11 064 804 691 v Commonwealth Bank of Australia ABN 48 123 123 124 [2008] FCA 1991 in which, at a time before the appointment of the administrators, Storm Financial had sought injunctive relief against the bank in respect of alleged misstatements made by the bank concerning Storm Financial’s role in the management of client margin loan facilities. His Honour had stated:
    1. For present purposes, I am satisfied by the weight of the applicant’s material that had the financial adviser assumed a management responsibility for the margin loan transaction in each case and more particularly a "sole" responsibility for the management of the margin loan account through the period, the documents as between the Bank and Storm and in particular the letter of 18 May 2007 would have said so in clear and transparent terms. Secondly, the documents as between the financial adviser and the client would have reflected that position. Mr Cassimatis says it was not so as a matter of practice. Mr Johnston says it was not so in his experience although his experience concluded in 2003. Mr McCullough also gives evidence consistent with Mr Cassimatis. I am satisfied that solely for interlocutory purposes, Storm has demonstrated a sufficient likelihood of success in terms of Australian Broadcasting Corporation v O’Neill demonstrating that the statement as to sole management of the margin loan accounts and instructions allegedly given in the meeting on 4 December 2008 are capable of being misleading or deceptive or likely to mislead or deceive. Of course, the ultimate position must be tested at trial where the evidence will be closely examined and findings reached on all aspects of the controversy.

Later in that judgement (at [49]), his Honour observed in relation to the question of what, if any, were the respective managerial responsibilities for the management of client margin loan accounts as between Storm Financial and the bank that, “The boundaries of that relationship are the core matter in issue in these proceedings”. Just what might be the quantum of damages in that proceeding, if such relief were alternatively sought, was a question left unanswered by Mr and Mrs Cassimatis.

  1. The point of all this is that there is something of an understatement in the concession by Mr and Mrs Cassimatis that it is “unclear” that Storm Financial’s creditors would be any better off under the DOCA than they would be if the company were ordered to be wound up. Put bluntly and to borrow from language which commended itself to Hamilton J in TCS Management, there is no good case that there will be a greater or more accelerated return from the course contended for on behalf of Mr and Mrs Cassimatis than there would be if Storm Financial were liquidated.
  2. In voicing that conclusion it is neither necessary and nor would it be appropriate to reach a conclusion about whether the DOCA sum is in law available to ECA for it to pay it in accordance with the terms of the DOCA. The fate of the $2 million is a matter for the Supreme Court of Queensland. It is enough to note the conceded serious question to be tried and that it is by no means certain either that the interlocutory injunction will not be continued or that the substantive proceeding will be heard and determined in that court within 120 days, to say nothing of the fate or likelihood of disposal within that time frame of any appeal.
  3. Both Mr Russell and Mrs Cassimatis were cross-examined on their affidavits. To the extent that their evidence was relevant to the likelihood that ECA would come within the time allowed by the DOCA to be able to pay the DOCA sum and the question of adjournment, I consider that it is neither necessary nor desirable to do anything other than observe that their evidence underscored in my mind the prudence of the concession made on behalf of Mr and Mrs Cassimatis in this Court that, at the behest of the receiver and manager, Storm Financial has raised a serious question to be tried in the Supreme Court about ECA’s entitlement to retain the $2 million. Their evidence certainly did not persuade me that the trial in the Supreme Court would be anything other than lengthy and complex and hence correspondingly difficult to hear and determine within the maximum permissible time for the payment of the DOCA sum.
  4. It is likewise neither necessary nor desirable to reach any conclusion as to when, if at all, prior to its being placed in administration, Storm Financial became insolvent or, for that matter, whether the actions of the then directors in resolving and in confirming the resolution to pay the $2 million to ECA were honest, reasonable or lawful. Such issues are at large in the Supreme Court proceeding. The concession made goes to there being serious questions to be tried in respect of these issues, as does my observation as to the prudence of that concession. That an interrogative note is sounded on these issues is relevant to the adjournment question.
  5. That is not the end of the matter so far as an assessment of the interests of creditors is concerned. Mr and Mrs Cassimatis point to the imminence of the creditors’ meeting. Why not grant a short adjournment so as to let the creditors decide they ask? After all, they submit, is this not giving practical content to the reform to the Act found in Pt 5.3A?
  6. One answer to these questions is that I am not persuaded that an adjournment would serve either of the objects of Pt 5.3A. It is no part of the intendment of the DOCA that it will preserve Storm Financial’s business or, other than after highly conjectural recoveries, the company itself. As already noted, the creditors are not shown to be better off.
  7. Putting this to one side, why nonetheless not let the creditors decide whether or not they might be better off? After all, even if I were not disposed to grant any of the relief that Mr and Mrs Cassimatis seek in their application in respect of the administrators’ report, that does not mean that the merits of the opinions expressed therein are immune from debate, even robust debate, at the creditors’ meeting. Parliament must be taken to have contemplated as much by consigning by s 439C of the Act to the creditors’ meeting, not to the opinion of the administrators, these choices:
(a) that the company execute a deed of company arrangement specified in the resolution (even if it differs from the proposed deed (if any) details of which accompanied the notice of meeting); or
(b) that the administration should end; or
(c) that the company be wound up
  1. In this regard, it is relevant in my opinion, in assessing the interests of creditors for the purposes of s 440A(2) of the Act, to take into account the terms of the Information Memorandum. It is a remarkable document. It deserves to be set out in full.
RUSSELL AND COMPANY SOLICITORS
Storm Financial Limited – The Simple Solution

This Information Memorandum summaries the essential terms of the proposal by Emmanuel and Julie Cassimatis for the Deed of Company Arrangement on which all creditors will shortly vote.

We sincerely believe that the proposal is:

This document is not a substitution for the detailed terms of the proposal, which all creditors should read, along with the Report of the Administrators. The elements of the proposal are as follows.

Directors Pay $2 million

The directors will pay $2 million to the Administrators. This is intended to stop all further argument about the dividend payment of 15 December 2008, without one cent in legal fees.

ASIC will need to consent to releasing the injunction on the funds. We asked ASIC for its comments on this proposal on 9 February. For reasons best known to itself, it has made no comments as yet.

The Commonwealth Bank may try to frustrate this payment too.

We will have to wait and see. We intend to pay the money if we can.

Administrators To Pay Priority Employees

After the $2 million is paid, all priority employees (ie not us) will be paid in full.

The CBA’s receivers have been claiming that only liquidation will see employees paid. The fact is that the receivers should have paid the employees by now.

We won’t mess around. Under our deal, all priority employees are paid immediately. We will pursue the receivers for any shortfall they should have paid you – at no cost to you.

Public Examinations

We will fund public examinations of everyone (ourselves included) who can shed light on the circumstances of Storm’s collapse. We welcome the opportunity to have our say – we hope the bank (and the receivers) feel the same way.

If the administrators decide there are claims to pursue, that will happen.

Client Claims Against Storm

Storm Clients can join the Storm Clients Recovery Group.

This will streamline their claims against Storm, and Storm’s claims against insurers. The Administrators (not us) will be able to negotiate a deal with the insurers.

The Administrators will consult the Directors and the Creditors Committee before entering into any Insurance Settlement.

Client Claims Against CBA and the Storm Clients Recovery Fund

Storm Clients who do not join the Storm Clients Recovery Group are not entitled to participate, or receive any payments from the Storm Clients Recovery Fund.

In essence, if you do not join the Storm Clients Recovery Group you will be on your own, funding your own claim against Storm and the bank, and paying your own lawyers (sooner or later). The benefits of joining the Storm Clients Recovery Group are obvious:

Compare those to any individual legal action you may be considering.

Also, members of the Storm Clients Recovery Group will qualify for a bonus 50% of any surplus from Storm’s own Claims against the bank (after certain other payments). This is in addition to any proceeds of the Client Claims against the bank.

Storm’s Own Claims Against the CBA

The Deed will provide funding for Storm’s claims against the bank. Again, there are strict controls on any settlement of these claims, with a unanimous decision with the Administrators, or a resolution of the creditors or order of the court.

Most importantly, the proceeds of Storm’s claims against the bank will be applied as follows:

If We Disagree with the Administrators?

If this happens, there is a form consultation process. If we still disagree, we can pull the balance of our funding, BUT we are then exposed to a claim by Storm for the unspent balance of the $2 million dividend. We are putting our money where our mouth is.

E G Cassimatis and J G Cassimatis
9 March 2008
  1. Quite why it is that the Information Memorandum bears the entitlement of Mr Russell’s firm is something of a mystery. The concluding subscription as to authorship evidences that its statements are those of Mr and Mrs Cassimatis. There is no evidence that either of them work for Mr Russell’s firm; rather the reverse. In their web page which links to the Information Memorandum Mr and Mrs Cassimatis do not proffer the Information Memorandum as the considered opinion of a solicitor.
  2. Be this as it may, it is not correct to describe the DOCA as a “simple solution”. Mr and Mrs Cassimatis may believe that but, objectively, that seriously misdescribes not only the contingencies that attend the payment of the DOCA sum either within the maximum time allowed under the DOCA or at all but also the difficulties that will attend recovering monies for the benefit of creditors. There is, in truth, no “simple solution” for the creditors be it by way of acceptance of the DOCA or an immediate winding up. Yet this is the entitlement made in bold type so as to emphasise it to the reader and “simple” is immediately thereunder again emphasised in bold type: cf National Exchange Pty Ltd v Australian Securities and Investments Commission [2004] FCAFC 90; (2004) 49 ACSR 369 at 381, [53] per Jacobson and Bennett JJ.
  3. Neither, objectively, is it correct to describe the DOCA proposal as “generous”. The worth of what is offered under the DOCA is not quantifiable, either relatively or absolutely, for the reasons given by the administrators in their report and by Mr Worrell in his affidavit. That necessarily includes the worth, if any, of the “bonus” for which the DOCA nominally provides. If there is a reasonable basis for Mr and Mrs Cassimatis’ “sincere belief” as to the generosity of the DOCA it is not evident to me from the evidence tendered by them.
  4. Is it, objectively, on balance, “the best solution for all stakeholders”? Save for two “stakeholders”, who are at least arguably omitted from the list of the same in the Information Memorandum, that is a matter which it is not possible objectively to determine. Those two “stakeholders” are Mr and Mrs Cassimatis, each in the capacity of a director of Storm Financial. Acceptance of the DOCA would grant to Mr and Mrs Cassimatis (and to ECA) releases and discharges “from all and any claims, actions, suits, or demands arising out of the dividend payment on 15 December 2008” (cl 29), i.e. the very sum put forward as the DOCA sum. Further, those creditors who join the “Storm Clients Recovery Group”, subject to clause 16A, “release and discharge any employee or officer of Storm, unless such person is insured under [any policy of professional indemnity or other insurance]” and agree “collectively to limit such claims to the amount available to such persons under such policies of insurance, or any Insurance Settlement” (cl 16(c)). Directors are not offered such releases by the Act in the event of a liquidation.
  5. The Information Memorandum states that, after the public examinations contemplated by the DOCA, “If the administrators decide there are claims to pursue, that will happen”. If those public examinations were to expose claims against Mr and Mrs Cassimatis in their capacity as directors of Storm Financial then, to the extent applicable, the releases would dictate that those claims didn’t happen. So viewed, one can see a basis for a sincere belief by Mr and Mrs Cassimatis that the DOCA is the “best solution” for each of them, but whether and why such a belief is open more generally is elusive. Of course, as was submitted on behalf of Mr and Mrs Cassimatis, there is nothing unusual about provision in a DOCA for releases of one sort or another. That though is quite a separate issue from the absence of reference to the same in the Information Memorandum.
  6. The Information Memorandum in bold type states “Directors will pay $2 million”. That is not who will make the payment under the DOCA. Further, the Information Memorandum does not at all make it clear that there is a serious question to be tried as to whether that sum is in law Storm Financial’s property. The following statement in the Information Memorandum is hardly an adequate substitute:
ASIC will need to consent to releasing the injunction on the funds. We asked ASIC for its comments on this proposal on 9 February. For reasons best known to itself it has made no comments as yet. The Commonwealth Bank may try to frustrate the payment too. We shall have to wait and see.
  1. ASIC also criticised the Information Memorandum for an absence of reference to the fact that if Storm Financial were wound up priority employee entitlements would be paid either by the receivers and managers or via the Commonwealth’s General Employee Entailments and Redundancy Scheme (GEERS). What the Information Memorandum states in bold type is “Administrators To Pay Priority Employees”. That is literally a feature of the DOCA. It is not though, in light of GEERS, a feature which makes the DOCA “generous”. In that sense, ASIC’s criticism is the omission is not misplaced.
  2. As to the foregoing identified features of the Information Memorandum, and as was submitted on behalf of ASIC, the following passage from the joint judgement of Jacobson and Bennett JJ in National Exchange [2004] FCAFC 90; (2004) 49 ACSR 369 at 381-382, [55] to [58] is relevant by analogy:
    1. Where the disparity between the primary statement and the true position is great it is necessary for the maker of the statement to draw the attention of the reader to the true position in the clearest possible way.
    2. An analogy is to be found in cases dealing with exemption clauses. In Curtis v Chemical Cleaning & Dyeing Co [1951] 1 KB 805 at 809, Denning LJ said:

"When one party puts forward a printed form for signature, failure by him to draw attention to the existence or extent of the exemption clause may in some circumstances convey the impression that there is no exemption at all, or at any rate not so wide an exemption as that which is in fact contained in the document."


  1. His Lordship’s remarks in J Spurling Ltd v Bradshaw [1956] EWCA Civ 3; [1956] 1 WLR 461 were even more pointed. His Honour said at 466:-

"... the more unreasonable a clause is, the greater the notice which must be given of it. Some clauses which I have seen would need to be printed in red ink on the face of the document with a red hand pointing to it before the notice could be held to be sufficient."


  1. A similar approach is justified by the remarks of Stone J in one of the "asterisk cases", ACCC v Signature Security Group Pty Ltd [2003] FCA 3; (2003) ATPR 41-908. Her Honour observed at [27] that the degree of prominence which must be given to a qualifying statement may well vary with the potential of the primary statement to be misleading and deceptive.
[Emphasis added]
  1. I am not here deciding a misleading or deceptive conduct claim, only whether I am satisfied that it is in the interests of creditors that Storm Financial continue under administration rather than be wound up. Mr and Mrs Cassimatis have not persuaded me that their Information Memorandum has had and could not have had any material effect on creditors or that it has not and will not yield proxies in favour of their solicitor. That is material in deciding whether the administration should continue.
  2. It does not inexorably follow from the features of the Information Memorandum which I have identified that it is not in the interests of creditors for the company to continue in administration rather than be wound up. Subsection 447B(2) would, in my opinion, permit the Court to direct the removal of the Information Memorandum and reference to it from the web site of Mrs Cassimatis and the publication on that web site that the Court had ordered the removal with a link to the Court’s judgement. It would also permit the making of an order revoking or directing the administrators not to accept any proxy directed to Mr Russell on or after 16 March 2009 and before the publication of remedial advertising (or perhaps out of an abundance of caution, given the date of the Information Memorandum, after 9 March 2009). As with s 447A(1) of the Act, it would require cogent reasons to read down the generality of the power conferred by s 447B(2) so as to preclude the making of such orders and none are apparent: cf Australasian Memory Pty Limited v Brien (2000) 200 CLR 270 at 279-280, [17] to [10]. It was submitted on behalf of Mr and Mrs Cassimatis that the making of any such orders would disenfranchise creditors. It may, and a concern is that, having sent off a proxy in favour of Mr Russell, the corrective advertising and the chance of a fresh proxy or attendance in person at the creditors’ meeting may not come to the attention of a creditor. With respect it would be odd to allow an administration to continue so as to allow a trained proxy to be utilised.
  3. Were I persuaded that the DOCA did offer the prospect of a better return to creditors than a liquidation even though false or misleading statements had been made concerning it, this alternative would carry greater weight. However, the more I reflect upon this DOCA, the more it seems to me that it is a chimera; creative, but hardly constructive insolvency. For its unquantified and unquantifiable benefits, the creditors are being asked to decide to wait 60 days or perhaps 120 days to see whether the DOCA sum will emerge as available for ECA to pay from litigation closely contested for reasons good enough to constitute a serious question to be tried.
  4. I have a further concern in relation to it being in the interests of creditors for the administration to continue. The DOCA requires Mr and Mrs Cassimatis to co-operate with the administrators in respect of all matters done under it (cl 28). The DOCA consigns to Mr and Mrs Cassimatis a role in relation to litigation other than as witnesses. It is not, it must be said, an unfettered role. It is intended that the administrators will also play a part. Further, the DOCA contains an elaborate dispute resolution process that may see Storm being wound up under a creditors’ voluntary winding up (see cl 30 to cl 36).
  5. In my opinion, the present proceedings, including the separate application made by Mr and Mrs Cassimatis, are eloquent as to the prospects of their co-operation and dispute in relation to litigation decisions in the DOCA. The administrators have made a considered value judgement, which includes taking legal advice about the prospects of success in the Supreme Court in respect of the DOCA sum, that it is in the interests of creditors that Storm be wound up. Mr and Mrs Cassimatis concede there is a serious issue to be tried in those Supreme Court proceedings but offer no proof of a better return to creditors that creditors might factor in to an assessment as to whether it is nonetheless in their interests to approve the DOCA. It is inherently likely that many of the claims contemplated for prosecution under the DOCA will require either or each of Mr and Mrs Cassimatis to give evidence. It is likewise inherently likely that difficult issues will arise concerning prospects, which will include an assessment of the credibility of their evidence and the strength of competing evidence offered, for example, by the Commonwealth Bank. Of course, self critical decisions fall to be made by any client who prosecutes a cause of action for his benefit. Under the DOCA Mr and Mrs Cassimatis would be called upon to make such decisions not just for their own benefit or that of companies they control but also for the benefit of a potentially very wide class of creditors. When regard is also had to the tone of such of their web site as has been reproduced in evidence, and with all due respect, I doubt whether they would bring to decision-making under the DOCA the same clinical detachment that creditors are entitled to expect from a court appointed liquidator alone. For example, on the web page (Exhibit MRR8 to Mr Ryan’s affidavit, p 214) that links to the Information Memorandum one see this statement apparently authored by them, “We have owned and operated Storm (in its various forms) over the years and feel strongly that we will be more passionate about the pursuit of justice in this matter than anyone else.”; on another web page (Exhibit MRR8 to Mr Ryan’s affidavit, p 218), an apparent “mission statement” by Mr Cassimatis, “My crusade is to find justice for all affected Storm Financial clients. I will not rest in this.” Passion is one thing, sober, perhaps self critical, assessment of the prospects of litigation is quite another. If there is to be litigation which might yield benefits for creditors I am not persuaded for this further reason that it is in the interests of creditors for the administration to continue so as to permit this DOCA to be considered either at a creditors’ meeting on 30 March 2009 or even perhaps shortly after the fate of the Supreme Court proceedings on 8 April 2009 is known.
  6. ASIC has brought its application at a late stage. That it did so after having not taken up an earlier opportunity does not thereby convert disadvantages for creditors inherent in the DOCA into advantages or even render them neutral. It just means that they fall for assessment against the background of the publicising of the Information Memorandum.
  7. For all of these reasons I am not, in terms of s 440A(2) of the Act, satisfied that it is in the interests of Storm Financial’s creditors for the company to continue under administration rather than be wound up. In reaching that conclusion, I have taken into account but do not regard as decisive the statement by ASIC as to the likelihood of its seeking the termination of the DOCA by the Court pursuant to s 445D, presumably in reliance on s 445D(1)(f). That would necessarily be after the DOCA had been approved at a creditors’ meeting; perhaps after the DOCA sum had been paid. There are more than enough reasons, absent the contingency of a s 445D application, not to be satisfied it is in the interests of creditors for the administration to continue, as opposed to allowing the company to be wound up.
  8. Part 5.3A does not mandate that the second meeting of creditors must occur after the appointment of administrators so as to allow the consideration by them of a DOCA, even where there is a winding up application. The presence of s 440A(2) attests to that. So, too, does the presence of s 435C(3)(g), which contemplates that an administration may end because the Court orders the company to be wound up. Rather, the position is no more than that the normal outcome of an administration is stated by s 435C(2):
(2) The normal outcome of the administration of a company is that:

(a) a deed of company arrangement is executed by both the company and the deed’s administrator; or

(b) the company’s creditors resolve under paragraph 439C(b) that the administration should end; or

(c) the company’s creditors resolve under paragraph 439C(c) that the company be wound up.


Where, as here, there is a winding up application, whether that normal outcome occurs will depend first and foremost upon whether, in the particular circumstances, having regard to the satisfaction described in s 440A(2), the Court is obliged to adjourn that application.

  1. There remains, at least in theory, a residual discretion under s 467(1)(b) of the Act to adjourn ASIC’s winding up application with or without conditions. It is not only the interests of creditors which would fall for consideration in that regard. I have already concluded that I am not satisfied that it is in the interests of creditors for the administration to continue. There is a public interest to consider in relation to that residual discretion. Mrs Cassimatis has deposed to the considerable publicity that has attended the cessation of Storm Financial’s trading and its passage into and thus far through administration. Publicity examples are also evidence in the exhibits to Mr Russell’s affidavit filed on 20 March 2009 (Exhibit SLR2, pp 527 and 528). Some of that publicity has, it seems, been generated by her and her husband, some by the Commonwealth Bank, some by another firm of solicitors, Messrs Slater & Gordon (who apparently act for some investor creditors and seek to act for more of them), some by or on behalf of those appointed by the receivers and managers and yet further, some has been generated gratuitously by commentators and other third parties. Of course, the interest of the public is not synonymous with the public interest. The administrators’ report shows that there is a large body of creditors with an aggregate of proofs of debt received by them (as at 13 March 2009) being $88,320.369.62. As noted, it is accepted that Storm Financial is presently insolvent. In the circumstances, there is a considerable public interest in the certainty of control and decision-making with respect to recovery options that a winding up would offer. There is no superior public interest in allowing a creditors meeting to proceed so as to consider the DOCA, with or without remedial orders. I am not persuaded that the winding up application should be adjourned as a matter of residual discretion.

Just and Equitable?

  1. The just and equitable ground is of ancient provenance in corporations law: see Mr B H McPherson (as his Honour then was), Winding Up on the “Just and Equitable Ground” (1964) 27 MLR 282. Notwithstanding a restrictive approach to this ground that prevailed for the latter half of the 19th century and which persisted in the courts with diminishing support into the first two decades of the 20th century, by 1924, in Loch v John Blackwood Ltd [1924] AC 783 at 788-789, the Judicial Committee had rejected the notion that the just and equitable ground was to be interpreted ejusdem generis with preceding statutory grounds upon which a winding up order might be made and in some way limited by those grounds. By 1973 in Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 at 374-375 Lord Wilberforce, with the agreement of Viscount Dilhorne, Lord Pearson and Lord Salmon, had emphatically rejected as wrong a tendency His Lordship discerned to create categories or headings under which case must be brought for the just and equitable ground of winding up to apply. As His Lordship stated, “illustrations may be used, but general words should remain general and not be reduced to the sum of particular instances”.
  2. In Australian Securities Commission v AS Nominees Ltd [1995] FCA 1663; (1995) 62 FCR 504 at 531-532 Finn J highlighted that, at the behest of a public official or agency, the public interest might warrant the winding up of a company on the just and equitable ground; a proposition later accepted by Lander J in Australian Securities and Investments Commission v International Unity Insurance Pty Ltd [2004] FCA 1059; (2004) 22 ACLC 1416 at [135]. I, too, accept this proposition. Its correctness seems to me to follow inexorably from the standing granted to ASIC in the circumstances described in s 462(2)(e) and s 464(1). There will be occasions and this is one where, in the course of an investigation, matters come to the attention of ASIC that motivate it to seek the winding up of a company on the just and equitable ground because it is in the public interest and perhaps also on other grounds, notably, insolvency. As noted, the latter requires a grant of leave to ASIC but the conditions for that are met. I grant leave.
  3. That Parliament intended that ASIC would act as a scrutineer of the public interest in a case like the present is evident from s 1(2)(a) and (b) of the Australian Securities and Investments Commission Act 2001 (Cth), which materially provide that it is to strive to:
(a) maintain, facilitate and improve the performance of the financial system and the entities within that system in the interests of commercial certainty ...; and
(b) promote the confident and informed participation of investors and consumers in the financial system.
  1. Storm Financial has not just failed. It has spectacularly failed. That it did so against the background of a wider malaise in the share market and the financial system does not detract from a need for it to be wound up; it emphasises that need. Why that is so was, with respect, very well put by the administrators in a passage from their overview in their report:
The initial catalyst for the dramatic reversal of Storm’s financial position was, without a doubt, the very large and sustained drop in the Australian share market. Whether the company could have withstood the drop with the assistance of its bankers, whether the investments recommended by Storm to its clients were appropriate in most cases; whether the Fund Managers managing client investments acted appropriately and whether the actions of Storm and its directors following the drop were appropriate, are all issues which have been called into question. They are also issues which will require detailed and sustained inquiry, perhaps with the assistance of the courts, before a final judgement can be made.

Faced with this DOCA and against that background, it is hardly surprising that insolvency practitioners of the experience of Messrs Worrell and Khatri would do anything other than recommend a winding up. To the list of subjects offered by the administrators might be added whether the acts or omissions of the Commonwealth Bank were appropriate. That is not in any way to be adversely critical of that bank, only to appreciate that, at an interlocutory stage in the case mentioned, a judge of this Court has already noted the existence of a serious issue to be tried. As to actions of directors, the making of unsecured loans, the prepayments and the $2 million dividend are each examples of subjects worthy of inquiry.

  1. There is, in my opinion, an overwhelming public interest in the inquiry described by the administrators and additionally suggested by me occurring and occurring in the context of liquidation. Self evidently, neither Mr nor Mrs Cassimatis appreciates this public interest. The Information Memorandum also gives rise to a concern about the candour of Mr and Mrs Cassimatis. How, reasonably, they might consider that Storm Financial could continue even under administration as proposed in the DOCA in the present circumstances is a concern.
  2. Faced with the contents of the Information Memorandum with the features I have described, it is also hardly surprising that ASIC decided that the time had come when it should endeavour to persuade the Court that enough was enough. ASIC has already received numerous investor complaints. Whether there is any merit in them is not able to be determined in the present proceedings. The very fact that such complaints are being made is but another factor which is indicative of a need in the context of a corporate collapse like this, for a winding up now, not consigning that choice to creditors and potentially delaying a winding up for up to 120 days.
  3. Storm Financial is not trading and, realistically, there is no likelihood of its resuming its former business. The interests of creditors will not, in my opinion, be served by an administration under the DOCA with the role it consigns to Mr and Mrs Cassimatis. Nor will the public interest. In a case like this that interest is much wider than the interests of creditors and extends to a prompt and certain placement of this company in the hands of liquidators for the wider good of the financial system. Messrs Worrell and Khatri have consented to undertake that role. They are well placed so to do.
  4. For these reasons, my opinion is that it is just and equitable that Storm Financial should be wound up under s 461(1)(k) of the Act. It is also presently insolvent with no hope of recovery from that position. For that reason Storm Financial should also be wound up in insolvency.
  5. There is no reason to defer the making of a winding up order on the basis of any lack of notice or advertising under s 465A or the rules. The making of the application was advertised widely in the advertisements which I directed to be placed by ASIC when granting leave to file the application in court last week. That advertising has occurred. I note that Messrs Slater and Gordon who act for a range of investor clients, were well aware of the hearing of the winding up application which was fixed to commence on 24 March 2009 (see that firm’s circular letter to clients of 19 March 2009, Exhibit JGC-1 to Mrs Cassimatis’ affidavit, p 150). For the purposes of s 467A(a) and s 1322(2), I am not of the opinion that any irregularity has caused or may cause substantial injustice.
  6. Because Storm Financial is presently under administration the effect of s 513A(b) is that the winding up will be taken to have begun or commenced on the s 513C day in relation to the administration. That will, in the circumstances, of this case, be the day on which the administration began: s 513C(b). Winding up will not therefore adversely affect relation back periods.
  7. It follows from the fact that it is appropriate to make a winding up order that it is unnecessary to consider the merits of the separate application made by Mr and Mrs Cassimatis. Rather, it consequentially follows that their application must be dismissed.
  8. A corollary is that the administrators’ remuneration will not be able to be approved at the creditors meeting, as opposed to being passed by the Court. The administrators did not see this as a reason not to make a winding up order. Nor do I.
I certify that the preceding seventy-six (76) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Logan.

Associate:


Dated: 26 March 2009


Counsel for the Plaintiff:
Mr R Newlinds SC


Counsel for the Plaintiff:
Mr AJ McInerney


Solicitor for the Plaintiff:
Australian Securities and Investments Commission


Counsel for the Receivers and Managers of the First Defendant:
Mr GA Thompson SC


Solicitor for the Administrators of the First Defendant:
Tucker & Cowen Solicitors


Counsel for the Second and Third Defendants:
Mr P Dunning SC


Counsel for the Second and Third Defendants:
Mr C Jennings


Solicitor for the Second and Third Defendants:
Russell and Company Solicitors



Date of Hearing:
24 - 25 March 2009


Date of Judgment:
26 March 2009

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