FEDERAL COURT OF AUSTRALIA Australian Securities & Investments Commission v GDK Financial Solutions Pty Ltd (in liq) (No 7) [2011] FCA 215 Citation: Australian Securities & Investments Commission v GDK Financial Solutions Pty Ltd (in liq) (No 7) [2011] FCA 215 Parties: AUSTRALIAN SECURITIES & INVESTMENTS COMMISSION v GDK FINANCIAL SOLUTIONS PTY LTD (IN LIQUIDATION) ACN 085 488 311 , WINDSOR VILLAGE MANAGEMENT PTY LTD (IN LIQUIDATION) ACN 088 339 913, WESTERN RETIREMENT VILLAGE MANAGEMENT PTY LTD (IN LIQUIDATION) ACN 091 443 239, THE MEWS VILLAGE NOMINEES PTY LTD (IN LIQUIDATION) ACN 091 526 224, PERIDON MANAGEMENT PTY LTD (IN LIQUIDATION) ACN 088 322 276, ROSEDALE VILLAGE NOMINEES PTY LTD (IN LIQUIDATION) ACN 089 667 096, PETER HASTINGS WARNE, RENTAL FLEETS AUSTRALIA PTY LTD ACN 082 558 978, JOHN MONTGOMERIE, ANDREW REGINALD YEO, GUISEPPE DE SIMONE and SEACHANGE MANAGEMENT PTY LTD ACN 091 443 211 File number: VID 590 of 2006 Judge: FINKELSTEIN J Date of judgment: 11 March 2011 Date of hearing: 10 February 2011 Date of last submissions: RFA Finance Limited: 25 February 2011 First Applicants: 2 March 2011 Place: Melbourne Division: GENERAL DIVISION Category: No Catchwords Number of paragraphs: 20 Appearing for the First Applicants, David Winterbottom and Martin Madden in their capacities as liquidators of the 2nd and 6th defendants and as receivers appointed to the Rosedale Scheme: J Marshall Solicitor for the First Applicants, David Winterbottom and Martin Madden in their capacities as liquidators of the 2nd and 6th defendants and as receivers appointed to the Rosedale Scheme: Blake Dawson Appearing for RFA Finance Limited (third party): S Velik Solicitor for RFA Finance Limited (third party): SV Law IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 590 of 2006 BETWEEN: AUSTRALIAN SECURITIES & INVESTMENTS COMMISSION Plaintiff AND: GDK FINANCIAL SOLUTIONS PTY LTD (IN LIQUIDATION) ACN 085 488 311 First Defendant WINDSOR VILLAGE MANAGEMENT PTY LTD (IN LIQUIDATION) ACN 088 339 913 Second Defendant WESTERN RETIREMENT VILLAGE MANAGEMENT PTY LTD (IN LIQUIDATION) ACN 091 443 239 Third Defendant THE MEWS VILLAGE NOMINEES PTY LTD (IN LIQUIDATION) ACN 091 526 224 Fourth Defendant PERIDON MANAGEMENT PTY LTD (IN LIQUIDATION) ACN 088 322 276 Fifth Defendant ROSEDALE VILLAGE NOMINEES PTY LTD (IN LIQUIDATION) ACN 089 667 096 Sixth Defendant PETER HASTINGS WARNE Seventh Defendant RENTAL FLEETS AUSTRALIA PTY LTD ACN 082 558 978 Eighth Defendant JOHN MONTGOMERIE Ninth Defendant ANDREW REGINALD YEO Tenth Defendant GUISEPPE DE SIMONE Eleventh Defendant SEACHANGE MANAGEMENT PTY LTD ACN 091 443 211 Twelfth Defendant JUDGE: FINKELSTEIN J DATE OF ORDER: 11 MARCH 2011 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. The application by RFA Finance Limited to adjourn the hearing be refused. 2. The sale of: (a) Lot A in Deposited Plan 367471 (also known as 9 Deaves Road, Cooranbong); (b) Lot 21 in Deposited Plan 212248 (also known as 28 Deaves Road, Cooranbong); (c) Lot 1 in Deposited Plan 733540 (also known as 33 Mannings Road, Cooranbong); and (d) the assets, property and effects belonging to the Retirement Village Business known as Rosedale Village and carried on at the three properties noted in paragraphs (a) to (c) above, to Rosedale Gardens Retirement Living Pty Ltd as trustee for the Rosedale Gardens Unit Trust as provided for in the following documents: (a) an Asset Sale Agreement between the Rosedale Receivers and Rosedale Gardens Retirement Living Pty Ltd as trustee for the Rosedale Gardens Unit Trust dated 22 December 2010; (b) a contract for sale of Lot A in Deposited Plan 367471 (also known as 9 Deaves Road, Cooranbong) and Lot 21 in Deposited Plan 212248 (also known as 28 Deaves Road, Cooranbong) between Rosedale Gardens Retirement Living Pty Ltd and Rosedale dated 22 December 2010; and (c) a contract for sale of Lot 1 in Deposited Plan 733540 (also known as 33 Mannings Road, Cooranbong) between Rosedale Gardens Retirement Living Pty Ltd and Peridon Management Pty Ltd (In Liquidation) ACN 088 322 276 dated 22 December 2010, be approved. 3. The costs of the First Applicants (David Winterbottom and Martin Madden in their capacities as Liquidators of Windsor Village Management Pty Ltd (In Liquidation) and Rosedale Village Nominees Pty Ltd (In Liquidation) and as Receivers appointed by the Court to the Rosedale Scheme) of this application be costs of the receivership of the Rosedale Scheme. 4. RFA Finance Limited pay the First Applicants' (David Winterbottom and Martin Madden in their capacities as Liquidators of Windsor Village Management Pty Ltd (In Liquidation) and Rosedale Village Nominees Pty Ltd (In Liquidation) and as Receivers appointed by the Court to the Rosedale Scheme) costs incurred on 10 February 2011. 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 Federal Law Search on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 590 of 2006 BETWEEN: AUSTRALIAN SECURITIES & INVESTMENTS COMMISSION Plaintiff AND: GDK FINANCIAL SOLUTIONS PTY LTD (IN LIQUIDATION) ACN 085 488 311 First Defendant WINDSOR VILLAGE MANAGEMENT PTY LTD (IN LIQUIDATION) ACN 088 339 913 Second Defendant WESTERN RETIREMENT VILLAGE MANAGEMENT PTY LTD (IN LIQUIDATION) ACN 091 443 239 Third Defendant THE MEWS VILLAGE NOMINEES PTY LTD (IN LIQUIDATION) ACN 091 526 224 Fourth Defendant PERIDON MANAGEMENT PTY LTD (IN LIQUIDATION) ACN 088 322 276 Fifth Defendant ROSEDALE VILLAGE NOMINEES PTY LTD (IN LIQUIDATION) ACN 089 667 096 Sixth Defendant PETER HASTINGS WARNE Seventh Defendant RENTAL FLEETS AUSTRALIA PTY LTD ACN 082 558 978 Eighth Defendant JOHN MONTGOMERIE Ninth Defendant ANDREW REGINALD YEO Tenth Defendant GUISEPPE DE SIMONE Eleventh Defendant SEACHANGE MANAGEMENT PTY LTD ACN 091 443 211 Twelfth Defendant JUDGE: FINKELSTEIN J DATE: 11 MARCH 2011 PLACE: MELBOURNE REASONS FOR JUDGMENT 1 The court appointed receivers of the Rosedale Scheme (an unregistered managed investment scheme), who are also the liquidators of the companies involved in the scheme, including Windsor Village Management Pty Ltd (in liq) and Rosedale Village Nominees Pty Ltd (in liq) ("the receivers"), have entered into conditional contracts to sell several parcels of land (9 and 28 Deaves Road and 33 Mannings Road, Cooranbong) plus the Rosedale Retirement Village business to Rosedale Gardens Retirement Living Pty Ltd. A condition of each contract is that the sale be approved by the court. The orders appointing the receivers had provided for the sale of scheme assets to be supervised by the court. The grant of approval is opposed by RFA Finance Limited ("RFA"), a company controlled by Mr Burton. It seeks an adjournment of the approval hearing in order to present material and argument in support of its opposition to the orders the receivers seek. 2 At the commencement of the approval hearing RFA's solicitor, Mr Velik, said he had not had sufficient time to prepare his client's material to oppose the application and hence sought an adjournment. I made orders that within a short period RFA would file material in support of its adjournment application. I indicated the material should disclose details of RFA's alternative proposal (which had been briefly outlined), whether the court had power to implement RFA's proposal, why it was said RFA's proposal would produce a better outcome for creditors and, finally, what factors I should take into account in refusing the application of the receivers. 3 I said that when this material was to hand I would deal with the adjournment application on the papers. If the adjournment was to be granted the approval application would be listed for a full hearing. If the adjournment were refused I said I would make the orders sought by the receivers. 4 I should say something about the background. The details are contained in several affidavits which have been filed by the receivers over the years. For present purposes a brief summary will suffice. 5 The receivers were appointed in late 2006. Among the orders made was that the receivers take possession of all scheme property and, subject to court approval, sell that property. 6 Since their appointment the receivers have taken steps to realise the scheme property. It is not necessary to do more than provide a brief outline of those steps. First, in 2006/2007 there was a proposal by TEYS Property Funds Ltd to take over all the scheme assets and liabilities and operate the business under a new registered managed investment scheme. This proposal did not proceed. 7 In late 2007 the receivers began negotiations to sell the scheme assets to Buildev Development NSW (TP) Pty Ltd ("Buildev"). In February 2008 Buildev submitted a conditional offer to purchase the scheme land and business, paying an option fee for that purpose. However, in August 2008 Buildev advised that it no longer wished to proceed with the acquisition. 8 Between August 2008 and February 2009 the receivers sold part of the scheme assets, namely three parcels of land at Freemans Drive, Cooranbong. 9 In March 2009 the receivers, through the agency of Jones Lang Lasalle ("JLL"), commenced negotiations to sell the remaining land and the retirement village business to Bizprop Pty Ltd ("Bizprop"). Contracts of sale were entered into but were terminated on 4 February 2010 and the deposit paid by Bizprop was forfeited. 10 In February 2010 the receivers commenced negotiations with Mr Burton who was then acting on behalf of Mainstay Funding Pty Ltd ("Mainstay") to sell that company the remaining assets and business. The negotiations resulted in agreements to sell the remaining land and business to Mainstay for around $2.3 million. In the event, Mainstay could not complete the acquisitions because of lack of funds. Hence the agreements were terminated on 11 August 2010. Once again the deposit ($40,000) was forfeited. 11 Thereafter JLL began a further campaign to sell the remaining land and the business. By this time the value of the land had diminished significantly. Expressions of interest were received from several parties. By email dated 6 December 2010 Mr Burton and others were provided with a summary of the offers that had been received. Mr Burton was advised that, based on the offers, it was the receivers' intention to accept the offer made by a Mr Ware on behalf of an unnamed company, but which turned out to be Rosedale Gardens. They accepted the offer and contracts were entered into on 22 December 2010. 12 Mr Burton did not object to the receivers accepting the Rosedale Gardens' offer. In his affidavit Mr Burton hints (but does not say) that if he had known the remaining land and business was available for around $1 million he might have made an offer. But, when he was told of the details of Mr Ware's offer, he did not express an interest in acquiring the assets. 13 Later, however, Mr Burton did put a proposal to the receivers which he says will produce a better monetary and value outcome for the priority creditors than the current proposal. In summary what Mr Burton proposes is as follows: (a) a new unlisted public company be formed to acquire the remaining land and business ("Newco"); (b) by court order the remaining land and business be vested in Newco; (c) priority creditors are to be issued with shares in Newco in full and final satisfaction of all claims and the number of shares to be issued will constitute 76% of the issued capital; (d) the liquidators be issued shares (24%) to be held on trust for the unsecured creditors; (e) Newco is to borrow $1.1 million which is to be distributed to the priority creditors. Mr Burton says this is better for the priority creditors because, under his proposal, those creditors would receive an extra $100,000 and stand to gain from any increase in the value of the remaining land and business through their shareholding in Newco. 14 I asked Mr Velik to outline the basis upon which the court could implement this proposal. Mr Velik said I have "general jurisdiction as to the manner in which the remaining assets and business is realised". This is a rather hopeful submission. I have no power to authorise an in specie distribution of assets to creditors in satisfaction of their claims absent their unanimous consent – or at least the consent of all relevant creditors (ie those who would receive a distribution if the scheme assets are converted to cash). The receivers have pointed out there is no evidence that any priority creditor will consent to the RFA proposal. 15 It is possible that, absent unanimous consent, the proposal could be implemented by a scheme of company arrangement under s 411 of the Corporations Act 2001 (Cth) or, perhaps, a deed of company arrangement under Part 5.3A. This would obviate the need for unanimous consent but would, in any event, carry with it its own difficulties. 16 Putting to one side the question whether the proposal can be implemented at all, and proceeding on the assumption that it could be, there are several reasons why I propose not to adjourn the approval application to give RFA more time to develop its grounds of opposition. 17 First, I accept the submission made by the receivers that in exercising my discretion I must (a) have regard to the interests of all interested parties, including those of the proposed purchaser; (b) satisfy myself as to the feasibility and financial soundness of RFA's alternative proposal; and (c) otherwise have regard to all of the circumstances of the case. 18 Here the receivers have, in good faith, come to the view that a sale of the remaining assets to Rosedale Gardens is in the interests of the priority creditors and the residents of the retirement village. It is hard to quarrel with the receivers' assessment. First, it is clear that the receivers, using experienced real estate agents, have, after an extensive marketing campaign, obtained the best possible price for the remaining land and business. This follows significant attempts over many years to dispose of the assets. What I am being asked to do is, in effect, to get rid of an agreement which is likely to be completed and to substitute for it the speculative possibility that some other arrangement might be implemented. It would be folly on my part to go along with the RFA proposal for this reason alone. 19 There is another reason. The practical effect of what I am being asked to do is to circumvent an orderly and legitimate sale process and allow a third party to, in the expression of the trade, "gazump" a willing purchaser. This process is unacceptable in the business community and might gain credence if sanctioned by a judge. 20 In the circumstances, I will make the orders that the receivers seek. I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein. Associate: Dated: 11 March 2011