New South Wales Supreme Court CITATION : ASIC v Burke [2000] NSWSC 694 CURRENT JURISDICTION: Equity FILE NUMBER(S) : SC 3028/00 HEARING DATE(S) : 10 July 2000 JUDGMENT DATE : 10 July 2000 Australian Securities & Investments Commission (P) Kerry John Burke (D1) KBA Financial Services Pty Ltd (D2) PARTIES : KBA Property Investments Pty Ltd (D3) K.B.A. Racing Pty Ltd (D4) Counteract Rode Systems Ltd (D5) KJ Burke (NZ) Ltd (D6) JUDGMENT OF : Austin J COUNSEL : D R Stack (P) R Watson (Sol) (D) SOLICITORS : Jan Redfern, Solicitor for ASIC (P) Michael Dakin & Associates (D1-D6) CATCHWORDS : CORPORATIONS - statutory power to appoint receiver under Corporations Law - justification where Mareva orders are in place - relationship between receiver's and ASIC's powers - practical considerations LEGISLATION CITED : Corporations Law ss 601ED, 780 & 781 CASES CITED : Beach Petroleum NL v Johnson (1992) 9 ACSR 404 DECISION : Receiver appointed THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION AUSTIN J MONDAY 10 JULY 2000 3028/00 - AUSTRALIAN SECURITIES & INVESTMENTS COMMISSION V KERRY JOHN BURKE & ORS JUDGMENT (ex tempore) 1 HIS HONOUR: This is an application for interlocutory relief in proceedings commenced on 30 June 2000 in which the plaintiff seeks by way of final relief orders on the basis that the defendants have contravened sections of the Corporations Law which prohibit a person from unlicensed dealing in securities (s 780); unlicensed conduct of an investment advice business (s 781); and operation of an unlicensed managed investment scheme (s 601ED). 2 By ex parte application on 30 June 2000, the plaintiff sought and obtained from the Equity Duty Judge various orders, including injunctions, to restrain conduct in contravention of those provisions of the Corporations Law and various Mareva Orders restraining the defendants from dealing with or removing their assets. 3 The plaintiff now comes before the Court seeking an extension of the existing orders with modifications and two further orders. The first additional order is that the first defendant be prohibited from leaving Australia without the consent of the court and must deliver up his passport and any travel documents. It appears to me that this additional relief is appropriate, having regard to the serious circumstances of the case, and the paramount importance of the first defendant being available within Australia while the plaintiff's further inquiries are conducted. 4 There is some evidence to suggest in the present interlocutory circumstances that one or more of the defendants may have been involved not only in activity without a licence, but also in the misappropriation of investor funds for various purposes, including the purchase of race horses. The amount involved is over four million dollars at last count and since that figure is merely representative of investor complaints, one can expect that the figure is likely to rise as more investors make their complaints after becoming aware of the plaintiff's investigations. In summary, the seriousness of the circumstances justify the extraordinary step of making orders which prevent the first defendant from leaving Australia. 5 The second order that the plaintiff seeks is an order for the appointment of receivers of the property of the first defendant, and receivers and managers of the property, including the businesses of the second to sixth defendants. It is clear that in any circumstances the appointment of a receiver is an extraordinary step for a court to take. (See Meagher Gummow & Lehane, Equity Doctrines and Remedies 3rd Edition page 697 and note the observations of Von Doussa J in Beach Petroleum NL v Johnson (1992) 9 ACSR 404). 6 Although the appointment of a receiver as an interlocutory step is often associated with allegations of fraudulent misappropriation of property, it appears to me that the fundamental issue is not the character of the alleged wrongdoing of the defendants, but the overriding concern to protect assets for the benefit of those entitled to them. Where, as here, the applicant is the public regulator, there will be a need to separate the investigatory functions of the regulator, which continue after the receiver is appointed, from the functions of the receiver who typically has powers of investigation for the purpose of getting in and preserving assets, rather than for the purpose of establishing some breach of the law. 7 An additional difficulty arises. Here there is a regime of Mareva Orders in place, the purpose of which is to "freeze" the assets sufficiently to preserve them pending a further hearing, and the question arises whether an order appointing a receiver is justified in such a case given that the Mareva Orders have the same purpose of asset preservation. 8 Without wishing to lay down any general rules, it appears to me that the extraordinary step of appointing a receiver may be justified, even though Mareva Orders are in place, in a case where there is real doubt about the existence and location of assets such as investments, and about the number and identity of claimants and the nature of their claims, and additionally the defendants are engaged in business activities which entail that any Mareva Orders must allow assets to be turned over in the course of business. Where these circumstances exist in combination, and especially where there are allegations of serious fraud involved, the Court may conclude, as I do in this case, that the Mareva Orders are not enough to ensure that the assets are preserved and protected, and indeed identified and brought in for the benefit of investors. 9 In reaching my conclusion that the appointment of a receiver is justified in the present case, I have had in mind that, whereas the public regulator conducts its activities without thereby depleting the funds available to meet investors' claims, a receiver necessarily operates in the private sector for fees and the payment of those fees will deplete those funds. It seems to me that this disadvantage of receivership is outweighed very considerably by the advantages that a receivership would bring in assisting to identify and get in assets, and to communicate in an orderly fashion with investors whose interests may be at risk. 10 Therefore, so long as some practical limit can be imposed upon the receivership process so that it does not run on unendingly and very expensively, I believe that a receiver should be appointed. The practical limit I have in mind (and my order will reflect this) is that the receiver should be asked to prepare a preliminary order for the Court within a short time frame (the analogy of voluntary administration is obvious) so that the Court can review the position soon and before too much is incurred in the way of costs, and make decisions as to the further progress of the matter. 11 I make orders in terms of paragraphs A1 to A16 of the amended originating process filed today, amended in the manner previously recorded in the transcript, and I appoint 5pm today in my chambers (after the plaintiff has re-engrossed them) for the purpose of making the orders accordingly. 12 The proceedings are stood over for mention before the Corporations Judge on Monday 7 August 2000. * * * * * * * * * Last Modified: 09/26/2000 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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