Federal Court of Australia Australian Securities and Investments Commission v Askk Investment Group Pty Ltd [2020] FCA 1150 File number: VID 1620 of 2018 Judgment of: DAVIES J Date of judgment: 10 August 2020 Catchwords: CORPORATIONS – winding up of unregistered managed investment scheme under s 601EE of the Corporations Act 2001 (Cth) (Act) – winding up of company operating scheme under s 461(1)(k) of the Act – whether scheme met definition of "managed investment scheme" under the Act – whether scheme required to be registered under s 601ED(1) of the Act – wind up orders not opposed Legislation: Australian Securities and Investments Commission Act 2001 (Cth) s 13 Corporations Act 2001 (Cth) ss 9, 461(1)(k), 601ED, 601EE Sale of Land Act 1962 (Vic) s 29F Cases cited: Australian Securities and Investments Commission v Chase Capital Management Pty Ltd & Ors [2001] WASC 27; 36 ACSR 778 Number of paragraphs: 9 Date of hearing: 10 August 2020 Registry: Victoria Division: General Division National Practice Area: Commercial and Corporations Sub-area: Regulator and Consumer Protection Counsel for the Plaintiff: Mr J Moore QC with Ms Z Maud Counsel for the Defendant: Mr S Rubenstein Solicitor for the Defendant: Mills Oakley Counsel for the Represented Investors: Mr H Aizen Solicitor for the Represented Investors: Toorak Law Pty Ltd ORDERS VID 1620 of 2018 BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION Plaintiff AND: ASKK INVESTMENT GROUP PTY LTD Defendant order made by: DAVIES J DATE OF ORDER: 10 August 2020 THE COURT ORDERS THAT: 1. The application to adjourn the hearing of the Plaintiff's application to wind up the Defendant and the unregistered managed investment scheme that has been operated by the Defendant is refused. 2. Pursuant to section 461(1)(k) of the Corporations Act 2001 (Cth), the Defendant be wound up. 3. Salvatore Algeri and Timothy Bryce Norman (the Liquidators), of Deloitte Australia, 550 Bourke Street, Melbourne, Victoria be appointed as liquidators of the Defendant for the purposes of the winding-up. 4. Pursuant to section 601EE(2) of the Corporations Act 2001 (Cth), the managed investment scheme operated by the Defendant (the Scheme) be wound up. 5. The Liquidators be appointed liquidators of the Scheme with all the powers of a liquidator pursuant to s 477 of the Corporations Act 2001 (Cth) in respect of the property of the Scheme. 6. The Plaintiff's costs be taxed and be reimbursed out of the property of the Defendant in accordance with section 466(2) of the Corporations Act 2001 (Cth). Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT DAVIES J: 1 This is an application by the plaintiff (ASIC) for an order pursuant to s 601EE(2) of the Corporations Act 2001 (Cth) (the Act) for the winding up of an unregistered managed investment scheme operated by the defendant (Askk). In addition, ASIC seeks the winding up of Askk pursuant to s 461(1)(k) of the Act for operating a managed investment scheme that was required to be registered pursuant to s 601ED(1)(a) of the Act but which was not: s 601ED(5), s 601EE. Where a scheme has been operated in contravention of s 601ED(5), the case for winding up the entity that operated the scheme is "compelling": Australian Securities and Investments Commission v Chase Capital Management Pty Ltd & Ors [2001] WASC 27; 36 ACSR 778 at 796 [93]–[94]. 2 The application was supported by four affidavits of Ms Naomi Johnston of ASIC. Askk relied on three affidavits of Mr Ahmad Ayad, managing director of Askk, an affidavit of Mr Khodr El-Badaoui, a director of Askk, and a solicitor affidavit of Mr Mark Bland. 3 Briefly stated, the unregistered managed investment scheme operated by Askk was the promotion of investment in blocks of land in Beveridge, Victoria. The scheme involved the payment of money by investors to Askk to fund the purchase of the land, the subdivision of the land into residential blocks and then the transfer of one block to each investor per $200,000 contribution. The money paid to Askk by investors was pooled and used by Askk to pay part of the purchase price for the land pursuant to a contract of sale. 4 The scheme had the features described in sub-paras (a)(ii)-(iii) of the definition of "managed investment scheme" in s 9 of the Act for the following reasons: (a) the investors contributed the money as consideration for the acquisition of rights to benefits produced by the scheme. The "right" acquired by those investors was the right to become the registered proprietor in the future of a "lot" of subdivided land of about 400sqm within the area comprising the land purchased under the scheme: sub-para (a)(i) of the definition; (b) at least by November 2017, the intention of Askk (objectively discerned) was that the contributions of the investors would be pooled or used in a common enterprise to purchase the land. That intention formed part of the "scheme" and it was formed prior to the making of contributions: sub-para (a)(ii) of the definition; (c) the contributions were in fact pooled, as they were deposited into an account maintained by Askk with Westpac. Further, the contributions were used for a common enterprise, being payment of the deposit and first instalment of the purchase price for the land; and (d) Askk, rather than the investors, had day-to-day control over the operation of the scheme: sub-para (a)(iii) of the definition. 5 Further, the scheme was required to be registered because in the period since October 2017, Askk raised in excess of $11 million from more than 200 investors. Thus, s 601ED(1)(a) is satisfied because the scheme has more than 20 members. The exemption in s 601ED(2) does not apply because, if the scheme had been registered, there would have been a requirement for product disclosure statements to be given to at least some investors. 6 In late 2018, ASIC commenced an investigation under s 13 of the Australian Securities and Investments Commission Act 2001 (Cth) into the operation of the scheme. The evidence was to the effect that, upon Askk becoming aware that there may have been a contravention of s 601ED of the Act, steps were taken by Askk in an endeavour to regularise the investment scheme, including the restructure of the arrangements underpinning the scheme. Eventually those endeavours were unsuccessful and in April 2020, the company exercised its right to avoid the contract for the purchase of the land and to reclaim the monies paid by it to the vendor pursuant to s 29F of the Sale of Land Act 1962 (Vic). As a consequence, the scheme cannot in any event now proceed. 7 Askk did not oppose the winding up of the scheme. Nor did it oppose an order that it be wound up under s 461(1)(k) of the Act on the basis that it operated a scheme in contravention of s 601ED(5). However, the submission was made that the interests of the investors in the scheme ought to be an important factor taken into account by the Court in determining the appropriate relief in the circumstances. 8 At the hearing, a number of those investors were represented by counsel. Counsel informed the Court that those investors did not oppose the winding up of the scheme but an adjournment of ASIC's application to wind up the company was sought in order to have an opportunity to consider whether and how to respond to that application. That application was not supported by any affidavit material, let alone affidavit material to indicate that there may be some point to the adjournment other than to give the investors time to consider what position they may wish to take in relation to the wind up application. In the circumstances the application for an adjournment was refused. 9 Accordingly, orders should be made for the winding up of the unregistered managed investment scheme and for the winding up of Askk. I certify that the preceding nine (9) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Davies. Associate: Dated: 10 August 2020