CATCHWORDS CORPORATIONS - Companies - application to wind up - publication of notice of proceedings under Federal Court Rules. PRACTICE AND PROCEDURE - Federal Court Rules - publication of Notice of Proceeding previously restrained - article in major metropolitan newspaper identifying respondent - publication of notice ordered. HIGH COURT AND FEDERAL JUDICIARY - Federal Court of Australia - Federal Court Rules - publication of Notice of Proceeding to wind up. TRUSTS AND TRUSTEES - Trustee Company - notice to investor-beneficiaries - notice by advertisement under Federal Court Rules - purpose of Notice - possibility of "run" on trust funds - de facto notice through article in major metropolitan newspaper -balance with principle of equality of treatment of beneficiaries. Federal Court Rules Order 71 rule 36 Re T & L Trading (Aust) Pty Limited (1986) 10 ACLR 388 noted AUSTRALIAN SECURITIES COMMISSION v AS NOMINEES LIMITED and OTHERS No ACT AG 3295 of 1995 No ACT AG 3002 of 1995 FINN J CANBERRA 17 AUGUST 1995 IN THE FEDERAL COURT OF AUSTRALIA) ) AUSTRALIAN CAPITAL TERRITORY ) )No. ACT AG 3295 of 1995 DISTRICT REGISTRY )No. ACT AG 3002 of 1995 ) GENERAL DIVISION ) BETWEEN: AUSTRALIAN SECURITIES COMMISSION Applicant AND: AS NOMINEES LIMITED and OTHERS Respondents COURT: FINN J. PLACE: CANBERRA DATE: 17 AUGUST 1995 MINUTES OF ORDER The Court varies its order of 8 August 1995 by ordering the publication of the Notice of Application, pursuant to Order 71 rule 36(8). Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules IN THE FEDERAL COURT OF AUSTRALIA) ) AUSTRALIAN CAPITAL TERRITORY ) ) No. ACT AG 3295 of 1995 DISTRICT REGISTRY ) No. ACT AG 3002 of 1995 ) GENERAL DIVISION ) BETWEEN: AUSTRALIAN SECURITIES COMMISSION Applicant AND: AS NOMINEES LIMITED and OTHERS Respondents COURT: FINN J. PLACE: CANBERRA DATE: 17 AUGUST 1995 REASONS FOR JUDGMENT An application having been made under section 462 of the Corporations Law to wind up the three respondent companies, the respondents filed a notice of motion seeking that the applicant be restrained from advertising, or causing to be advertised, notice of these proceedings as required by order 71, rule 36 of the Federal Court Rules. They relied upon the power of this court under sub-rule 8 of that rule to order that advertisement not be required to take place. On 8 August, I made an order pursuant to that sub-rule that publication be dispensed with until further order. The bases of the respondent's motion then, and of the reasons for my order, were that: (1) the respondent companies conducted businesses as trustees and managers of private superannuation funds; (2) there was no clear evidence of insolvency save possibly in relation to one of the respondents and I would note that that insolvency is not a ground relied upon in the application to wind up even that company; and (3) in the circumstances, publication would have an adverse and severe effect on the respondent's business. I did indicate then, as I have done both at an earlier directions hearing in a related matter and at the present hearing, that I had concerns about the proper protection of the interests of the investor-beneficiaries of the various trusts of which the respondents are trustees or managers. It is their position which has complicated these proceedings generally. I would add that the sums invested with the companies are in excess of $42 million. The winding up application is based on the just and equitable ground. The essence of the applicant's case is, as I understand it, that the respondents have committed sustained and significant breaches of trust, some involving conflicts of interests and/or partial decisions, and that they are not fit and proper parties to be trustees. For the purpose of demonstrating this, the applicant intends to focus attention on a variety of specific transactions, some of some magnitude, and other dealings which are said to evidence both the breaches and the unfitness alleged. The evidence of these, I understand, is the product of a lengthy investigation by the applicant into the respondent companies using its not insubstantial powers of investigation and examination under the Australian Securities Commission Act 1989. The respondents, as I understand their defences, do not contest in any significant way the primary facts relied upon by the applicant. Rather, they assert that the transactions in question are open to different interpretations which are favourable to them and which do not involve the finding of sustained breaches of trust of fiduciary duty, although it is said that even if some such breaches occurred they did not occasion loss to the trusts and were more of a technical character. At worst it is said the respondents may have to change some of their practices but the circumstances do not justify a winding up order. The hearing commenced before me on Monday, 14 August. I requested counsel representing each of the parties to provide a brief outline of the essence of the matters in issue in this application and in a related application which seeks the appointment of a receiver under s1323 of the Corporations Law, and which is being heard together with the winding up application. That outline was given orally by counsel for the applicant and for the respondents. A substantial newspaper item giving a precis of that outline and identifying the respondents in an unequivocal fashion appeared in a Sydney Morning Herald on 15 August 1995. I have been informed by counsel for the applicant that the applicant has since received inquiries from persons said to be investors with interests in these funds and that media inquiries have also been made about the proceedings. In consequence of the publication, the applicant has applied to vary the order made on 8 August to the effect that publication of the winding up application proceed under Order 71, rule 36(8). It is not open to question that the applicant has raised serious questions about the suitability of the respondents to hold or manage the trusts of which they have control. But the application in form is not for the removal of the respondents from these trusts. Rather it is for their winding up, orders which, if made, will result in all probability in their being so removed. Nonetheless, one cannot ignore what appears to be the real burden of the matter which is their removal. This in consequence is a proceeding in which the investors in the trust have a clear and direct interest even though there is no question raised of insolvency of the trusts. It is the primary duty of the respondents as trustees and managers to act in the interests of the investor-beneficiaries. The effect of their motion, which resulted in my order of 8 August was, amongst other things, to keep the investors unaware of the filing of the petition. This, so it was submitted, would protect the continuing business of the companies and would prevent a possible "run" on the trust funds by investors. The respondents in this matter are now in a position where their own interest may not be on all fours with the interests of the investors whom they are duty bound to protect. It may well be in their interests to minimise the effects of the newspaper publication by opposing any more general publication of the winding up petition. But theirs are not the only interests to be taken into account. Speaking merely of a summons to wind up a company which was not itself a trustee company, Young J in Re T & L Trading (Aust) Pty Limited (1986) 10 ACLR 388 at 390, observed that: the advertisement of a summons for winding up serves a very useful and practical purpose in the commercial community. The advertisements not only assist creditors but serve as notice to banks and also to potential contributories. The advertisement will thus not lightly be dispensed with. Here it has been submitted by the applicant that, because of the trusts, the investors should be treated as having such a real and practical interest in the matter as to fall within the purpose of an advertisement. Counsel for the applicants submitted that an investor, for example: (1) would be a contingent or prospective creditor for the purpose of section 462 of the Corporations Law and thus would in principle be entitled to present a winding up application. Reliance in this was placed on the observations of Megarry J in In re A Company [1973] 1 WLR 1566 at 1571; (2) would have such an interest as to entitle the investor to appear on the hearing. That is a view supported by the decision of Nicholson J in Re Gasbourne Pty Limited (1984) 8 ACLR 618 and is reinforced by the decision of Northrop J in Australian Securities Commission v Melbourne Asset Management Nominees Pty Limited (1994) 49 FCR 334; and (3) would be entitled to inspect the application and affidavits under Order 71 rule 36(13). As to this, it may be debateable whether reference to a creditor in the sub-rule includes the extended meaning of the term to be found in the Corporations Law, s462(2)(b). But even if such were not the case the discretion given the court to permit inspection under Order 46 rule 6, is one which would in appropriate circumstances, be likely to be exercised in an investor's favour. There is substance in the applicant's submissions. The investors clearly are persons who are not disinterested in, and likely to be unaffected by, the principal application. As I earlier indicated, I have at all stages in this application been concerned to ensure that the interests of the investors are and will be protected. To date that protection has been expressed in a somewhat paternalistic way by preventing publication of the application. The newspaper publication has rendered that partially ineffective in that it has led potentially - and from comments addressed to me from the bar table, actually - to some at least of the investors being appraised of the matter while others are not. I would note further, the respondents did not at any stage seek any order which may have had the effect of suppressing their identity on the hearing of the application. Counsel for the respondent conceded in argument on the application for leave to advertise that this court would have been most unlikely to grant an order for suppression. The application to wind up the respondents has been heard in open court and I am informed that the newspaper article was the product of a person attending the first day's hearing. While traffic in the court has been thin, I have no way of ascertaining whether other investors have been appraised, directly or indirectly, of the substance of the application from the attendance either of themselves or of others at the hearing. Equally I would note that the names of the applicant and of the first respondent have appeared in the law list of The Canberra Times since Monday, the 14th of August. Canberra, along with Melbourne and South Australia, are, I am informed, the places where the respondent's business is conducted in the main. What has occurred in other words, is a haemorrhaging of information concerning the proceedings. Its likely consequence is that some at least of the investors have learned, and more are likely to learn, of the proceedings. The position has been created in which, because of the means by which this is occurring, it is quite adventitious whether or not notice of the proceedings will be drawn to an investor's notice. If this seems undesirable, the respondent, nonetheless submits that on balance it is preferable to the consequences which could flow from publication. Here emphasis was placed on the possibility of a run on the funds, an eventuality, I should add, that the applicant disclaims any wish to occasion. Given the conjunctions of companies and trusts in this matter, given the legitimate and direct interest investors have in these proceedings, and given the probability of some of the investors being in a privileged position over others in the knowledge they have of the proceedings, I have concluded that effect should now be given to the primary requisition of Order 71 rule 36(8) and that publication of the application should take place. In reaching this conclusion I have had particular regard to such balance as needs to be struck between the interests of the company and of the investors to the extent that these diverge on this issue. What cannot be gainsaid is the real interest the investors have in the proceedings and that, at the moment, only some - through fortuitous circumstances - have been presented with the opportunity to acquire a knowledge of the proceedings. Equality of treatment is a fundamental tenet of trust law. It points strongly in favour of the court eliminating as best it can such inequality of knowledge between the investors, as has been produced by the events which have occurred. If, by means of the publication or otherwise, some have been given the opportunity to consider their position in relation both to these proceedings and to the respondent companies, that opportunity should, insofar as formal publication permits, be given to all. I am conscious of the respondents' apprehension that some investors may seek to withdraw funds. That consideration is an important and troubling one. It does not, however, outweigh the view I have arrived at that in the circumstances the investors generally should, through the means prescribed in the Rules, be given the opportunity to acquire a knowledge of the proceedings and to take such steps as they deem appropriate in the light thereof. I should add that I am somewhat reinforced in this conclusion by such appreciation as I have been able to arrive at as to the subject matter of the allegations before me. The nature of the challenges made to the administration of the trust, whether proving in the event to be well founded or not, is such as to reinforce the view I have arrived at that the investors generally should now be appraised of the proceedings so that if they are so minded they may acquaint themselves with the issues and may make their judgment accordingly. Again, I should, however, emphasise that there is no suggestion here being made that the trusts are in any way insolvent. I would propose to vary my order of 8 August by now ordering that publication must take place. I certify that this and the preceding 9 pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Finn. Associate Dated: 10 October 1995 Counsel for the applicant :R S Mc Coll S.C. Solicitors for the applicant:Jonathon Caddick, of Australian Securities Commission Counsel for the respondent :S L Walmsley Solicitors for the respondent :Sutherland Tiirikainen as agents for Bush, Burke and Company Date of hearing :16 August 1995 Date of judgment :17 August 1995