Reported Decision : 53 ACSR 305 (2005) 23 ACLC 929 New South Wales Supreme Court CITATION : ASIC v Australian Investors Forum Pty Ltd & Ors (No 2) [2005] NSWSC 267 HEARING DATE(S) : 19 to 23 July, 27 to 30 July and 5 & 6 August, 2004 JUDGMENT DATE : 4 April 2005 JURISDICTION : Equity Division JUDGMENT OF : Palmer J DECISION : Numerous contraventions of Corporations Act found proved - proceedings stood over for evidence and submissions as to consequential relief. CATCHWORDS : CORPORATIONS - DIRECTORS AND OFFICERS - DISCLOSURE REQUIREMENTS - Whether company had contravened s.727(1) Corporations Act by failing to make disclosures and failing to bring investors within exemption provided by s.208(10) Corporations Act - whether director knowingly involved in contravention. - SECURITIES DEALER'S LICENCE - CONDITIONS - Whether company breached conditions of licence - whether breach of licence constitutes a contravention of Corporations Act - whether director knowingly involved. - UNDISCHARGED BANKRUPT - MANAGEMENT - ANNULMENT - Whether evidence proved that an undischarged bankrupt had managed corporation - whether subsequent annulment of bankruptcy retrospectively expunged contravention. - DIRECTORS' STATUTORY DUTIES - Whether various transactions were dishonest and for improper purposes - whether director and officer contravened statutory duties to corporations. - Australian Securities and Investments Commission Act 1989 (Repealed 15.07.2001) (Cth) - s.8 - Australian Securities and Investments Commission Act 2001 - s.19 - Bankruptcy Act 1966 (Cth) - s.153A LEGISLATION CITED : - Companies (WA) Code - s.537 - Corporations Act 2001 (Cth) - Schedule 3, s.9, s.79, s.83, s.206A, s.206B, s.206E, s.208, s.209(2), s.228, s.229, s.700(2), s.700(3), s.703, s.706, s.708(2), s.708(10) s.727(1), s.1308, s.1311, s.1317DA, s.1317E, s.1317H, s.1324(10), s.1332, s.1401(2), s.1430(1), s.1431(1), s.1432(1) - Corporations Law (Repealed 15.07.2001) (Cth) - Chapter 1, Pt 1.2, Chapter 7, s.104, s.784, s.786(1), s.787, s.826(1), s.827 - Criminal Code Act 1995 (Cth) - Chapter 2, s.13.2(1) - ASIC v Adler (2002) 41 ACSR 72 - ASIC v Pegasus Leveraged Options Group Pty Ltd (2002) 41 ACSR 561 - ASIC v Plymin (No 1) (2003) 46 ACSR 126 - ASIC v Whitlam (No 2) (2002) 42 ACSR 407 - Baysington Pty Ltd, Re; Gillon v National Companies and Securities Commission (1987) 12 ACLR 412 - Bond v Rozenes (1996) 67 FCR 122 - Briginshaw v Briginshaw (1938) 60 CLR 336 - Carabelas v Scott (2003) 177 FLR 334 - Corporate Affairs Commission (Vic) v Bracht [1989] VR 821 - Coyle, Re (1993) 42 FCR 72 - Director of Public Prosecutions v Ashley [1955] Crim LR 565 - Ferguson v Weaving [1951] 1 KB 814 - Forge v ASIC [2004] NSWCA 448 CASES CITED : - Giorgianni v R (1985) 58 ALR 641 - Harlowe's Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Co NL (1968) 121 CLR 483 - HIH Insurance Ltd, Re; ASIC v Adler (2002) 41 ACSR 72 - Miller v Miller (1995) 16 ACSR 73 - Ngurli Ltd v McCann (1953) 90 CLR 425 - Oates v Federal Commissioner of Taxation (1990) 27 FCR 289 - Pascoe Ltd (in liq) v Lucas (1998) 27 ACSR 737 - R v Mato [1999] NSWCCA 395 - Rich v ASIC (2004) 50 ACSR 242 - Richardson & Wrench (Holdings) Pty Ltd v Ligon No 174 Pty Ltd (1994) 123 ALR 681 - Salter v NCSC (1988) 13 ACLR 253 - Smallcombe v Olivier (1844) 13 M&W 77, 153 ER 32 - Whitehouse v Carlton Hotel Pty Ltd (1987) 162 CLR 285 - Yorke v Lucas (1985) 158 CLR 661 Australian Securities & Investments Commission - Plaintiff Australian Investors Forum Pty Ltd - First Defendant Dennis Ralph Anthony - Second Defendant Martin Lloyd-Cocks - Third Defendant Dominic Luvara - Fourth Defendant Peter Victor Topperwien - Fifth Defendant Bud Shaheen - Sixth Defendant Australian Capital Forum Pty Ltd - Seventh Defendant Medionics Pty Ltd - Eighth Defendant Sage Global Fund Ltd - Ninth Defendant Techlogica Pty Ltd - Tenth Defendant Suisse Credit Pty Ltd - Eleventh Defendant Swiss Pacific Inc - Twelfth Defendant Nominee Securities Pty Ltd - Thirteenth Defendant Finance Projects Pty Ltd - Fourteenth Defendant PARTIES : Money Mint Pty Ltd - Fifteenth Defendant Casabanca Pty Ltd - Sixteenth Defendant Business Franchises Pty Ltd - Seventeenth Defendant Webfeatures Pty Ltd - Eighteenth Defendant Sacvere Pty Ltd - Nineteenth Defendant Associated Asset Management - Twentieth Defendant IT Genius Pty Ltd - Twenty-first Defendant Moneytec Investment Management Ltd - Twenty-second Defendant Metrobank Pty Ltd - Twenty-third Defendant Australian Equity Forum Pty Ltd - Twenty-fourth Defendant Tax Law Accounting Pty Ltd - Twenty-fifth Defendant Tax Law Accounting Partnership Pty Ltd - Twenty-sixth Defendant Biotech Securities Ltd - Twenty-seventh Defendant Arbitrage Trading Pty Ltd - Twenty-eighth Defendant Whitton & Lombe - Twenty-ninth Defendant FILE NUMBER(S) : SC 5164/01 D.R. Stack - Plaintiff D.R. Anthony (in person) - 2nd and 23rd Defendants COUNSEL : M. Lloyd-Cocks (in person) - 3rd and 19th Defendants T. Tzovaras - 4th and 16th Defendants (excused on fifth day of hearing) Australian Securities & Investments Commission - Plaintiff In person - 2nd and 23rd Defendants SOLICITORS : In person - 3rd and 19th Defendants Tzovaras Legal - 4th and 16th Defendants (excused on fifth day of hearing) LOWER COURT JURISDICTION : 5164/01 ASIC v Australian Investors Forum & Ors [2005] NSWSC 267 ~ Index- ~ INTRODUCTION 1 Nature of the proceedings 1 Conduct of the proceedings 3 Applicable legislation 5 The standard of proof 5 Ratification 8 Dramatis personae 11 AIF 11 Mr Anthony 12 Mr Lloyd-Cocks 13 Mr Luvara 15 Mr Shaheen 16 Relevant corporations 17 Arbitrage Trading Pty Ltd 17 Associated Asset Management 17 Australian Capital Forum 17 Australian Equity Forum Pty Ltd 18 AIF Strategic Management Pty Ltd 18 Biotech Securities Ltd 18 Business Franchises Pty Ltd 18 Casabanca Pty Ltd 19 Finance Projects Pty Ltd 19 IT Genius Ltd 19 Medionics Pty Ltd 19 Metrobank Pty Ltd 20 Money Mint Pty Limited 20 Moneytec Investment Management Pty Ltd 20 Mortgage Circuit Pty Ltd 20 Nominee Securities Pty Ltd 21 Sacvere Pty Ltd 21 Sage Global Fund Ltd 21 Suisse Credit Pty Ltd 21 Suisse Credit Inc 22 Swiss Pacific Inc 22 Tax Law Accounting Partnership Pty Ltd 22 Tax Law Accounting Pty Ltd 22 Techlogica Pty Ltd 22 Webfeatures 22 CONTRAVENTION OF DISCLOSURE REQUIREMENTS 23 ASIC's allegations 23 Mr Lloyd-Cocks' Defence 24 What is an "offer of securities"? 25 What is "involvement" in a contravention of s.727(1)? 29 Background 32 Mr Lloyd-Cocks' involvement in AIF's pre-IPO 34 AIF's contraventions and Mr Lloyd-Cocks' involvement 39 Mr P.J. Devey 40 Mr B. Peterson 44 Mr B. Pryor 46 Mr T. Markotic 52 Mr M.P.R. Abell 58 Mr and Mrs D. Conrick 60 Mr P. La Rosa 62 Mr Mahon & Ms Hodda 64 Mr D. Casey 65 Summary 66 CONTRAVENTION OF CONDITIONS OF DEALER'S LICENCE 67 ASIC's allegations 67 Whether contravention of licence conditions is contravention of the Act 68 The relevant facts 72 Whether AIF contravened licence conditions 76 Whether Mr Lloyd-Cocks involved in contraventions of licence conditions 78 MR ANTHONY'S PARTICIPATION IN MANAGEMENT 80 ASIC's allegations 80 Mr Anthony's Defence 82 What is "managing a corporation" within s.206A(1) CA` 82 Whether Mr Anthony's bankruptcy was avoided ab initio 83 The perceptions of AIF employees 86 Mr Anthony's dealings with third parties 93 Mr Anthony's relationship with Messrs Lloyd-Cocks and Luvara 95 Swiss Pacific Inc. 97 Conclusion 102 THE 'ROUND ROBIN PAYMENTS' 103 ASIC's allegations 103 The Suisse Credit Inc Agreement 105 The payment to Webfeatures 114 Where the 'round robin payments' went 116 Whether contraventions of the Act 119 THE SAGE-TECHLOGICA TRANSACTION 122 ASIC's allegations 122 The Defences 124 The test in s.210 CA 124 The transaction 126 Summary of the transaction 130 The real reason for the payment 132 Conclusions 135 Whether Sage and Techlogica related parties 136 Whether contravention of related party provisions 140 THE SAGE-AIF MANAGEMENT FEE 141 ASIC's allegations 141 Defences 142 Whether Sage and AIF related parties 142 How the management fee was calculated 142 Conclusions 145 THE MEDIONICS-OPTUM TRANSACTION 146 ASIC's allegations 146 The defences 147 The facts 149 Conclusions 152 THE AIF-BIOTECH TRANSACTION 153 ASIC's allegations 153 The defences 154 The facts 155 Conclusion 157 THE MORTGAGE CIRCUIT-SWISS PACIFIC LOAN 158 ASIC's allegations 158 The defences 158 Conclusion 158 THE AIF SHARE DILUTION 159 ASIC's allegations 159 The defences 160 The facts 162 Conclusion 164 THE MEDIONICS SHARE DILUTION 165 ASIC's allegations 165 Conclusion 166 THE TECHLOGICA SHARE DILUTION 166 ASIC's allegations 166 Conclusion 167 THE ALLEGED BANKRUPTCY PAYMENTS 167 ASIC's allegations 167 The facts 168 Conclusion 170 SUMMARY OF CONCLUSIONS 170 Mr Anthony 170 Mr Lloyd-Cocks 172 ORDERS 175 ************************************************************************************* IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION PALMER J. 5164/01 ASIC v Australian Investors Forum Pty Ltd & Ors JUDGMENT 4 April, 2005 INTRODUCTION Nature of the Proceedings 1 These proceedings were commenced on 24 October 2001 when the Plaintiff ("ASIC") filed an Originating Process against twenty-eight defendants seeking various declarations and orders under the Corporations Act 2001 (Cth) ("CA"). On the same day ASIC obtained various ex parte interlocutory orders including: – orders restraining the First Defendant ("AIF") and the Twenty-Second Defendant ("Moneytec") from carrying on a securities business; – orders restraining various corporate defendants from issuing shares; – Mareva orders against all of the then twenty-eight defendants; – orders prohibiting the following persons from leaving the jurisdiction, namely, the Second Defendant, Dennis Ralph Anthony ("Mr Anthony"), the Third Defendant, Martin Lloyd-Cocks ("Mr Lloyd-Cocks"), the Fourth Defendant, Dominic Luvara ("Mr Luvara"), the Fifth Defendant, Peter Victor Topperwien ("Mr Topperwien"), and the Sixth Defendant, Bud Shaheen ("Mr Shaheen"); – orders restraining Mr Anthony from managing a corporation. 2 On 2 November 2001, ASIC procured the appointment of an interim receiver to AIF. On 5 August 2002, AIF was wound up by the Court and Mr A. McIntosh was appointed liquidator. 3 The following corporate defendants have since been wound up or deregistered: – the Seventh Defendant, Australian Capital Forum Pty Ltd; – the Eighth Defendant, Medionics Pty Ltd; – the Eleventh Defendant, Suisse Credit Pty Ltd; – the Thirteenth Defendant, Nominee Securities Pty Ltd; – the Fourteenth Defendant, Finance Projects Pty Ltd; – the Fifteenth Defendant, Money Mint Pty Ltd; – the Sixteenth Defendant, Casabanca Pty Ltd; – the Eighteenth Defendant, Webfeatures Pty Ltd; – the Twenty-first Defendant, IT Genius Pty Ltd; – the Twenty-fourth Defendant, Australian Equity Forum Pty Ltd; – the Twenty-fifth Defendant, Tax Law Accounting Pty Ltd; – the Twenty-sixth Defendant, Tax Law Accounting Partnership Pty Ltd. 4 Prior to the commencement of the trial, settlement was reached with the following Defendants: – the Seventeenth Defendant – on 1 November 2001, Business Franchises Pty Ltd consented to various orders which culminated in the payment of approximately $500,000 into Court. On 28 April 2003, following a settlement reached, the Liquidator of Casabanca and Sage applied to the Court for orders that approximately $400,000 be paid to Sage and $100,000 be paid to Casabanca, these orders were subsequently made by Justice Austin; – the Sixth Defendant, Bud Shaheen – in 2002 Mr Shaheen consented to various orders disposing of the proceedings against him; – the Ninth Defendant, Sage Global Fund Ltd ("Sage") – which has agreed with the Commission to the making of a declaration that it contravened the "related party" provisions through the payments made by it to: i) the First Defendant, AIF, of $250,000 on 28 September 2001; and ii) the Tenth Defendant, Techlogica, of $560,000 on 28 September 2001; – the Tenth Defendant, Techlogica Pty Ltd ("Techlogica") which has agreed with the Commission to the making of a declaration that it contravened the "related party" provisions through its receipt of $560,000 from Sage on 28 September 2001 and to orders that it be wound up. 5 Shortly prior to, or shortly after, the commencement of the trial, Mr Luvara and the corporate Defendants associated with him and Mr Topperwien and the corporate Defendants associated with him, consented to the making of various orders against them. 6 As a result of these settlements, ASIC now seeks relief only against: – Mr Anthony and a company associated with him, the Twenty-third Defendant ("Metrobank"); – Mr Lloyd-Cocks and a company associated with him, the Nineteenth Defendant ("Sacvere"). 7 During the trial it was agreed by the parties that the matter would proceed in two stages. First, issues of contravention would be determined; second, if any contravention was established, the question of what orders should be made would be determined and the parties could adduce evidence on that issue: see Forge v ASIC [2004] NSWCA 448. Conduct of the proceedings 8 At the trial, Mr Stack of Counsel appeared for ASIC and Messrs Anthony and Lloyd-Cocks appeared in person for themselves and Metrobank and Sacvere respectively. 9 Mr Anthony was admitted as a solicitor in 1996 but he says that he has never actively practised as a lawyer. Mr Lloyd-Cocks has no legal qualifications. 10 Because the Defendants were legally unrepresented a certain degree of flexibility in procedure in the trial was required. It became evident very early in the trial that a great deal of what Messrs Anthony and Lloyd-Cocks were saying from the Bar Table was really in the nature of evidence. It would have been impossibly inconvenient to require them to go into the witness box to give evidence every time they wished to say something from Bar Table which bore the character of evidence. It would have been equally unrealistic to expect that they would be able to confine everything that they said from Bar Table to submissions and everything that they said in the witness box to evidence. 11 Accordingly, I determined that the most convenient course was to require them to go into the witness box to be cross examined by Mr Stack but that I would regard what they said from the Bar Table which was in the nature of evidence as evidence. Mr Stack had no objection to this course. 12 Other aspects of procedure had to be modified to accommodate lack of representation of the Defendants and the sheer volume of the material being deployed. Because the competing versions of events and explanations put forward by ASIC and by Messrs Anthony and Lloyd-Cocks were, in many cases, quite clearly at odds and were adhered to, I did not see any point in a tedious and formulaic insistence on the rule in Browne v Dunn . 13 I have, however, noted a number of instances where ASIC's failure to put to Messrs Anthony and Lloyd-Cocks specific allegations of impropriety has been significant. Applicable legislation 14 Some of the contraventions alleged against the Defendants are said to have occurred prior to 15 July 2001, when the Corporations Act commenced; some of the contraventions are said to have occurred afterwards. Contraventions occurring prior to 15 July 2001 would be contraventions of the Corporations Law , now repealed; those occurring afterwards would be contraventions of the Corporations Act . 15 However, the Corporations Act is "taken to include" those provisions of the Corporations Law which the Defendants are alleged to have contravened: s.1401(2) CA. The parties have, therefore, proceeded on the basis that the applicable statutory provisions are as expressed in the Corporations Act . Standard of proof 16 ASIC alleges that Messrs Anthony and Lloyd-Cocks have committed contraventions both of civil penalty provisions and non-civil penalty provisions of the Act. Contraventions of both types of provisions are relied upon as the ground for disqualification orders under s.206E CA. ASIC submits that the standard of proof required to establish a contravention of the Act for the purposes of a disqualification order is the civil standard, regardless of whether the contravention is of a civil penalty provision or a non-civil penalty provision. 17 There are a number of decisions which have considered the standard of proof required where a disqualification order sought under s.206C or s.206E CA has been founded upon an alleged contravention, or involvement in an alleged contravention, of a civil penalty provision as defined in Pt 9.4B CA. In such cases it has been held that the standard of proof required to found a declaration of contravention or involvement is the civil standard, not the criminal standard, although the character of the proceedings invokes "requirements for prosecutorial fairness and a standard of proof commensurate with the gravity of the allegations" : Re HIH Insurance Ltd; ASIC v Adler (2002) 41 ACSR 72, at para 1 per Santow J (as his Honour then was). The appropriate standard of proof in such cases is accepted as that stated in Briginshaw v Briginshaw (1938) 60 CLR 336, at 361-2: see e.g. ASIC v Plymin (No 1) (2003) 46 ACSR 126, para 357ff per Mandie J; ASIC v Whitlam (No 2) (2002) 42 ACSR 407, at para 118 per Gzell J. 18 The question arises whether these decisions are applicable to a disqualification order under s.206E founded upon a contravention of the Act which is a criminal offence. The prime example in the present case is the alleged contravention of the disclosure requirements of s.727(1), which is found in Chapter 6D CA. A contravention of the provisions of Chapter 6D is not a contravention of a "civil penalty provision" : s.1317DA, s.1317E. A contravention of s.727(1) is an offence against the Act, the penalty for which is two hundred penalty points or imprisonment for five years, or both: s.1311(1), (3) and Schedule 3. 19 Section 1308A CA provides: " Application of Criminal Code Subject to this Act, Chapter 2 of the Criminal Code applies to all offences against this Act." 20 Section 13.2(1) of the Criminal Code provides that the burden of proof in a prosecution must be discharged beyond reasonable doubt. 21 On the other hand, s.1332 CA provides: " Standard of proof Where, in proceedings other than proceedings for an offence, it is necessary to establish, or for the Court to be satisfied, for any purpose relating to a matter arising under this Act, that: (a) a person has contravened a provision of this Act; (b) default has been made in complying with a provision of this Act; (c) an act or omission was unlawful by virtue of a provision of this Act; or (d) a person has been in any way, by act or omission, directly or indirectly, knowingly concerned in or party to a contravention, or a default in complying with, a provision of this Act; it is sufficient if the matter referred to in paragraph (a), (b), (c) or (d) is established, or the Court is so satisfied, as the case may be, on the balance of probabilities." 22 ASIC has not prosecuted any party "for an offence" , e.g. for a contravention of s.727(1), seeking the criminal punishments provided in the Corporations Act . ASIC's application for a disqualification order under s.206E, not being a prosecution "for an offence" against the Corporations Act , is not itself a proceeding to which s.1308A CA applies but is a proceeding to which s.1332 CA applies. It follows that the necessary elements for a disqualification order under s.206E do not need to be proved to the criminal standard. 23 In the present case, a disqualification order sought, for example, under s.206E(1)(a)(ii) depends upon a finding that AIF has contravened s.727(1) – a contravention which is made an offence under the Act and to which the heavy criminal sanction of imprisonment is attached -– and upon a finding that a director or officer of AIF has also contravened that section by reason of his knowing involvement in the contravention. As the High Court has held in Rich v ASIC (2004) 50 ACSR 242, a disqualification order under s.206C or s.206E is in the nature of a penalty, so that the privilege against self-incrimination should be afforded to a person defending an application for such an order. The joint judgment in the High Court pointed out that a proceeding under s.206C or s.206E falls into a category which is difficult to classify as either "civil" or "criminal": paras.29-32. McHugh J observed at para.47 that the contraventions of the Act which give rise to applications for disqualification orders are many and varied but the nature of those contraventions "is little different from those which attract the sanctions of the criminal law" . 24 It seems anomalous that a penalty may be imposed on a person under s.206E(1) for committing a criminal offence unde the CA, yet the offence must be proved to the civil, not the criminal, standard. Anomalous though that requirement may be, it is clearly enjoined by s.1332 CA. 25 In the present case, however, I must bear in mind that the alleged contraventions of the Act relied upon by ASIC in seeking disqualification orders against Messrs Anthony and Lloyd-Cocks are serious and that Messrs Anthony and Lloyd-Cocks would suffer serious consequences and disabilities in the conduct of their business careers if such orders were to be made. I am therefore of the opinion that I should require proof of all necessary elements founding a disqualification order under s.206E(1) to the Briginshaw standard, that is, I should not be satisfied by "inexact proofs, indefinite testimony or indirect inferences" . Ratification 26 It is convenient to note at the outset that both Messrs Anthony and Lloyd-Cocks repeatedly referred in their submissions to the fact that all of the companies involved in these proceedings, with the exception of Sage Global Fund Limited, were proprietary companies or unlisted public companies the ultimate shareholders of which were the very persons against whom ASIC alleged wrongdoing in these proceedings. These shareholders, it was said, knew and approved of everything done with the property of the companies concerned. 27 Accordingly, Messrs Anthony and Lloyd-Cocks suggested – although not in these precise legal terms – that if the directors of any of the companies, including Messrs Anthony and Lloyd-Cocks, had done anything which would otherwise have contravened any of the provisions of the Corporations Act , those actions had been ratified by the shareholders of the relevant corporations so that no contraventions had been committed which could give rise to the imposition of civil penalty orders in favour of the companies concerned. 28 In short, Messrs Anthony and Lloyd-Cocks submitted that the directors of the corporations concerned, being also the ultimate shareholders of those corporations, were free to do whatever they wished with the property of the corporations. 29 I am unable to accept these submissions. Messrs Anthony and Lloyd-Cocks have not been charged by shareholders of any corporation with breach of common law duties nor with breach of any fiduciary duties as officers of the corporations concerned. The charges which have been brought against them are brought by ASIC and are exclusively founded upon contraventions of provisions of the Corporations Act . The remedies sought are disqualification orders under s.206E and compensation orders under s.1317H and s.1324(10) CA. 30 In Forge v ASIC (supra), McColl JA, with whom Handley and Santow JJA agreed, observed that there had been some difference of judicial opinion in Australia as to whether or not shareholders of a corporation could ratify a contravention by a director of a statutory duty: see Miller v Miller (1995) 16 ACSR 73, at 89 per Santow J (as his Honour then was); Carabelas v Scott (2003) 177 FLR 334; cf. Pascoe Ltd (in liq) v Lucas (1998) 27 ACSR 737, at 772 per Debelle J. 31 At para 381, McColl JA noted a submission of Counsel that the subject proceedings had been brought only to recover civil penalties for the benefit of the injured corporation. Her Honour continued: "… That was only one of the purposes. Another important purpose of the proceedings was to ensure that officers of a company who contravene corporations legislation in the manner found by the primary judge are barred from having that opportunity again, not only in relation to the company of which they were an officer at the time of the transactions, but also in relation to other companies. In this sense civil penalty proceedings involve public rights. The shareholders cannot remove the declaration of contravention by ratifying the original acts. Once a declaration of contravention is made, the Court is entitled to act upon its finding to grant the relief ASIC seeks. It is relevant in this context to note that s.1317JA of the Corporations Law empowered the Court to relieve a person from liability where it appeared that the person had or may have contravened a civil penalty provision. Relief was only available where, inter alia, the person had acted honestly. Section 1317JA supports the proposition that contraventions of the civil penalty provisions cannot be ratified by shareholders. The only relief available to escape liability is that for which the legislature provided. Having regard to the primary judge's conclusion that each of the appellants had failed to act honestly in relation to the transactions the Court could not have relieved them from their liability for the contraventions pursuant to s 1317JA. In my view this supports Santow J's approach in Miller v Miller ." 32 Even if it could be proved that the shareholders of every corporation in respect of which a civil penalty order is sought in these proceedings had knowingly consented to the transaction alleged to give rise to a contravention of the Act, nevertheless the judgement of the Court of Appeal in Forge forecloses any argument that the contraventions have thereby been ratified. 33 The circumstances of this case show vividly why breaches of directors' statutory duties to a corporation are not matters of concern only for the shareholders of the corporation, so that the shareholders themselves may absolve the directors from the consequences which the Corporations Act would otherwise provide. 34 AIF, though a proprietary company, received millions of dollars of the public's money for investment – a very substantial proportion of which should have been held in trust but was not. AIF incurred liabilities to employees and to others who dealt with it. Its creditors are likely to recover very little from its liquidation. 35 The civil penalty provisions of the Corporations Act enable a company in the position of AIF to recover loss occasioned by the delinquencies of its officers, not just for the benefit of shareholders but also for the benefit of creditors. It is unthinkable that, in a case such as the present, those who, as officers of a corporation, contravened the Act should be entitled, as shareholders, to ratify their own wrongdoing and thereby deprive creditors of remedies which the legislation provides. Dramatis personae AIF 36 According to Mr Lloyd-Cocks, AIF was established as a result of discussions between himself and Mr Luvara. Mr Luvara wanted to start his own business using his experience in stockbroking and the connections with his clients. Mr Lloyd-Cocks had experience in the share trading software which he had been marketing. They decided to pool these resources. 37 AIF was registered on 18 May 1999. Mr Luvara was the sole director and Mr Lloyd-Cocks was the secretary. Mr Luvara and Mr Lloyd-Cocks were each issued 1,432,500 ordinary shares in the company, partially paid to one cent; i.e., each invested just under $14,500 in the company. A third shareholder, Diamond Wheels Pty Ltd, was issued with 135,000 ordinary shares, also paid to one cent. Mr Peter Topperwien was appointed a director on 28 June 2001. 38 The life of AIF was short and its rise and fall were swift. According to Mr Lloyd-Cocks, AIF commenced to carry on business from a serviced office in North Sydney. The company's business grew rapidly. A little over a year later the company moved to a larger set of offices. On 11 July 2000, it obtained a Securities Dealer licence. Fifteen months later a receiver was appointed. 39 The business of AIF seems to have been founded on a share investment club concept. Some two hundred members of the "investment club" paid a fee of $2,500 per annum for the opportunity to participate in what AIF promoted as high profit opportunities for investments in Initial Public Offerings ("IPOs") in smaller enterprises. AIF received approximately $1.8M from such investors for investment in a total of six IPOs, only two of which achieved listing on the ASX. 40 AIF also offered "corporate finance services" to companies which it identified as potentially suitable for IPOs. For these services AIF received fees and shares in the companies which were to be the subject of IPOs. 41 In addition, AIF sought and received approximately $2.1M from its "clients" for subscription to its own shares on the promise that AIF would achieve listing on the Stock Exchange. AIF never achieved listing. The shares subscribed for were never issued to the subscribers and the subscription monies, to put it neutrally, were used in AIF's business activities. 42 Between the commencement of AIF's business in May 1999 and its collapse in October 2001, the company received approximately $7.8M in "membership fees", corporate finance fees or subscriptions for its own shares or shares in IPOs. Of that sum, a total of approximately $3.2M was paid to entities controlled by Mr Anthony, Mr Lloyd-Cocks and Mr Luvara. Included in this sum were amounts totalling $2.708M paid in April and May 2001 to a company controlled by Mr Anthony, Suisse Credit Pty Ltd, pursuant to a licence agreement between AIF and Suisse Credit Inc, a Panamanian company also controlled by Mr Anthony, whereby Suisse Credit Inc licensed to AIF so-called "unique financial services and products" . As the evidence hereafter discussed reveals, these services and products are, and always were, illusory and worthless. 43 According to the report of the receiver appointed to AIF made to the Court in December 2001, the value of AIF's tangible assets as at the date of his appointment was less than $400,000, Mr Anthony 44 Mr Anthony was born in 1949. According to his affidavit evidence he has been a financial adviser by profession for the past twenty years. In 1996 he was admitted as a solicitor and held a Practising Certificate until he went overseas in 1998. He says that he did not carry on practice as a solicitor but was employed by Moneytec, a company of which Mr Topperwien, also a solicitor, was a director. Moneytec held a securities dealer's licence. 45 Mr Anthony says that he has "designed and developed various financial products" for Colonial Mutual and Friends Provident Life Office. He says that he was employed by Colonial Mutual for a year in 1985 and for two years by Friends Provident Life Office from 1986. He says that he had commenced as a financial planner in about 1982 through a company known as Monitor Money. Before that he says that he had been an economist and town planner. 46 Mr Anthony is presently resident in the Philippines. 47 At all material times, Mr Anthony controlled the Twelfth Defendant, Swiss Pacific Inc ("Swiss Pacific"), a company incorporated in the Philippines. He was a director and secretary of Moneytec from 19 September 1988 to 1 March 2000, a director of Metrobank from 17 November 1983 and a secretary of that company from 19 July 2000. At all material times he also controlled Suisse Credit Inc, a company incorporated in Panama, and Dive Asia Inc, a company incorporated in the Philippines. 48 Mr Anthony was made bankrupt by a sequestration order of the Federal Court of Australia on 4 February 1999. On 14 March 2002, the bankruptcy was annulled pursuant to s.153A(1) Bankruptcy Act 1966 (Cth) upon payment of the debts proved in the bankruptcy. ASIC alleges that the monies for payment of these debts were improperly procured by Mr Anthony from funds ultimately coming from AIF. I will return to this allegation in due course. 49 For reasons which I will give in the course of examining Mr Anthony's evidence, I am, in general, unable to accept Mr Anthony as a witness of credit. I cannot accept anything he says unless it is corroborated by unimpeachable evidence or is inherently probable. Mr Lloyd-Cocks 50 Mr Lloyd-Cocks was born in 1959. According to his evidence, in 1981 he obtained a degree in business administration from the Ku-ring-gai College of Advanced Education. He was employed as a currency dealer from 1983 until 1987 and was employed by Rivkin James Capel in the equities market as a junior trader until about 1988. He then carried on business in a small way through his own company, importing raw commodities. 51 That business was sold in about 1994 or 1995. Mr Lloyd-Cocks was then employed for two years in developing software to assist small investors in trading shares in the stock market. In 1997 he went to Hong Kong and he conducted his own business selling software products. The venture was, apparently, unsuccessful and he returned to Australia in 1998. In 1999, he and Mr Luvara established AIF. Mr Lloyd-Cocks was a secretary of AIF from the date of its incorporation on 18 May 1999. 52 ASIC records do not show Mr Lloyd-Cocks as having been appointed a director of AIF. Clearly, Mr Lloyd-Cocks, as the secretary of AIF, was an officer of the company for the purpose of the relief sought against him by ASIC in these proceedings. ASIC contends, however, that Mr Lloyd-Cocks was at all material times a director, as defined by s.9 CA, in that although not validly appointed as such he acted in the position of a director. 53 I am satisfied that Mr Lloyd-Cocks did, in fact, act in the position of a director of AIF. Indeed, he did not seriously dispute the allegation. Quite apart from the evidence given by other employees of AIF as to the control which Mr Lloyd-Cocks exercised, the affidavits of Mr Lloyd-Cocks make it quite clear that he and Mr Luvara regarded themselves, and were treated by AIF's employees, as jointly in control of all aspects of AIF's business. To take a few amongst very many examples, Mr Lloyd-Cocks circulated in April 2001 an "Advisor Manual" to employees of AIF under a covering letter signed by him over the description "Director" of AIF; on 3 September 2001 he signed as a co-director with Mr Luvara the accounts and financial report of AIF for the year ended 30 June 2001. 54 Mr Lloyd-Cocks was also: a director and secretary of Australian Capital Forum from 16 February 2001; a director of Sage from 8 August 2001; a director and secretary of Sacvere from 14 April 2000; a director and secretary of IT Genius from 23 November 1999; a director of Biotech from 9 May 2001; a director of Mortgage Circuit from 15 May 2001; and a director of AIF Strategic Management from 23 December 1999, and secretary of that company from 18 September 2000. Mr Luvara 55 There is little direct evidence about Mr Luvara's background. The proceedings against him were compromised during the trial before he gave any evidence. Accordingly, the evidence about Mr Luvara's background comes from other witnesses, principally from Mr Lloyd-Cocks. 56 Mr Luvara was born in 1962. Mr Lloyd-Cocks first met Mr Luvara in 1998. Mr Luvara was then working as an employee in retail stockbroking in a stockbroker's office. Mr Anthony first met Mr Luvara in 1993 in the same context. By 1998, according to Mr Lloyd-Cocks, Mr Luvara had about ten years' experience in stockbroking. The evidence does not suggest that Mr Luvara had been a principal of any stockbroking firm. 57 Mr Luvara was: a director of AIF from 18 May 1999; a director of Australian Capital Forum from 16 February 2001; a director of Sage from 17 September 2001; a director of Suisse Credit Pty Ltd from 19 June 2001; a director of Casabanca from 28 May 2001; a director and secretary of Associated Asset from 12 March 1997; a director of IT Genius from 23 November 1999 to 16 March 2000 and from 1 August 2001; a director and secretary of Biotech from 9 May 2001; and a director of AIF Strategic Management from 23 December 1999. Mr Shaheen 58 Mr Shaheen commenced employment with AIF in March 2000. He was then twenty-two years of age. Since leaving school in 1995 the only employment in which he had engaged had been physical work on his family's orchard and some casual work as a clerk, on four or five occasions, with an income tax agency. Mr Shaheen's job description when he went to work at AIF was "general office duties" . 59 In January 2001, Mr Shaheen was promoted to accounts clerk. His duties included preparing cheques, handling accounts receivable and accounts payable and computer support. 60 Between January and October 2001 (when AIF was placed in receivership), Mr Shaheen received instructions from Mr Anthony to arrange for the incorporation of over seventy companies, the names and shareholders of which were given to him by Mr Anthony. Mr Shaheen was instructed to arrange that he himself was to be the sole director and secretary for the substantial majority of these companies. Mr Anthony was, in many cases, a signatory to the bank account for these companies. In other cases, Messrs Lloyd-Cocks and Luvara were signatories. Mr Shaheen transferred money to and from the accounts for these companies and to and from AIF on the instructions of Mr Anthony, Mr Lloyd-Cocks and Mr Luvara. 61 Mr Anthony told Mr Shaheen that Mr Shaheen should be the sole director and secretary of the companies which he incorporated "for ease of administration" until the companies began to trade, at which time he would be replaced by other directors. However, many of the companies engaged in substantial financial transactions with AIF or related companies while Mr Shaheen was still sole director. In respect of those transactions Mr Shaheen always acted in accordance with Mr Anthony's directions; he himself was not involved in the management of these companies' affairs in any way. When Mr Anthony requested him to resign as a director of any company, he complied without question. He never had any financial interest in any of the companies and received no extra remuneration for his role as director. 62 Mr Shaheen's credit was not challenged by Messrs Anthony and Lloyd-Cocks. His evidence was given carefully and it was inherently probable. I accept Mr Shaheen as a reliable witness. Relevant corporations Arbitrage Trading Pty Ltd ("Arbitrage") 63 Arbitrage was incorporated on 22 January 1981. Mr Peter Topperwien was the sole director of Arbitrage from 22 January 1981 and a secretary from 1 September 1988. Arbitrage's sole shareholder at relevant times was Mr Peter Topperwien. Associated Asset Management Pty Ltd ("Associated Asset Management") 64 Associated Asset Management was incorporated on 3 March 1997. Mr Luvara was the sole director, secretary and shareholder of Associated Asset Management from 12 March 1997 until 18 March 2002. Australian Capital Forum Pty Limited ("ACF") 65 ACF was incorporated on 23 January 2001 with Mr Shaheen appointed as sole director and company secretary until the 16 February 2001. In accordance with Mr Anthony's directions, Mr Shaheen opened a bank account for ACF with Messrs Luvara and Lloyd-Cocks as signatories. Mr Lloyd-Cocks and Mr Luvara were appointed directors on 16 February 2001 in place of Mr Shaheen who resigned at Mr Anthony's request. Mr Lloyd-Cocks was appointed company secretary on the same day. Australian Equity Forum Pty Ltd ("AEF") 66 AEF was incorporated on 19 January 2001. Mr Shaheen was appointed sole director and company secretary the same day. The company went into receivership on 2 November 2001 and a liquidator was appointed on 11 June 2002. AIF Strategic Management Pty Ltd ("Strategic Management") 67 Strategic Management was incorporated on 23 December 1999. Mr Lloyd-Cocks was appointed a director from 23 December 1999 until 15 February 2002 and was company secretary from 18 September 2000 until 15 December 2002. Mr Luvara was also appointed director on 23 December 1999 and ceased to hold the position on 15 December 2002. Mr de Zylva was appointed director and company secretary on 23 December 1999 and ceased to hold these positions on 18 September 2000. Strategic Management's shares were held by Mr Lloyd-Cocks (425 shares), Mr de Zylva (150 shares) and Mr Luvara (425 shares). Biotech Securities Ltd ("Biotech") 68 Biotech was incorporated on 9 May 2001 with Messrs Lloyd-Cocks, Luvara and David McDonald as directors and Mr Luvara as secretary. The evidence does not show who were the shareholders. Mr Faroungas was appointed a director on 19 September 2001 in place of Mr McDonald, who resigned. Messrs Lloyd-Cocks and Luvara resigned as directors on 2 October 2001. Business Franchises Pty Ltd ("Business Franchises") 69 Business Franchises was incorporated on 14 January 1992. Mr Anthony Bonvino, appointed on 10 May 1993, and Ms Maria Bonvino, appointed on 30 June 1994, are Business Franchises' current directors. Business Franchises had a number of previous directors. Mr Anthony was appointed director on 14 January 1992 and ceased to hold the office on 30 June 1994. Business Franchises' current shareholders are Ms Joyce Ethel Ralph (1 share), Mr Anthony (100 shares), and Ms Bonvino (51,490 shares). Previously, Memken Pty Ltd held 51,300 shares, Swiss Pacific Pty Ltd held 190 shares, Money Mint held 500,000 shares and Mr Ian Jones held 1 share. Casabanca Pty Ltd ("Casabanca") 70 Casabanca was incorporated on 16 February 2001 with Mr Shaheen as sole director and secretary. Mr Luvara was appointed director on 28 May 2001. A receiver was appointed on 2 November 2001. Finance Projects Pty Ltd ("Finance Projects") 71 Finance Projects was incorporated on 6 February 2001 with Mr Shaheen as sole director and company secretary. A receiver was appointed on 2 November 2001 and a liquidator appointed on 21 June 2002. IT Genius Ltd ("IT Genius") 72 IT Genius was incorporated on 18 November 1999. Mr Luvara and Mr David Haylock were appointed directors on 1 August 2001 and Mr Lloyd-Cocks was appointed to the position on 23 November 1999. IT Genius has had eight previous Directors. Relevantly, Mr Shaheen was appointed as a director on 12 June 2001 and ceased to hold office on 1 August 2001. Mr Luvara was appointed director on 23 November 1999 and ceased to hold office on 16 March 2000. A receiver was appointed on 2 November 2001 and a Liquidator appointed on 8 July 2002. IT Genius' shareholders are Mr Lloyd-Cocks (13,000,000 shares), Mr Luvara (13,000,000 shares) and Ms Lyn Price (13,000,000 shares). Medionics Pty Ltd ("Medionics") 73 Medionics was incorporated on 22 March 2001 on the instructions of Mr Anthony with Mr Shaheen as sole director. Mr Topperwien was appointed director on 13 July 2001. Metrobank Pty Ltd ("Metrobank") 74 Metrobank was incorporated on 17 November 1983. Mr Anthony was appointed as a director on 17 November 1983 and as company secretary on 19 July 1990. Metrobank has had five previous directors. Relevantly, Mr Topperwien was appointed director on 25 November 1997 and ceased to hold the position on 5 March 1999. He also held the position of company secretary from 25 November 1997. A receiver was appointed on 2 November 2001. Metrobank's shares were held by Ms Ralph (1 share), Mr Anthony (40 shares) and one other. Money Mint Pty Limited ("Money Mint") 75 Money Mint was incorporated on 23 January 2001 at Mr Anthony's direction. Mr Shaheen was the sole director and company secretary from that date until 20 June 2001 when, at Mr Anthony's direction, he appointed Mr Alexander Walker as director and company secretary and then resigned. Mr Anthony also directed Mr Shaheen to open a bank account for the company with himself and Mr Lloyd-Cocks as signatories. A receiver was appointed on 2 November 2001. Swiss Pacific was the sole shareholder. Moneytec Investment Management Pty Ltd ("Moneytec") 76 Moneytec was incorporated on 14 July 1988. Mr Peter Topperwien has been a director since 23 September 1993 and company secretary since 26 November 2002. Moneytec has had eight previous directors. Relevantly, Mr Anthony was appointed director and company secretary on 19 September 1988 and held these positions until March 2000. Mortgage Circuit Pty Ltd ("Mortgage Circuit") 77 Mortgage Circuit was incorporated on 1 February 2001 with Mr Peter Topperwien and one Maria Carda as directors. Mr Lloyd-Cocks and Ms B. Ford were appointed as directors on 15 May 2001 in place of Ms Carda. The shareholders were Moneytec, AIF and Path Properties Pty Ltd. Nominee Securities Pty Ltd ("Nominee Securities") 78 Nominee Securities was incorporated on 8 March 2001 with Mr Shaheen as sole director until 14 June 2002. A receiver was appointed on 2 November 2001 and a Liquidator appointed on 11 June 2002. Sacvere Pty Ltd ("Sacvere") 79 Sacvere was incorporated on 14 March 2000. Mr Lloyd-Cocks was appointed sole Director and company secretary on 14 April 2000. Mr Lloyd-Cocks was the sole shareholder. Sage Global Fund Ltd ("Sage") 80 Sage, now known as Praetorian Capital Limited, was incorporated on 10 April 2000. Sage has had eight previous directors. Relevantly, Mr Lloyd Cocks was appointed as a director on 8 August 2001, Mr Luvara was appointed as a director on 17 September 2001 and Mr Peter Topperwien was appointed director on 17 September 2001. Mr Eddie Lee and Mr Dennis Faroungas were appointed secretaries on 17 September 2001. Suisse Credit Pty Ltd ("Suisse Credit P/L") 81 Suisse Credit P/L was incorporated on 29 March 2001 on Mr Anthony's instructions, with Mr Shaheen as sole director and company secretary. Mr Luvara was appointed director and company secretary on 19 June 2001 in substitution for Mr Shaheen. A receiver was appointed on 2 November 2001 and a liquidator appointed on 8 July 2002. The evidence does not show who the shareholders were but Mr Anthony conceded in cross examination that the company was controlled by Swiss Pacific Inc. Suisse Credit Inc ("Suisse Credit Inc") 82 Suisse Credit Inc was incorporated in Panama on 10 April 2001. Its directors were nominees of Mr Anthony and the company was controlled entirely by him. Further particulars of the company are set out in paragraphs 404 and 405. Swiss Pacific Inc ("Swiss Pacific") 83 Swiss Pacific was incorporated in the Philippines. It was controlled entirely by Mr Anthony. Further particulars of the company and of the use to which it was put by Mr Anthony in his dealings with AIF are given in paragraphs 372 to 382. Tax Law Accounting Partnership Pty Ltd ("Tax Law Accounting Partnership") 84 Tax Law Accounting Partnership was incorporated on 19 January 2001 on Mr Anthony's instructions, with Mr Shaheen as director and company secretary. Tax Law Accounting Pty Ltd ("Tax Law Accounting") 85 Tax Law Accounting was incorporated on 19 January 2001 on Mr Anthony's instructions, with Mr Shaheen as sole director and company secretary. A receiver was appointed on 2 November 2001. A liquidator was appointed on 11 June 2002. Techlogica Pty Ltd ("Techlogica") 86 Techlogica was incorporated on 8 June 2001 on Mr Anthony's instructions, with Mr Shaheen as sole director and company secretary. Webfeatures Pty Ltd ("Webfeatures") 87 Webfeatures was incorporated on 6 February 2001 on Mr Anthony's instructions, with Mr Shaheen as sole director and company secretary. CONTRAVENTION OF DISCLOSURE REQUIREMENTS ASIC's allegations 88 ASIC seeks a disqualification order against Mr Lloyd-Cocks under s.206E CA by reason of Mr Lloyd-Cocks' alleged role as a director or officer of AIF on occasions when AIF is alleged to have contravened the disclosure requirements of s.727(1) CA. 89 Section 206E provides: " Court power of disqualification – repeated contraventions of Act (1) On application by ASIC, the Court may disqualify a person from managing corporations for the period that the Court considers appropriate if: (a) the person: (i) has at least twice been an officer of a body corporate that has contravened this Act while they were an officer of the body corporate and each time the person has failed to take reasonable steps to prevent the contravention; or (ii) has at least twice contravened this Act while they were an officer of a body corporate; or (iii) has been an officer of a body corporate and has done something that would have contravened subsection 180(1) or section 181 if the body corporate had been a corporation; and (b) the Court is satisfied that the disqualification is justified. (2) In determining whether the disqualification is justified, the Court may have regard to: (a) the person's conduct in relation to the management, business or property of any corporation; and (b) any other matters that the Court considers appropriate." 90 ASIC alleges that between about March and October 2001 AIF, in breach of s.727(1) CA, invited people to subscribe for shares and share options in itself on the promise that AIF would be listed on the Australian Stock Exchange ("ASX") in about October 2001 ("the AIF pre-IPO"). The invitations elicited subscriptions totalling just over $2.166 million. 91 Section 727(1) CA provides: " Offer of securities needs lodged disclosure document (1) A person must not make an offer of securities, or distribute an application form for an offer of securities, that needs disclosure to investors under Part 6D.2 unless a disclosure document for the offer has been lodged with ASIC." 92 It is not disputed that no disclosure document was lodged by AIF with ASIC or provided to persons who subscribed for shares in AIF. ASIC alleges that AIF contravened s.727(1) and that Mr Lloyd-Cocks was involved in that contravention, within the meaning of s.79 CA, so that Mr Lloyd-Cocks himself contravened the Corporations Act for the purposes of s.206E(1)(a)(ii). Alternatively, ASIC says that Mr Lloyd-Cocks failed to take reasonable steps to prevent contraventions, within the meaning and for the purposes of s.206E(1)(a)(i). If either case is proved, ASIC says, a disqualification order under s.206E is warranted. Mr Lloyd-Cocks' Defence 93 Mr Lloyd-Cocks says that AIF was not required to lodge a disclosure statement with respect to the invitation to subscribe for shares and options in AIF. He relies on s.706 CA and s.708(10) CA, which are in the following terms. Section 706 provides: "An offer of securities for issue needs disclosure to investors under this Part unless section 708 says otherwise." Section 708(10) relevantly provides: "An offer of a body's securities does not need disclosure to investors under this Part if: (a) the offer is made through a financial services licensee; and (b) the licensee is satisfied on reasonable grounds that the person to whom the offer is made has previous experience in investing in securities that allows them to assess: (i) the merits of the offer; and (ii) the value of the securities; and (iii) the risks involved in accepting the offer; and (iv) their own information needs; and (v) the adequacy of the information given by the person making the offer; and (c) the licensee gives the person before, or at the time when, the offer is made a written statement of the licensee's reasons for being satisfied as to those matters; and (d) the person to whom the offer is made signs a written acknowledgment before, or at the time when, the offer is made that the licensee has not given the person a disclosure document under this Part in relation to the offer." 94 Mr Lloyd-Cocks says that the requirements of s.708(10) were satisfied in the case of every offer of securities in the AIF pre-IPO. In the alternative, he says that if they were not satisfied, he was not involved in any contravention because it was Mr Luvara alone who was responsible for the process of listing AIF on the ASX and further, in any event, he relied upon others within AIF to ensure that the requirements of s.708(10) were met, as he was entitled to do. What is an "offer of securities"? 95 Section 727(1) applies to the making of "an offer of securities" or the distribution of "an application form for an offer of securities" . Whether and when an application form is distributed is a fact readily ascertainable. When any other "offer" is made may not be so clear. The time at which an "offer" is made is important because if the exception to s.727(1) provided by s.708(10) is to apply, a statement under s.708(10)(c) and a written acknowledgement under (d) must be given "before, or at the time when, the offer is made" . Observing the procedures required by subparagraphs (c) and (d) after an offer is made, even if before the offer is accepted, is too late. 96 The term "offer of securities" is given no core definition in the Corporations Act . Sections 700(2) and (3) provide: " Offers and invitations both covered (2) For the purposes of this Chapter: (a) offering securities for issue includes inviting applications for the issue of the securities; and (b) offering securities for sale includes inviting offers to purchase the securities. Person offering securities (3) For the purposes of this Chapter, the person who offers securities is the person who has the capacity, or who agrees, to issue or transfer the securities if the offer is accepted." These subsections merely say what is included in the phrase "an offer of securities" , which suggests that the meaning of that phrase is not limited to the inclusions specified. The meaning of "an offer of securities" must be ascertained from its ordinary usage in the context of the legislation and its purpose. 97 Section 700(2) makes it clear that the distinction between "offer" and "invitation to treat" which is drawn in the classical theory of contract formation is not to be slavishly applied in determining whether an offer requiring disclosure under Chapter 6D has been made. Not every casual or imprecise intimation that securities may be acquired would constitute an offer within the disclosure provisions and yet it could not be the case that the disclosure provisions are not attracted until the moment when the potential investor is confronted with an application form or with some other document containing all of the terms of a contract, so that mere assent is capable of bringing a binding contract into existence. Many investors would have made up their minds about whether to take up securities well before they are confronted either with the application form or with some document containing all of the terms of a contract. 98 It seems to me that in determining at what point of time an offer has been made for the purposes of s.727(1) and s.708(10) CA one has to apply a degree of pragmatism and common sense. The information conveyed to a potential investor need not contain all of the terms of a contract of subscription or transfer but the information must be sufficient to identify the essential terms of the proposed investment and must convey that the investor may act on that information if desired. 99 The circumstances in which particular offers of securities are made for the purposes of s.727(1) and s.708(10) will vary infinitely but the indicia of the making of such an offer will generally include: i) identification of the company in which the securities are offered; ii) what is the general nature of the securities offered; iii) the price for which the securities may be acquired; iv) the suggestion that the securities are available for acquisition by the person to whom the information is conveyed; v) the suggestion that the securities may be acquired now, or at some specified future time, by the requisite payment. 100 It does not matter for the purposes of paragraph (iv) above that the offeree is required to perform some other condition, such as joining an investment club, before being entitled to take up the offer. What is important is that the ability to accept the offer is put into the hands of the offeree. 101 However, if it is apparent from the terms of the communication that the securities may be acquired only by a certain category of person, e.g. existing shareholders of a corporation, then providing the information to a person who does not meet that qualification does not, without more, constitute an offer prohibited by s.727(1). Merely to inform a person that securities may be acquired, but not by that person, is not to make an offer of securities to that person. It is nothing more than providing that person with information. 102 The indicia of an offer of securities to which I have referred above need not appear in the one document or oral communication. Some pieces of information may be given later than others. A potential investor might receive several pieces of information from different persons within, or on behalf of, the offeror corporation. So, for example, the investor may be informed on one occasion by Ms A: "X Co will be listed on the ASX some time this year, if you're interested". An offer for the purposes of s.708(10) will not have been made at this stage; all that is being conveyed is general information. 103 Later, the investor might be told by Mr B: "X Co will be issuing shares and options. I'll let you have more details shortly." Again, no more than information is being conveyed at this stage. 104 Later, the investor might be told by Ms C: "The subscription price for those shares will be 20¢ each and 5¢ each for the options." Likewise, no more than information is conveyed at this stage. 105 Finally, the investor might be told by Mr D: "Those shares and options Ms C told you about are now being issued. Subscriptions open next week. Let me know how many you want and I'll put you down for them. You'll have to send me a cheque within seven days." At this stage, all of the information previously given will have crystallised to result in an offer to the investor for the purposes of s.727(1) and s.708(10). 106 There will be some cases in which the offeror attempts, by the use of wording in a document, to make an offer of securities in terms which leave room for argument that, in law, it is not an offer of securities within the reach of the Act. However, no one can contract out of the requirements of Chapter 6D: s.703 CA. To convey all of the indicia of an offer of securities while stating "This is not an offer of securities" is as effective as hanging a sign on an elephant saying "Despite appearances, this is really a duck". 107 Again, it may be the case that an offer is made stating on its face that it is open for acceptance only by a certain category of persons, e.g. those who satisfy the requirements of s.708(10), yet there may be evidence upon which it may be concluded that the offeror never intended to enforce that qualification but, rather, was prepared to accept investment from anyone with the ability to pay. In such a case, the offer is, despite its wording, an immediate offer of securities within the provisions of s.727(1). What is "involvement" in a contravention of s.727(1)? 108 Section 206E(1)(a)(ii) enables a disqualification order to be made if the person "has twice contravened this Act while they were an officer of a body corporate" . The section does not expressly extend to the case in which an officer has been "involved in a contravention" of the Act. 109 There is a distinction between "contravention" and being "involved in a contravention" of the Act, as was pointed out by Davies AJ in ASIC v Pegasus Leveraged Options Group Pty Ltd (2002) 41 ACSR 561, at para 48ff. Being "involved in a contravention" is defined by s.79 of the Act as follows: " Involvement in contraventions A person is involved in a contravention if, and only if, the person: (a) has aided, abetted, counselled or procured the contravention; or (b) has induced, whether by threats or promises or otherwise, the contravention; or (c) has been in any way, by act or omission, directly or indirectly, knowingly concerned in, or party to, the contravention; or (d) has conspired with others to effect the contravention." As Davies AJ pointed out at paragraph 50: "s.79 does not provide that the person who is comprehended by its provisions is to be treated as a person who contravened the Act" . 110 However, s.83 of the Act provides: " Officers, and other persons, in default A reference, in relation to a contravention, to an officer of a body corporate, or to a person, who is in default is a reference to an officer of the body (including a person who later ceases to be such an officer), or to a person, as the case may be, who is involved in the contravention." 111 Clearly, the reference in s.206E(1)(a)(ii) to an officer of a body corporate who has contravened the Act extends, under s.83, to an officer who is involved in a contravention, within the meaning of s.79. 112 In ASIC v Adler (supra) at para 209, Santow J (as he then was) summarised the authorities as to the meaning of being "involved" in a contravention as requiring that the person know of the actual events, though only the essential ones, which constitute the contravention. Knowledge may be inferred from the fact that the person is exposed to the obvious, but that is not to say that constructive knowledge of any of the essential facts is sufficient. Actual knowledge is always required although, as Burchett J pointed out in Richardson & Wrench (Holdings) Pty Ltd v Ligon No 174 Pty Ltd (1994) 123 ALR 681, at 693-4, a person's actual knowledge may have been reduced to a minimum by the person's wilful act in choosing to be informed only of the barest essentials in order to avoid being implicated in some wrongdoing. These propositions were approved by the Court of Appeal in Forge v ASIC (supra) at para 202 (per McColl JA, Handley and Santow JJA agreeing). 113 The question then arises: at what point of time must a person have knowledge of the essential facts constituting a contravention? More particularly for the purposes of this case, can a person be "involved" in a contravention if he acquires knowledge of one or more of the essential facts constituting the contravention after the contravention has already occurred? 114 Where an offer of securities is not exempted from compliance with the disclosure requirement of Pt 6D.2 CA, contravention of s.727(1) occurs at the time that the offer of securities is made. In my opinion, involvement of a person in such a contravention requires that such involvement must occur prior to, or in the course of commission, of the contravention. The fact that a person comes to know of the essential facts constituting the contravention only after the contravention has occurred and is complete does not constitute involvement within the meaning of s.79 CA. 115 This conclusion flows from the definition of "involvement" in s.79. Paragraph (a) refers to "aiding, abetting, counselling or procuring" a contravention – terms which are well understood in the common law. The words "aiding" and "abetting" do not have separate meanings. They are synonymous and are used to describe the action of a person who is present at the time of the commission of an offence and takes some part therein – often called "a principal in the second degree" . Likewise, "counsel and procure" are synonymous terms and describe the actions of a person who, although not present at the commission of the offence, is an accessory before the fact. Acquiring knowledge of an offence after its commission and failing to take the appropriate action is not "aiding, abetting, counselling or procuring" in the common law: Ferguson v Weaving [1951] 1 KB 814, at 818-819 per Lord Goddard CJ; Giorgianni v R (1985) 58 ALR 641, at 646 per Gibbs CJ; R v Mato [1999] NSWCCA 395. 116 The words "aiding, abetting, counselling or procuring" have the same meaning in s.79 CA as they have in the common law: cf. Yorke v Lucas (1985) 158 CLR 661, at 668. 117 The words of the other paragraphs of s.79 add nothing to paragraph (a) – indeed, they seem to be no more than a re-statement of the common law definitions of aiding, abetting, counselling and procuring. Section 79(b) refers to inducing a contravention: clearly, this means encouraging or bringing about the commission of a contravention before it occurs, i.e., being an accessory before the fact. Section 79(c) refers to being concerned in, or party to the contravention, i.e. being engaged in some way in the acts which result in the contravention, as they occur, either as a principal in the first degree or a principal in the second degree. Section 79(d) refers to conspiring to effect the contravention, i.e., agreeing with another to do something to bring about the contravention as an accessory before the fact. 118 None of the paragraphs in s.79 permit of a construction which encompasses within "involvement" doing something after the contravention has already been committed and is complete, even if what is later done is to conceal, ratify or knowingly derive benefit from the contravention. Background 119 ASIC has tendered records of AIF which show the names of persons who invested in what has been termed the "AIF pre-IPO" (i.e. "pre-Initial Public Offering"). The records also show that the amounts raised from the AIF pre-IPO total $2,166,724. 120 Mr Lloyd-Cocks agreed that no shares or options in AIF were ever issued to the pre-IPO investors and that AIF was never listed on the ASX. He also conceded that the pre-IPO subscription monies were expended by AIF in "investments" of AIF, even though no shares in AIF, let alone shares listed on the ASX, had been issued to the investors. The nature of the "investments" is discussed in detail later in the sections dealing with specific transactions into which AIF entered. 121 Mr Lloyd-Cocks gave evidence that, in deciding that the pre-IPO subscription monies be allocated to investments, he believed it did not really matter whether the pre-IPO investors received shares in AIF which were listed on the ASX; he believed that it was "significant that they got shares" . 122 Mr Lloyd-Cocks said that although the pre-IPO investors never received any shares at all in any company nevertheless AIF did issue shares "to reflect the AIF shareholding" of those investors. He said that the shares were issued by AIF to Nominee Securities Pty Ltd ("Nominee Securities"), a company controlled by Mr Anthony, Mr Lloyd-Cocks and Mr Luvara through Mr Shaheen: see "The AIF Share Dilution", infra. 123 Mr Lloyd-Cocks said that AIF had received advice from two reputable firms of solicitors that, having received the pre-IPO subscription monies, it was proper for AIF to issue the relevant shares, not to the pre-IPO investors themselves, but to another company, i.e. Nominee Securities. He produced no written advice to this effect. When pressed, Mr Lloyd-Cocks identified only one solicitor who was said to have given this advice. Further, he conceded that he did not speak to that solicitor but he said that he was led to believe in discussions with Mr Luvara and Mr Appleby, another employee of AIF, that such a transaction was "permissible given that AIF was looking at restructuring significantly before listing" . 124 I find it inherently improbable that any solicitor could have given advice to the effect that money received by AIF as subscriptions for shares to be listed on the ASX could properly be dealt with by AIF in any way at all, for its own benefit, prior to the issue and listing of the shares, unless there was a clear and express agreement between AIF and the investors to that effect. There was no such agreement. Likewise, I find it inherently improbable that any solicitor could have given advice that, absent an express agreement, the rights and entitlements of the pre-IPO investors could be satisfied by the issue of shares, not to the investors themselves, but to a company in which those investors had no interest. Again, there was no such agreement. 125 Mr Luvara has not given evidence because the proceedings against him were compromised. Mr Appleby gave evidence on affidavit and the transcript of his examination under s.19 of the Australian Securities and Investments Commission Act 2001 (Cth) ( "ASIC Act ") was admitted. He was cross examined by Mr Lloyd-Cocks. Mr Appleby said nothing in any of his evidence about giving advice to Mr Lloyd-Cocks as to the disposition of money received from pre-IPO subscribers. If such advice was indeed given to Mr Lloyd-Cocks by Mr Appleby or Mr Luvara, unsupported by a legal opinion in writing, it is difficult to understand how any honest and competent director, let alone a person said to be experienced in the equities market and stock exchange dealings as Mr Lloyd-Cocks claims to be, could have accepted it and acted upon it. 126 Mr Lloyd-Cocks was prepared to attribute a glaringly erroneous legal opinion to two firms of solicitors; he then retreated to an assertion that he was "led to believe" by Mr Luvara and Mr Appleby that dealing with the subscription monies in the way which he proposed was proper. There was no evidence to support either of these assertions and I regard both of them as inherently improbable. The fact that Mr Lloyd-Cocks was prepared to make such assertions reflects adversely on his credit. Mr Lloyd-Cocks' involvement in AIF's pre-IPO 127 In support of the submissions that Mr Lloyd-Cocks had actual knowledge of the material factual ingredients of AIF's proved contraventions of s.727(1), ASIC points to the following background facts and circumstances. 128 A letter dated 12 March 2001 from Mr Lloyd-Cocks to Messrs Ebsworth & Ebsworth shows that Mr Lloyd-Cocks had had at least two discussions with Mr L. Crepaldi of that firm about listing AIF and the procedures for raising money from investors. In the course of that letter Mr Lloyd-Cocks said: "Obviously we understand that these types of investments should only be directed towards sophisticated investors, or those investors that are experienced. With this in mind we currently have clients complete a comprehensive data sheet aimed to determine the appropriateness of these kinds of investments against their financial position. We also suggest that clients have a financial plan done to better tune the dollar amount that should go into these investments. What we are now looking at doing is really fine tune our paperwork to take into consideration the changing views ASIC now have on fundraising – who can participate, what kind of experience do they need, the certification by a qualified accountant to determine income and assets, dealer statements certifying sufficient experience, Section 708, section 710 etc. You may be familiar with what we are currently using: This offer is restricted to those investors under section 708 of the Corporations Law, who either qualify as a Sophisticated Investor under section 708(10) of the Corporations Law, or can provide a statement from a licensed dealer under section 708(10), certifying that the dealer (through whom the offer would be made) is satisfied that the investor has sufficient experience in investing in securities to allow them to assess the merits, value and risks associated with, and the level of disclosure required for, the investment. This is only a temporary measure that needs supporting documents from accountants, dealers etc. Once we have a suitable document and put in place our processes we can then address ASIC policy statement PS158 regarding the advertising and publicity for offers of securities. It is important that when we have opportunities that these clients can participate in we offer it to them within the new guidelines. I am looking to have our documents and procedures very tight. Leave it up to you." 129 A file note of Mr Crepaldi dated 26 March 2001 shows that he had a lengthy conference on that day with Mr Lloyd-Cocks in which Mr Crepaldi gave careful and accurate advice about the requirements of s.708 and about what should be done by AIF to ensure that those requirements were fulfilled. This advice was given in amplification of the advice contained in a letter which had been sent by Ebsworth & Ebsworth to Mr Lloyd-Cocks earlier the same day. 130 At first in his cross examination Mr Lloyd-Cocks was at pains to stress that he had little experience in the fund-raising provisions of the Corporations Law (as it then was) and that others in AIF had consulted Ebsworth & Ebsworth as to compliance with s.708(10). He said that he simply implemented what Mr Luvara and Mr Appleby told him Ebsworths had advised. When pressed, Mr Lloyd-Cocks began to concede more and more personal involvement with Ebsworths in obtaining and implementing advice about compliance with s.708(10). 131 Eventually Mr Lloyd-Cocks conceded that by March 2001 he was familiar with the requirements of s.708(10) and the relevant policy statements issued by ASIC. Finally, he conceded (T628) that once the decision was made to list AIF and raise money through a pre-IPO "I was tasked … to make sure the paperwork was as required" . 132 Mr Lloyd-Cocks' evidence on this topic was characterised by evasion and generality. He was concerned to attribute to himself as little responsibility as possible for AIF's compliance with s.708(10). However, when confronted with documentation clearly to the contrary, he conceded his responsibilities, fleetingly, before attempting further evasion in generality. 133 In his affidavit of 29 January 2003 at para.50, Mr Lloyd-Cocks said that Mr Appleby had "the sole responsibility of overseeing Compliance and briefed AIF management in relation to raising funds under s.708(10) of the Corporations Act and arranged for the appropriate documentation to be prepared via lawyers Ebsworth & Ebsworth" . This evidence was false. 134 Mr Lloyd-Cocks also swore in his affidavit of 29 January 2003 at para 87 that "AIF members, who had paid yearly membership fees, were the only investors offered the [AIF pre-IPO] opportunity" . As the evidence analysed below shows, this statement was false. 135 However, the fact that I do not accept Mr Lloyd-Cocks as a truthful witness cannot in itself warrant an inference that he was knowingly involved in AIF's proved contraventions of s.727(1): there must be reliable evidence positively leading to that conclusion. 136 Mr Joshua Yeo, an employee of AIF, gave the following unchallenged evidence concerning Mr Lloyd-Cocks' role in fund-raising for the AIF pre-IPO and in securing compliance with s.708(10). 137 Mr Yeo was nineteen years of age when he was employed by AIF in an administrative position in about May 2001. He had no qualifications or any meaningful experience in the financial market. In about August 2001 he was appointed as a "Equities Adviser", reporting to Mr Lloyd-Cocks and Mr Luvara. He was paid a salary and a commission on whatever transactions he arranged for clients. Part of his job was to promote investments which AIF was offering. 138 Mr Lloyd-Cocks gave Mr Yeo a two-page flyer about the AIF pre-IPO containing an offer of shares in AIF at 0.16¢ each. Mr Lloyd-Cocks told him that the offer was restricted to experienced investors, that Mr Yeo's role was to promote the offer to investors, and that it would be a matter for the directors' discretion whether the investors were eligible. 139 Mr Yeo provided his clients with documents concerning the pre-IPO, including a statutory declaration, a share application form, an Acceptance Offer, a s.708 Questionnaire, a client data sheet and a Discretionary Management Agreement. Some of these documents were signed after the client had placed funds for investment in the AIF pre-IPO. Mr Lloyd-Cocks said to him: "I'll review the paperwork and decide which people get shares" . 140 Mr Bradley Goodsell, an accountant who worked in AIF's office, gave unchallenged evidence concerning Mr Lloyd-Cocks' role in fund-raising for the AIF pre-IPO and in compliance with s.708(10). 141 According to Mr Goodsell, Ebsworth & Ebsworth drew up a questionnaire for investors to satisfy the requirements of s.708(10) and prepared other documents ancillary to the AIF pre-IPO. Mr Lloyd-Cox gave those documents to Mr Goodsell and said: "Make sure you send them out to all the pre-IPO investors" . Mr Goodsell then obtained a list of people who had, in fact, already invested in the AIF pre-IPO and he sent them the documents. Mr Goodsell said that he understood the purpose of sending the material to the investors was to give the impression that AIF had considered whether people who invested in the AIF pre-IPO were "sophisticated investors" within the scope of s.708(10) but this was to be done after the investments had actually been made in case AIF was later questioned as to whether it had followed the investments procedures in s.708. 142 Mr Goodsell's evidence as to the sending out of material for the purpose of compliance with s.708(10) after the investor had already invested in the AIF pre-IPO is consistent with the evidence of Mr Pryor and Mr La Rosa, to which I will come shortly. I accept Mr Goodsell's evidence. 143 The foregoing evidence satisfies me comfortably that at all material times from the time that AIF began to solicit investments in the AIF pre-IPO in March 2001 Mr Lloyd-Cocks was ultimately responsible for ensuring compliance with s.708(10) procedures. I am satisfied that Mr Lloyd-Cocks knew, as at late September 2001, that the requirements of s.708(10) had not been complied with in respect of a number of people who had already invested in the AIF pre-IPO. He therefore instructed Mr Goodsell to send out letters dated 27 September such as were received by Mr Pryor and Mr La Rosa. However, as I have discussed above, knowledge of the facts of a contravention acquired after the contravention has occurred does not constitute involvement in the contravention. 144 In the light of Mr Lloyd-Cocks' knowledge of the background and relevant context, it will be necessary to ascertain his knowledge of the essential facts of those contraventions of s.727(1) by AIF which have been proved in this case. The essential factual ingredients of a contravention of s.727(1) relevant for the purposes of the present case are: i) an issue of shares in AIF is being offered by AIF to potential investors; ii) no disclosure statement in respect of the issue has been lodged with ASIC; iii) the offer is made through a financial services licensee (here, AIF); iv) before or at the time the offer to a particular potential investor is made, AIF has not given to the offeree a statement of reasons pursuant to s.708(10)(c); v) before or at the time of the offer the offeree has not signed an acknowledgement pursuant to s.708(10)(d). It does not have to be proved that Mr Lloyd-Cocks knew the name of each potential investor to whom a contravening offer was to be made. It is sufficient that Mr Lloyd-Cocks knew that the offers were to be made to a class of investors which included the particular investor to whom the contravening offer was made. 145 There cannot be the slightest doubt that Mr Lloyd-Cocks had actual knowledge of facts (i), (ii) and (iii) as at the time AIF made an offer to each person in respect of whom ASIC alleges a contravention of s.727(1). The essential question is whether, in respect of the contraventions proved, the evidence shows to the requisite standard on the balance of probabilities that Mr Lloyd-Cocks had actual knowledge of facts (iv) and (v) prior to, or at the time of, this occurrence. AIF's contraventions and Mr Lloyd-Cocks' involvement 146 ASIC tendered the evidence of nine pre-IPO investors, who deposed to their experience as investors generally and as to the times at which they received documentation said to comply with the requirements of s.708(10). All invested substantial sums in the AIF pre-IPO. They never actually received any shares in AIF and none has recovered anything from the investment. 147 These investors were cross examined by Mr Anthony and Mr Lloyd-Cocks but their evidence was not shaken in its essentials. I have no hesitation in accepting them as truthful witnesses who were endeavouring to give their evidence carefully. Mr P.J. Devey 148 Mr Peter J. Devey is an occupational hygienist. In January 2000 he received an unsolicited leaflet from AIF promoting IPO investment opportunities. Mr Devey contacted AIF and later became a member of its "Share Traders Investment Club" . 149 During 2000, Mr Devey invested through AIF in an IPO for a company called Terra Planet.com. In December 2000, Mr Devey received a letter signed by Mr Lloyd-Cocks dated 13 December 2000, with which was enclosed a flyer entitled "Pre Float Seed Exempt Offer Opportunity". The flyer did not suggest that the shares in AIF were then available for subscription; it merely advised that AIF intended to float by means of a back-door listing and gave information about the listing date and proposed quotation price. Because this document did not suggest that Mr Devey could then, or at some specified time, apply for AIF shares at a certain price I do not think that it qualifies as an offer of securities for the purposes of s.727(1): see paragraphs 95-107 above. 150 However, in January or February 2001 Mr Devey received a number of telephone calls from a Mr Ford on behalf of AIF. Mr Ford made it clear that Mr Devey could now subscribe for the shares in AIF's pre-IPO and that the offer was recommended by Mr Anthony. 151 On 1 March 2001 AIF sent an e-mail to Mr Devey offering subscription in the AIF per-IPO at 30¢ per share if the subscription monies were received by 4:00pm on 5 March, and at 50¢ per share if the subscription monies were received after that time. The e-mail stated that the expected listing price of the shares would be $1. There was added a qualification that the offer was restricted to those "who either qualify as a Sophisticated Investor under s.708(8) of the Corporation Law or can provide a statement from a licensed dealer under s.708(10), certifying that the dealer (through whom the offer would be made) is satisfied that the investor has sufficient experience in investing in securities to allow them to assess the merits, value and risks associated with, and the level of disclosure required for, the investment" . 152 The e-mail, coupled with the information previously given to Mr Devey by AIF, clearly constituted an offer of securities but it was expressed to be conditional upon compliance with s.708(10). However, it is obvious from the fact that Mr Lloyd-Cocks was still receiving advice from Ebsworth & Ebsworth in late March 2001 as to what was necessary to comply with s.708(10) (see paras 128 to 130) that on 1 March 2001 there was no procedure yet in place within AIF to ensure compliance with s.708(10), as Mr Lloyd-Cocks must have known. The statement in the 1 March e-mail suggesting that the pre-IPO offer was restricted to those in respect of whom some other licensed dealer would provide the requisite documentation was meaningless because it was AIF itself which was, in that very document, making the offer to Mr Devey. There was no other licensed dealer involved in the offer, as Mr Lloyd-Cocks must have known. The only licensed dealer which could have complied with the requirements of s.708(10) at the time of making the offer was AIF itself but it was not in a position to do so until April 2001 at the earliest. Yet the offer of 1 March to Mr Devey urged him to accept by 5 March. In truth, therefore, the offer made to Mr Devey by the e-mail of 1 March 2001 was never intended to be conditional on fulfilment of the requirements of s.708(10). 153 On 5 March 2001, Mr Devey sent a facsimile to AIF authorising it to deduct $30,000 from an account in his name established by AIF with Macquarie Bank, into which Mr Devey had transferred funds. The facsimile stated: "Please consider this an application for participation in the pre-IPO AIF share float at 0.30¢ per share." 154 On 13 March 2001, Mr Devey completed and signed an application form to subscribe in the name of his company for 100,000 shares in the pre-IPO. On 15 March 2001, $30,000 was deducted from Mr Devey's Macquarie bank account by AIF in accordance with the authority in his facsimile sent on 5 March 2001. 155 By letter dated 27 March 2001, signed by Mr Lloyd-Cocks, AIF thanked Mr Devey for participating in the AIF pre-IPO. The letter stated, inter alia: "To facilitate your buying and selling of these shares Nominee Securities Pty Ltd has been established to hold the shares as your nominee. We will shortly be sending out additional documentation relating to this section 708 of Corporations Law . Complete and return the Questionnaire which will rank you for further Pre IPO offers. Also complete and return the Acceptance of Offer letter and Statutory Declaration. Should you require additional allocations please confirm with me directly, as the price for the new shares at $0.50 is soon to close. We expect to be offering shares at $0.65 in the next funding cycle through April and May." [Emphasis added.] 156 Mr Devey signed and returned the forms enclosed with Mr Lloyd-Cocks' letter but he did not retain copies. Whatever the documents were, they have not been tendered in evidence. 157 It is undisputed that AIF did not give to Mr Devey or his company a statement of reasons in accordance with s.708(10)(c) at any time prior to the application by Mr Devey's company on 13 March 2001 for shares in the IPO or prior to the deduction on 15 March of $30,000 from his account for the subscription monies. If Mr Devey did sign an acknowledgement as required by s.708(10)(d) it could not have been before 27 March 2001. By that time, clearly, AIF had already made two pre-IPO offers to Mr Devey: in the 1 March 2001 e-mail and by providing him with an application form on or before 13 March 2001. 158 Mr Devey could well have been classified as an experienced investor for the purposes of s.708(10)(b). But satisfaction of the requirement in paragraph (b) does not dispense with the necessity to comply with the requirements of paragraphs (c) and (d). All requirements of subsection (10) must be satisfied before s.706 and s.727(1) become inapplicable. 159 I am satisfied that in making offers of investment in the AIF pre-IPO to Mr Devey and his company on 1 March 2001 and on 13 March 2001, AIF did not satisfy the requirements of s.708(10)(d) and (c). Accordingly, AIF contravened s.727(1) CA. 160 I turn now to whether it has been proved that Mr Lloyd-Cocks was involved in this contravention within the meaning of s.79 CA. 161 As I have noted above, it is clear beyond doubt that when an offer of securities was made to Mr Devey by the e-mail of 1 March 2001 AIF had no documentation or procedure in place for complying with s.708(10). This is expressly admitted by Mr Lloyd-Cocks in his letter to Ebsworth & Ebsworth dated 12 March 2001 in which Mr Lloyd-Cocks refers to the "condition" as to compliance with s.708(10) which AIF was then using and which appeared in the e-mail of 1 March 2001 to Mr Devey. Mr Lloyd-Cocks says of this condition: "This is only a temporary measure that needs supporting documents from accountants, dealers, etc." 162 Mr Lloyd-Cocks himself wrote to Mr Devey in December 2000 foreshadowing that an offer in AIF's pre-IPO would be made to him. I am satisfied that because of Mr Lloyd-Cocks' involvement in the fund raising for AIF's pre-IPO, as evidenced inter alia by his admissions in the letter of 12 March 2001 to Ebsworth & Ebsworth and by his letter to Mr Devey dated 13 December 2000, Mr Lloyd-Cocks was aware that offers of shares in AIF were being made to persons in February and March 2001 by employees or others on behalf of AIF in circumstances in which the documents required by s.708(10) were not being provided. 163 It is not essential to involvement in AIF's contravention of s.727(1) that Mr Lloyd-Cocks actually knew that in February and March 2001 AIF was about to make a contravening offer to Mr Devey; all that is essential is that Mr Lloyd-Cocks, at the time of the contravening offer, knew that unconditional offers were being made to persons such as Mr Devey by or on behalf of AIF and that at the time the offers were made the documents required by s.708(10) would not be provided. 164 I am satisfied to the requisite standard of proof that Mr Lloyd-Cocks actually knew these essential facts as at the time that the contravening offer was made to Mr Devey. Mr Lloyd-Cocks, as the director of AIF charged with compliance with s.708(10), could have prevented the contravention by prohibiting offers to anyone until proper procedures and documentation were in place within AIF to ensure that compliance with s.708(10) was achieved. He did not do so. 165 For these reasons, I find that Mr Lloyd-Cocks was involved, within the meaning of s.79 CA, in the contravention of s.727(1) by AIF which resulted from the offer of securities to Mr Devey. It follows, pursuant to s.83 CA, that Mr Lloyd-Cocks himself has contravened s.727(1) within the meaning and for the purposes of s.206E(1)(a)(ii). Mr B. Peterson 166 Mr Brian Peterson is a self-employed electrician. In early 2001 he received a leaflet from AIF in his letterbox. The leaflet advertised investment opportunities offered by AIF and referred to Mr Lloyd-Cocks as the person to contact. Mr Peterson called Mr Lloyd-Cocks and shortly afterwards went to see him at AIF's office. Mr Lloyd-Cocks told him about the investment services offered by AIF. 167 About two or three months later, Mr Peterson began to receive telephone calls from a Mr Bannister soliciting investment in AIF's pre-IPO. The solicitations increased in frequency and intensity. Mr Bannister offered shares at 0.16¢ cash and did not refer to any condition attaching to the offer, such as that Mr Peterson had to qualify as a sophisticated investor. I am satisfied that these offers by Mr Bannister were offers of securities for the purposes of s.708(10). 168 Mr Peterson decided, in September 2001, to invest $25,000 in the pre-IPO. At a meeting with Mr Bannister, Mr Peterson signed an application form for shares and options in AIF to the value of $25,000. The form is dated 5 September 2001. Mr Peterson was told to make his cheque payable to Nominee Securities. He gave that cheque to the AIF employee. Shortly afterwards he received an "acknowledgement" dated 7 September 2001 signed by Mr Lloyd-Cocks, which acknowledged receipt of $25,000 as an investment in the AIF pre-IPO. 169 It is undisputed that Mr Peterson did not at any time receive a statement of reasons as required by s.708(10)(c) nor did he at any time sign the acknowledgement required by s.708(10)(d). 170 I am satisfied that in making the offers of investment in AIF's pre-IPO to Mr Peterson in early 2001 and on 5 September 2001 AIF did not satisfy the requirements of s.708(10)(c) and (d). Accordingly, AIF contravened s.727(1) CA. 171 I turn now to whether it has been proved that Mr Lloyd-Cocks was involved in this contravention, within the meaning of s.79 CA. 172 Because of Mr Lloyd-Cocks' involvement in AIF's pre-IPO fund raising, as discussed above, I am satisfied to the requisite standard of proof that he knew that Mr Bannister intended to make offers of shares in AIF in early 2001 to person such as Mr Peterson. However, the evidence does not clearly establish when those offers were made. It is not possible to say as in the case of Mr Devey – that the offers were made in February or early March 2001 at a time when AIF undoubtedly had no procedures in place to comply with s.708(10). 173 Mr Peterson accepted the offer to subscribe for AIF shares at a meeting with Mr Bannister on 5 September 2001. A receipt for the investment was signed by Mr Lloyd-Cocks on 7 September 2001. It is possible that Mr Lloyd-Cocks did not know that an offer of AIF shares had been made to Mr Peterson until 7 September 2001 and that, even then, he did not know that Mr Bannister had not complied with the s.708(10) requirements. ASIC has not pointed to any evidence which would foreclose this possibility. 174 For those reasons, I am not satisfied that ASIC has proved to the requisite standard of proof that Mr Lloyd-Cocks was involved, within the meaning of s.79, in AIF's contravention of s.727(1) relating to Mr Peterson. Mr B. Pryor 175 Mr Brett Pryor was about thirty years of age when he invested $50,000 in the pre-IPO. He is a building project supervisor and had never previously invested in shares. In August 2001 he was put in touch with AIF and, in late August, he went to AIF's offices where he met a Mr Dullard. 176 Mr Dullard gave Mr Pryor a number of brochures and documents, including a document entitled: "Australian Investors Forum Limited Proposed Listing on the ASX" . The document contained the following statements, amongst many others extolling the desirability of becoming a shareholder in AIF's soon-to-be-acquired listed vehicle: "PRE FLOAT SEED EXEMPT OFFER OPPORTUNITY Re-quotation on ASX expected Oct 2001 Re-Quotation Price $.20c Plus FREE Dec 2009 20c Strike Option on a 4:5 basis Price of share & option package $.16c Discount to theoretical value of the package 70% approx. Amount sought Pre Re-quotation $1,000,000 Highlights: AIF is presently undergoing a proposed backdoor listing on the ASX. … The proposed re-quotation of Farnell & Thomas Ltd, a listed company currently suspended from the ASX, as Australian Investors Forum Ltd on the ASX will aim to raise approximately $2.0m (with the provision for over-subscriptions for an extra $1m) by an issue of shares at 20 cents plus options to the public principally to rollout a sales and marketing program, but also to provide the resources for further corporate advisory and funding requirements that will be required for assignments AIF anticipates to take to the market in the very near future. … Astute investors can participate in the growth of AIF by acquiring a shares and options package prior to the requotation of the company at 16c, representing a capital gain in the vicinity of 70% on the package price relative to anticipated re-quoted market prices of the shares and options. The package gives the investor one 20c share priced at 16c representing a 4c or 20% discount to the requotation price of 20c, plus a FREE Dec 2009 20c strike option on a 4:5 basis, with a theoretical value of 8c based on the requotation price of the share at 20c. The package has been priced to represent an approximate return of 70% on the entry price of 16c. This is an offer to subscribe for shares only to the extent that it is an offer to which the provisions of section 708 of the Corporations Law apply. Only investors to whom under section 708 of the Corporations Law this offer can be made without the need for a disclosure document may participate at the Pre IPO price of 16c. Otherwise investors will be able to participate at 20c via the prospectus that will soon be lodged with the ASIC as a public offer document. Participation on a Pre-IPO basis at 16c applies only to fully paid members of the Australian Investors Forum Pty Ltd. As an introductory offer, new AIF members who are also eligible to participate as a Pre IPO investor will receive FREE membership to AIF for one year by investing a minimum of $50,000 for 312,500 20c AIF shares priced at 16c and 250,000 bonus options. This represents a saving of $2,750 on the membership fee plus a healthy discount on the share purchase. Call one of our membership managers to discuss the advantages of joining AIF. Disclaimer – Disclosure of Interest : Australian Investors Forum Pty Ltd (AIF) have prepared this report in good faith to provide information about the company or the securities described in it, from information provided by the directors and associates of the company. This report is for the benefit of the recipient only. … This is not an offer to subscribe in securities." 177 It will be seen that the statements in this document contain the first three and the last of the indicia of an offer of securities to which I have referred in paragraph 99: the company in which the securities are offered is Australian Investors Forum Limited, formerly known as Farnell & Thomas Ltd; the securities are identified as shares having a face value of 20¢ and an option to acquire shares; the price of the securities is 16¢ per share, the options being free; the securities may be acquired now by the payment of the requisite amount. 178 The fourth indicium, however, is absent because the offer is made to the recipient subject to a qualification: "only investors to whom under s.708 of the Corporations Law this offer can be made without the need for a disclosure document may participate at the Pre IPO price of 16c" . At the time that Mr Pryor received this document, he did not qualify under s.708 and AIF had not waived the pre-condition of his ability to accept the offer. Unlike the case of those offers made in February or early March 2001, at a time when AIF was not in a position to comply with s.708(10), there is no evidence upon which I can find that as at late August 2001 AIF was still not in a position to comply and therefore never intended to enforce this precondition. 179 Accordingly, I hold that when Mr Pryor received the document described as "Pre Float Seed Exempt Offer Opportunity", an offer of securities was not made to him for the purposes of s.708(10). 180 Mr Pryor is anything but an experienced investor. Indeed, quite the opposite – from my observation of him in the witness box and from his answers generally as to his understanding of the investment which he was undertaking, I would describe him as having a very poor appreciation of the fundamentals of share investment. For example, he believed that when AIF achieved listing, it would be the ASX itself which would issue him with his shares in AIF. It would have been impossible for any honest person to have formed the view at the time that Mr Pryor made his investment in the AIF pre-IPO that he had previous experience in investing in securities so that he could assess the matters referred to in s.708(10)(b). 181 Mr Pryor believed what he was told about AIF and he decided to invest $50,000, which was all the money he then had available. He had another meeting with Mr Dullard in AIF's offices on 4 September 2001. Mr Dullard told him that if he invested more than $25,000 in AIF's pre-IPO he would automatically receive free membership in AIF for a year. Mr Pryor said that he wished to invest $50,000. Mr Dullard said: "We need the money in the next couple of days because AIF is going to float soon and we have to finalise everything" . Mr Pryor offered to get a bank cheque immediately. Mr Dullard asked him to make the cheque payable to Nominee Securities but gave no reasons. 182 Shortly afterwards, on 4 September 2001, Mr Pryor gave AIF a cheque for $50,000 and received in exchange a receipt dated the same day. The receipt was on the letterhead of Nominee Securities and was signed by Mr Lloyd-Cocks. It stated: "In acknowledgement of $50,000 received by Nominee Securities Pty Ltd for the AIF pre-IPO offer which represents 312,500 shares at 16¢ and 250,000 free options." The document did not state the name of the company in which the shares and options were issued. 183 Mr Pryor's account of what occurred leading to his investment of $50,000 has not been challenged by the Defendants. I accept it without reservation. 184 In my opinion, when Mr Dullard on behalf of AIF, stated to Mr Pryor on 4 September 2001 that AIF would that day accept Mr Pryor's cheque for the subscription monies for the AIF pre-IPO, AIF waived compliance with the qualification, imposed by the document entitled "Pre Float Seed Exempt Offer Opportunity", that the offer could only be accepted by a person satisfying the requirements of s.708(10). Mr Dullard represented to Mr Pryor that Mr Pryor could apply for the AIF shares immediately and without satisfying any condition or qualification. AIF thereby made an unconditional and immediate offer of securities to Mr Pryor for the purposes of s.727(1) and s.708(10). 185 There is no dispute that a statement of reasons under s.708(10)(c) was not given to Mr Pryor before, or at any time on, 4 September 2001. Neither is there a dispute that before or at that time Mr Pryor did not sign an acknowledgment under s.708(10)(d). 186 On 27 September 2001, more than three weeks after Mr Pryor had handed over his cheque for $50,000 and received his receipt, he received a letter from AIF stating that "in order to secure his placement in the AIF pre-IPO" AIF: "… needs to be satisfied that you qualify for the Experienced Investor Exemption based on your previous and future dealings with AIF as evidenced by material held on our files and as indicated by the Investor Assessment Questionnaire you will need to complete and return to us. AIF can make no absolute assurance of the merits of the Offer, the value of the securities, or the risks involved in accepting the Offer. In order for you to confirm your acceptance of the AIF Pre-IPO Offer, please sign and return the enclosed forms, a reply paid envelope for your convenience is included." 187 Mr Pryor attended AIF's offices some time after 27 September 2001 and signed some documents which were filled in by Mr Dullard. 188 The AIF letter of 27 September 2001 and the documents later signed by Mr Pryor were a vain attempt on the part of AIF to represent, quite wrongly, that no offer to invest in AIF's pre-IPO had been made to Mr Pryor before 27 September and that the requirements of s.708(10) would have to be met before any offer would be made to him. That an offer to Mr Pryor had already been unconditionally made and unconditionally accepted on 4 September 2001 is underscored by the fact that, as noted above, neither AIF nor Nominee Securities kept the pre-IPO subscription monies in a trust or suspense account pending allocation of the AIF shares. The subscription monies were immediately expended by AIF for its own purposes as and when they were received. 189 For these reasons, I am satisfied to the requisite standard of proof that an offer of securities, being an offer of investment in AIF's pre-IPO, was made by AIF to Mr Pryor on 4 September 2001 and that AIF did not comply with the requirements of s.708(10)(c) and (d) before, or at the time when, the offer was made. Accordingly, AIF contravened s.727(1) CA. 190 I turn now to whether it has been proved that Mr Lloyd-Cocks was involved in this contravention within the meaning of s.79 CA. 191 ASIC does not point to any evidence showing that Mr Lloyd-Cocks had actual knowledge that AIF was making an offer of its shares to Mr Pryor on 4 September 2001, but I am entirely satisfied that Mr Lloyd-Cocks knew at that time that AIF was making pre-IPO offers to people such as Mr Pryor. 192 The unconditional offer was made to Mr Pryor on 4 September by Mr Dullard. There is no evidence about Mr Dullard's position in AIF and his relationship with Mr Lloyd-Cocks. There is no evidence from which I conclude that Mr Lloyd-Cocks had actual knowledge that Mr Dullard would be making unconditional offers to people such as Mr Pryor without complying with s.708(10)(c) and (d). 193 As I have already observed, there is no evidence from which I can conclude that in September 2001AIF, to Mr Lloyd-Cocks' knowledge, never intended to enforce the precondition to acceptance of the AIF pre-IPO founded on compliance with s.708(10), either in Mr Pryor's case or generally, so that in truth all offers to potential investors, including the offer to Mr Pryor, were unconditional from the very beginning. Indeed, the contrary is suggested by the trouble taken by Mr Lloyd-Cocks to obtain from Ebsworth & Ebsworth in March and April 2001 advice as to compliance with the requirements of s.708(10) and documents which could be forwarded to potential investors to satisfy those requirements. 194 As far as is revealed by the evidence, it is possible that when Mr Dullard made the unconditional offer of shares in the AIF pre-IPO to Mr Pryor on 4 September 2001, Mr Lloyd-Cocks did not know that Mr Dullard was about to make that offer and that Mr Dullard would not ensure compliance with s.708(10) at the time of making the offer. 195 At the time Mr Lloyd-Cocks came to sign a receipt for Mr Pryor's investment on 4 September, he may have known that an offer of securities had been made to, and accepted by, Mr Pryor without compliance with s.708(10). It is highly probable that by 27 September 2001 Mr Lloyd-Cocks knew that an offer of shares in the AIF pre-IPO had been made to Mr Pryor and others in contravention of s.727(1) by reason of non-compliance with s.708(10): see the evidence of Mr Goodsell at paragraph 142. But in both cases, Mr Lloyd-Cocks' knowledge of the contravention would have been acquired by him after the contravention was complete. As I have discussed in paragraphs 113 to 118, to acquire knowledge of a contravention of the Act after the event is not to be involved in the contravention within the meaning of s.79 CA. 196 Accordingly, I cannot find that ASIC has proved to the requisite standard of proof that Mr Lloyd-Cocks was involved in AIF's contravention of s.727(1) CA in making an offer of securities to Mr Pryor on 4 September 2001. Mr T. Markotic 197 Mr Tomislav Markotic is a form worker in the building industry. He was about twenty-two years old in 1999 when he began to receive solicitations from AIF for investments. He could by no means be classified as an experienced investor. Although he completed his Higher School Certificate and one year at university, he has worked as a storeman and packer and in the building industry. 198 In June 2001, Mr Markotic was induced by AIF to "invest" in acquiring two "franchises" from Money Mint. The franchises were for selling "a range of AIF investment products to the public" . He was told that the franchises cost $100,000 each, that if he bought a franchise before the end of June 2001 he would be able to claim a tax deduction of $50,000 for that year and that two months later, without any expenditure of effort on his part in operating the "franchises" , AIF would buy the franchises back for $115,000 each. 199 Mr Markotic was young enough, inexperienced enough and naïve enough to believe this 'get rich quick scheme'. He raised $211,000 from his father, his uncle and his brother and by selling some Telstra shares which he owned. He gave that money to AIF for the purchase of two Money Mint "franchises" . The receipts for the money were signed by Mr Lloyd-Cocks. 200 Mr Markotic never received any franchise agreement to sign and he was not even told where the "franchises" were. His repeated enquiries as to confirmation of the tax deduction said to be available to him and as to the execution of the franchise agreements were fobbed off with assurances that his investment was "maturing" and it was time to consider rolling over the funds into a new investment with AIF. 201 On 30 August 2001, Mr Lloyd-Cocks wrote a letter to Mr Markotic in the following terms: "Dear Tom, Thank you for your investments into the private banking operations of the Australian Investors Forum. As you are aware, Richard Cosworth is no longer with us however Luke Atkins and our private banking team have kept your affairs well in hand and we are now working towards your goal of building your net worth over the next five years as requested by reinvesting your profits in a prudent and manageable way to deliver superior returns overall. We enclose receipts for your original investment and membership. Your investment into the Money Mint franchises is now maturing and we are now able to advise you that we have secured an allocation of shares and options in the impending float of AIF at the membership offer of the discounted rate and options package details of which are enclosed. The share price to you represents a 20% discount on the issue price and shows an immediate profit for you on listing. Your total investment has increased to approximately $250,000 worth of shares and options in the float at pre ipo rates. We will confirm the final figure following our next meeting. Please refer to the enclosed documentation for details of the offer and the required paperwork that needs to be completed for compliance with the relevant rules and regulations under our licence issued by the Australian Securities and Investments Commission. We look forward to seeing you for your appointment with us on Monday, September 3rd at 9am." Enclosed with that letter was a flier stating, inter alia: "The Australian Investors Forum Investment Bank expects to list on the Australian Stock Exchange in 10 weeks following an issue to the public at 20 cents. We will be offering members the opportunity to buy the shares at a 20% discount paying only 16 cents for their shares. We will be also offering four free options exercisable in 2009 for every 5 shares bought. All eligible members may take advantage of the offer. Call your membership advisor now to lock in your allocation or, if you are not a member, to inquire about becoming a member of The Australian Investors Forum. … Shares and options in Australian Investors Forum Limited of which Australian Investors Forum Pty Ltd will be a wholly owned subsidiary will be offered pursuant to a disclosure document to be filed with the Australian Securities & Investments Commission. Quotation for the shares and options will be subject to compliance with the rules of the Australian Stock Exchange Limited. The disclosure document for the offer will be made available when the securities are offered to the public. Any person who wishes to acquire the securities will need to complete the Application Form that will be in or will accompany the disclosure document. A disclosure document may be obtained by contacting the telephone number above. No offers will be made for shares in Australian Investors Forum Limited prior to the release of a disclosure document unless the offer is made to investors under Section 708 of the Corporations Act who either qualify as a sophisticated member under Section 708(8) or can provide a statement from a licensed dealer under Section 708(10) certifying that the dealer (through whom the offer was made) is satisfied that the investor has sufficient experience in investing in securities to allow them to assess the merits, value and risks associated with, and the level of disclosure required for, the investment. Before any allocation can be confirmed all investor members must also have updated financials on record together with a completed Investment Assessment Questionnaire. Those members that do not qualify for an investment of this nature will be able to participate by completing the application form to be found in the prospectus when available. No prospectus has yet been lodged with the Australian Securities and Investments Commission." 202 It is hardly necessary to say that there is not the slightest evidence to suggest that the stated expectation in the flier that AIF would list on the Stock Exchange in ten weeks' time was reasonably based. AIF never became a subsidiary of Australian Investors Forum Ltd. That company did not even exist. A disclosure statement for the listing was never lodged with ASIC and was never even close to being lodged. 203 After receipt of the letter of 30 August, Mr Markotic attended a meeting with Mr Lloyd-Cocks and Mr Luvara at AIF's offices, probably on 3 September. Mr Markotic complained that he still had not received the agreements for the Money Mint franchises nor had he received the proceeds of his investment in those franchises. He stated emphatically that before he considered any investment in the AIF pre-IPO, he wanted to receive the money from his investment in the Money Mint franchises. 204 Some time after that meeting Mr Markotic received a letter dated 26 September 2001 signed by Mr Lloyd-Cocks. The letter stated: "Your initial investment is being transferred into the AIF Pre IPO offer as outlined in our meeting and as explained in the invitation. We expect the profits coming from this investment to be up to 50%. Once listed we will then be looking to redirect your investment funds into similar styled opportunities. As discussed the movement of funds into these investments is automatically arranged as the Investment Committee determines the appropriate times when funds are moved for all members. We expect the listing to take place in November this year even though the international markets have come under pressure resulting from the recent events in the USA. I have discussed our recent meeting with Luke and have assured him that there was a misunderstanding that has now been resolved. I enjoyed the time we spent together and I think you now have a good understanding of what we do in the investment markets." 205 An "acknowledgement" dated 29 September 2001 enclosed with the letter stated that Mr Markotic was now the holder of 1,562,500 ordinary shares of sixteen cents each and 1,250,000 options in the AIF pre-IPO, which were to be held on his behalf "under Nominee Securities Pty Ltd" . The acknowledgement was signed by Mr Lloyd-Cocks over the description: "Proper Authority Holder Australian Investors Forum Limited Licensed Securities Dealer" There was never any company called Australian Investors Forum Ltd; the only company holding a securities dealer's licence was Australian Investors Forum Pty Ltd. 206 Also enclosed with the letter of 26 September 2001 were other documents for signature by Mr Markotic, the effect of which, if signed, would have been to authorise AIF to invest Mr Markotic's money however it saw fit. 207 Mr Markotic was very angry that the money invested in the Money Mint "franchises" had apparently been invested in AIF's pre-IPO without his knowledge or consent. He went to AIF's offices to try to get his money back. He was told that Mr Lloyd-Cocks and Mr Luvara were unavailable because ASIC had frozen AIF's assets and the directors were in consultation with lawyers. Mr Markotic was subsequently informed that he was shown in AIF's records as having subscribed to the AIF pre-IPO to the value of $250,000. 208 Although Mr Anthony cross examined Mr Markotic briefly, none of the evidence given by Mr Markotic as recounted above was challenged. Mr Lloyd-Cocks did not wish to cross examine Mr Markotic at all. I accept Mr Markotic's evidence in its entirety. 209 Although Mr Markotic was shown in AIF's records as having subscribed in the AIF pre-IPO to the value of $250,000, he did not in fact agree to make any such investment. It is clear that by the letter of 30 August 2001, signed by Mr Lloyd-Cocks, AIF was making an offer of securities to Mr Markotic which required disclosure under s.727(1) CA unless the exemption in s.708(10) applied. It is clear also that a further offer of securities was made to Mr Markotic at the meeting which he attended with Mr Lloyd-Cocks and Mr Luvara on 3 September. 210 It is clear from the terms of the letter of 30 August that the qualification stated in the enclosed flyer, i.e. that the offer was open only to those who qualified as sophisticated investors, was never intended to apply to Mr Markotic. I am satisfied that Mr Lloyd-Cocks had decided that, whether Mr Markotic agreed or not, his "investment" in the Money Mint franchises would be "rolled over" into the AIF pre-IPO. This is confirmed by the misrepresentation in Mr Lloyd-Cocks' letter of 26 September 2001 that Mr Markotic had agreed to invest in the pre-IPO at the meeting on 3 September and by the fact that, without any further communication with Mr Markotic after that meeting, AIF deducted the subscription monies for the share from the proceeds of his "investment". 211 The evidence clearly establishes that no statement of reasons was ever given to Mr Markotic by AIF as required by s.708(10)(c), that he never signed an acknowledgement as required by s.708(10)(d) and, further, that AIF could never have been satisfied on reasonable grounds that Mr Markotic was an experienced investor in terms of s.708(10)(b). 212 Accordingly, I am satisfied that in making offers of investment in AIF's pre-IPO to Mr Markotic in September 2001, AIF contravened s.727(1) CA. 213 There could not be the slightest doubt that Mr Lloyd-Cocks was a party to this contravention, within the meaning of s.79(c) CA: he wrote the letter of offer dated 30 August 2001; he attended the meeting on 3 September at which a further offer to invest in the AIF pre-IPO was made to Mr Markotic; he wrote the letter dated 26 September 2001 wrongly asserting that Mr Markotic had agreed to accept the offer at that meeting. He must have known that at the time these offers were made Mr Markotic had not received the statement required by s.708(10)(c) or signed the acknowledgement required by s.708(10)(d). Obviously, Mr Markotic was not going to sign any document to facilitate implementation of an offer which he had resolutely stated he was determined to refuse. 214 I am satisfied to the requisite standard of proof that Mr Lloyd-Cocks was involved in AIF's contravention of s.727(1) relating to Mr Markotic. It follows that by virtue of s.83 CA Mr Lloyd-Cocks himself has contravened the section within the meaning of and for the purposes of s.206E(1)(a)(ii). Mr M.P.R. Abell 215 Mr Malcolm Abell is an accountant, with a degree in Commerce. He had worked in investment banking in the United Kingdom and in Australia for about ten years when he received solicitations for investment from AIF. He can be described as a sophisticated investor. 216 Mr Abell made a number of investments in IPOs through AIF. He made a profit on two of them and a loss on three. 217 On about 30 July 2001, Mr Abell received from AIF a letter headed "Pre-IPO – Australian Investors Forum – Stock Market Listing" . The letter stated, inter alia: "We are now listing ourselves and we are currently offering shares at a 17.5% discount to the listing price. … For access to this Pre IPO opportunity, and the many others we have in the pipeline, you must be pre qualified. This qualification process may require you to answer an Investment Assessment Questionnaire to determine the suitability of the offer in relation to your financial position. I have included the forms necessary to confirm your allocation in the Australian Investors Forum." There is no evidence that any "forms" were included in that letter. 218 Mr Abell received further solicitations for investment in AIF's pre-IPO in August 2001. One of these solicitations was a letter dated 27 August 2001 addressed to Mr Abell personally and signed by Mr Lloyd-Cocks, offering 60 cents for each share held by Mr Abell in Sage Global Fund Ltd on condition that the proceeds of the sale were invested in the AIF pre-IPO. The offer was not expressed to be subject to any condition nor did the letter refer to the necessity to complete any enclosed documents. 219 Mr Abell had a concern whether he would qualify as a sophisticated investor under s.708(10) CA and he raised this concern with an employee of AIF in a telephone conversation on late August. He was assured that he would have no problem qualifying under s.708(10) and that AIF would send him a questionnaire on the basis of which it would make an assessment of his investment experience. Mr Abell never received such a questionnaire. 220 Mr Abell invested $78,000 in the AIF pre-IPO. Of this amount, $65,000 was the proceeds of a sale of his shares in Sage Global Fund Ltd to AIF. The share transfer was signed by Mr Lloyd-Cocks on behalf of AIF. 221 Mr Abell never received a statement of reasons as required by s.708(10)(c) nor did he ever sign an acknowledgement as required by s.708(10)(d). I am satisfied that the letter to Mr Abell dated 27 August 2001 signed by Mr Lloyd-Cocks was an unconditional offer of securities in AIF and that at the time the offer was made the requirements of s.708(10)(c) and (d) had not been met. It follows that I am satisfied that, in making the offer of investment in AIF's pre-IPO to Mr Abell in early August 2001, AIF contravened s.727(1) CA. 222 There can be no doubt that Mr Lloyd-Cocks, having signed the unconditional letter of offer dated 27 August 2001 to Mr Abell, must have known that as at the date of the sending of that letter the documentation required by s.708(10)(c) and (d) had not been provided to Mr Abell. The letter itself makes no reference to any such documentation. I am satisfied to the requisite standard of proof that Mr Lloyd-Cocks, as signatory to a contravening offer of securities made to Mr Abell by the letter of 27 August 2001, was party to and was knowingly involved in the contravention by AIF of s.727(1), within the meaning of s.79 CA. It follows that, by virtue of s.83 CA, Mr Lloyd-Cocks himself has contravened the section within the meaning and for the purposes of s.206E(1)(a)(ii). Mr and Mrs Conrick 223 Mr Daniel Conrick has an accounting degree and is a Manager with the Commonwealth Bank of Australia. He was about thirty-one when he first came into contact with AIF. At that time he had no experience in investing in shares save that on one occasion, as an employee of the AMP Society, he took up an entitlement to invest in its shares upon demutualisation and listing. I do not think that that limited investment experience would qualify Mr Conrick as an experienced investor for the purposes of s.708(10)(b). 224 Mr Conrick became a member of AIF's "investment club" in June 2000. He was unhappy with the services which AIF provided or, rather, failed to provide in return for his $2,500 membership fee. 225 In June 2001, Mr Conrick decided to invest $50,000 in Sage Global Fund Ltd, at the instigation of AIF. He caused the shares to be placed in his wife's name. On about 27 August 2001, Mrs Conrick received a letter of that date on AIF letterhead, signed by Mr Lloyd-Cocks. The letter stated: "That's right, private banking clients are being offered $0.60 cents for their holding in Sage Global Fund and receiving soon to be listed Australian Investors Forum shares in exchange … So to re-cap, the offer available for you is to sell your Sage Global Fund shares at a 20% profit now, at $0.60 cents, in exchange for AIF shares themselves at a discount of 20% at $0.16 cents. That is a 40% return. We have included a transfer form for your shares. The free options you keep. Sign the transfer form and return it in the free post envelope provided." 226 That letter contained no condition as to the entitlement of the recipient to acquire shares in AIF. Clearly, the letter constituted an offer of securities within s.727(1). Mr Conrick decided to accept the offer. He completed the share transfer form and asked his wife to sign it. 227 In September 2001, Mrs Conrick received a letter confirming the transaction and containing a completed transfer form for the shares in Sage Global Fund Ltd. The transfer form had been signed by Mr Lloyd-Cocks as secretary of AIF. 228 Neither Mr Conrick nor his wife ever received a statement of reasons as required by s.708(10)(c) nor did either of them ever sign an acknowledgement as required by s.708(10)(d). 229 I am satisfied that in making the offer of investment in AIF's pre-IPO to Mrs Conrick in the letter dated 27 August 2001 AIF contravened s.727(1) CA. 230 As in the case of Mr Abell, to whom AIF sent the same letter of offer signed by Mr Lloyd-Cocks, there can be no doubt that Mr Lloyd-Cocks, having signed the letter of unconditional offer, must have known that as at the date of sending the letter the documentation required by s.708(10)(c) and (d) had not been provided to Mrs Conrick. 231 I am satisfied to the requisite standard of proof that Mr Lloyd-Cocks, as signatory to a contravening offer of securities, was party to and was involved in the contravention by AIF of s.727(1), within the meaning of s.79 CA. Accordingly, by virtue of s.83, Mr Lloyd-Cocks himself contravened the section within the meaning of and for the purposes of s.206E(1)(a)(ii). Mr P. La Rosa 232 Mr Peter La Rosa is an IT consultant who has invested and traded in shares since 1993. He may be described as a sophisticated investor. Mr La Rosa made an enquiry to AIF about investment in August 2001. He was told that AIF was planning to list on the ASX and that it was offering discounted shares in the pre-IPO. At a meeting on 10 August 2001 at AIF's offices he was told by a Mr Luke Atkins that AIF was seeking listing on the ASX in late October. He was invited to invest $25,000 in AIF's pre-IPO and that if he did so he would receive `free membership to the AIF services" . Mr La Rosa asked if there was a prospectus for the pre-IPO. Mr Atkins said there was not but that he had details about the share offer. Just before meeting Mr Atkins, Mr La Rosa had, in fact, obtained from another AIF employee two flyers which contained details of the AIF pre-IPO. Both documents stated that the offer was conditional upon compliance with s.708(10). 233 About a week later, Mr La Rosa had another meeting with Mr Atkins. Mr Atkins asked whether Mr La Rosa had considered the AIF pre-IPO offer that had been discussed at the previous meeting. Mr La Rosa made some further enquiries and eventually said that he would invest $20,000 in the pre-IPO. There was no reference in that meeting to any necessity for compliance with s.708(10). Accordingly, the offer was an unconditional offer. On 24 August 2001, he met Mr Atkins, filled in an application form for the shares and gave Mr Atkins a cheque for $20,000. Again, there was no reference on that occasion to compliance with s.708(10). 234 A week later Mr La Rosa received an acknowledgement of receipt of $20,000, dated 24 August 2001 and signed by Mr Lloyd-Cocks. 235 On or about 27 September 2001, Mr La Rosa received a letter of that date from Mr Atkins stating that in order to secure his investment in the AIF pre-IPO "the necessary documentation" had to be completed. Reference was made to the requirements of s.708(10) and to the necessity of completing a questionnaire. 236 On 8 October 2001, Mr La Rosa wrote to AIF complaining about some conditions of the pre-IPO referred to in AIF's letter of 27 September 2001 which had not been referred to before he had made his investment on 24 August. He took that letter to AIF's offices and had a discussion with Mr Atkins. Mr Atkins agreed to remove the terms of which Mr La Rosa was complaining. Mr La Rosa then gave to Mr Atkins the completed forms enclosed with AIF's letter of 27 September. The forms comprised a questionnaire, a statutory declaration dated 8 October 2001, purportedly given in compliance with s.708(10)(d), and an acceptance of an offer by AIF for an investment of $20,000 in the pre-IPO. 237 It is clear from this evidence that offers of investment in the AIF pre-IPO were made by AIF to Mr La Rosa on at least three occasions in August 2001 and that he accepted such offers on 24 August 2001. It is also clear that Mr La Rosa was not given a statement of reasons under s.708(10)(c) nor did he sign an acknowledgement under s.708(10)(d) until well after AIF's offer had been made and accepted. 238 I am satisfied that in making the offers of investment in AIF's pre-IPO to Mr La Rosa in August 2001, AIF contravened s.727(1) CA. 239 As in the case of Mr Peterson, there is no evidence connecting Mr Lloyd-Cocks with Mr Atkins or indicating that Mr Lloyd-Cocks knew that Mr Atkins would be making offers of AIF's shares to anyone, including Mr La Rosa, in late August 2001 without ensuring compliance with s.708(10). There is no evidence to suggest that at that time compliance would have been impossible, to the knowledge of Mr Lloyd-Cocks. 240 I am unable to be satisfied that Mr Lloyd-Cocks was involved in AIF's contravention of s.727(1) in relation to the offer to Mr La Rosa, within the meaning and for the purposes of s.79 CA and s.206E(1)(a)(ii). Mr J.G. Mahon and Ms Hodda 241 Mr John Mahon is a builder by occupation. In 1995 he suffered a serious head injury at work as a result of which he received an amount of approximately $500,000 in damages. He and his wife, Ms L.M. Hodda, engaged in investing part of the proceeds of the damages award in shares. They acquired a portfolio worth some $150,000. 242 There are grounds upon which AIF could reasonably have concluded that Mr Mahon and Ms Hodda were sophisticated investors. In a questionnaire dated 5 October 2001 signed by Mr Mahon but referring to the financial affairs of both Mr Mahon and Ms Hodda, it is stated that Ms Hodda has a bachelor degree of pharmacy and that Mr Mahon and Ms Hodda keep up to date with current affairs affecting the financial markets by reading a number of publications and regularly attending financial markets seminars. In a statutory declaration dated 6 October 2001 signed by Mr Mahon, Mr Mahon stated inter alia: "I am sufficiently experienced in investment decisions to make this investment decision" , and he acknowledged that he had not received a disclosure statement for the purposes of s.708(10)(d) CA. 243 On 8 October 2001, Mr Mahon delivered to AIF's offices an application form for shares in AIF's pre-IPO to the value of $25,000, a cheque for that amount, a signed acceptance of the offer for the shares, the statutory declaration and the questionnaire. He has never received a statement of reasons under s.708(10)(c). 244 I conclude that AIF made an offer of securities within s.727(1) to Mr Mahon by 8 October 2001, at the latest, when he was supplied with an application form for investment in AIF's pre-IPO. In making that offer, AIF contravened s.727(1) CA, but only to the extent of failing to provide him with a statement of reasons as required by s.708(10)(c). 245 As in the cases of Messrs Peterson and La Rosa, there is no evidence directly connecting Mr Lloyd-Cocks with any dealings between AIF employees or representatives and Mr Mahon. There is no evidence upon which I can conclude that Mr Lloyd-Cocks was involved, within the meaning of s.79 CA, in AIF's contravention of s.727(1) arising from the offer to Mr Mahon. Mr D. Casey 246 Mr Derrick Casey is an Associate Director of the Regency Institute of TAFE in Adelaide. He had been investing in shares for a number of years and may be described as a sophisticated investor. He became a member of AIF's investment club in January 2000 and subsequently invested in a number of companies suggested by AIF, including Sage Global Fund Limited. 247 In late July or early August 2001, Mr Casey received a number of documents from AIF, one of which stated that "as a member of the Forum" , he was entitled to participate in the AIF pre-IPO, particulars of which were given. The letter contained the qualification that, to accept the offer, he had to be "pre-qualified" , a process which might require him to answer a questionnaire. A questionnaire was in fact attached but Mr Casey did not complete and return it to AIF. 248 On 27 September 2001, AIF wrote to Mr Casey, again offering investment in the AIF pre-IPO and referring to the necessity to qualify as a sophisticated investor. The questionnaire was, again, enclosed, but was not returned by Mr Casey to AIF. 249 On 4 October 2001, AIF wrote again to Mr Casey in the same terms as the letter of 27 September. Again, Mr Casey did not return the enclosed questionnaire. 250 Mr Casey decided that he did not wish to invest in the AIF pre-IPO and he did not complete and return any application for shares in AIF. However, in November 2001 he discovered that, without his authority, AIF had procured the transfer of $10,000 from an account in his name, which AIF could operate, for subscription in the AIF pre-IPO. 251 Mr Casey had never received a statement of reasons as required by s.708(10)(c) nor did he ever sign an acknowledgement as required by s.708(10)(d). 252 I conclude that the offers contained in the letters of 30 July, 27 September and 4 October 2001 were conditional offers, because they could not be accepted unless the conditions required by s.708(10) were satisfied. Questionnaires to enable satisfaction of those requirements were sent with the offers. Unlike the cases of Mr Abell and Mr Markotic, I am unable to conclude that the offers were never intended to be conditional. 253 Mr Casey never accepted any offer for acquisition of AIF shares. AIF simply appropriated his money without his authority. As I have explained, an offer of securities made subject to a qualification as to the type of person who can accept it, which is communicated to a person who does not comply with that qualification, is not an offer of securities within s.727(1) unless the offeror subsequently communicates to the offeree that the qualification or condition has been waived, so that notice of the waiver operates as the making of an unconditional offer. That did not happen in the case of Mr Casey. 254 It follows that, whatever civil or criminal wrongdoing was committed by AIF and its officers in appropriating Mr Casey's money without his authority, there was no offer of securities made to him in contravention of s.727(1). Summary 255 In summary, I find that: – AIF contravened s.727(1) CA in respect of offers of securities made to Mr Devey, Mr Peterson, Mr Pryor, Mr Markotic, Mr Abell, Mrs Conrick, Mr La Rosa and Mr Mahon; – Mr Lloyd-Cocks was knowingly involved in, or party to AIF's contraventions in respect of the offers to Mr Devey, Mr Markotic, Mr Abell and Mrs Conrick. CONTRAVENTION OF CONDITIONS OF DEALER'S LICENCE ASIC's allegations 256 On 11 July 2000, the predecessor of ASIC, the Australian Securities Commission ("the Commission"), issued a dealer's licence to AIF pursuant to s.784 of the Corporations Law (Cth; repealed 15.07.2001) ("CL"). Pursuant to s.786(1) CL, the Commission imposed the following conditions on the licence: "In the course of carrying on a securities business, AIF must not hold money in trust for its clients and must not accept, receive, hold or in any way take possession, custody or control of securities or money belonging to clients, other than: (a) a payment order that is payable to, or to the order of, a specified person or bearer (not being AIF) and which AIF receives from, or on behalf of, a client with express or implied instructions that it is to be delivered to the person to whom it is payable; or (b) money received in respect of brokerage or any other proper charge due to AIF or a nominee of AIF in the ordinary course of AIF's business." 257 ASIC alleges that: -– between 11 July 2000 and 24 October 2001 AIF conducted a securities business within the meaning of the Corporations Law ; – in the course of carrying on that business AIF operated an account with the National Australia Bank, account number 489564978, styled "Australian Investors Forum Pty Ltd Trust Account" ("the NAB Trust Account"); – accepted money from its clients and deposited them into the NAB Trust Account; – procured its clients to place monies in cash management accounts with Macquarie Bank in the names of the clients respectively ("the Macquarie Bank Accounts"); – procured those clients to execute authorities which enabled AIF to control and to deal with the monies in the Macquarie Bank Accounts: see Further Amended Statement of Claim paras 67-69. 258 ASIC alleges that the actions of AIF in procuring deposits into the NAB Trust Account and procuring deposits into the Macquarie Bank Accounts with authorities to operate those accounts being given to AIF constitute contraventions of Clause 8 of its dealer's licence: Further Amended Statement of Claim para 70. It alleges that Mr Lloyd-Cocks was involved in those contraventions within the meaning of s.79 CA, whereby he himself has contravened a condition of the licence: Further Amended Statement of Claim paras 71, 72. The only relief sought against Mr Lloyd-Cocks is a disqualification order under s.206E(1)(a)(ii). Mr Lloyd-Cocks denies the allegation. Whether contravention of licence condition is contravention of the Act 259 Neither in the Further Amended Statement of Claim nor in its written and oral submissions did ASIC explain how a contravention of a condition of AIF's dealer's licence was a contravention of the provisions of the Corporations Law and the Corporations Act for the purposes of s.206E CA. The preliminary question is whether, at the time of any of the alleged contraventions of the conditions of the dealer's licence, such conditions were also contraventions of the Corporations Law or the Corporations Act . 260 Section 784 CL empowers the Commission to grant a dealer's licence to a body corporate. Section 786(1) empowers the Commission, when granting a dealer's licence, to impose conditions and restrictions. Section 787 requires a licensee to give notice to the Commission of any contravention of a condition of a licence within one day of the occurrence. Section 826(1)(d) and s.827 CL empower the Commission to revoke or suspend a dealer's licence, after a hearing, if the licensee contravenes a condition of the licence. 261 Chapter 7 of the Corporations Law , in which the licence provisions are to be found, does not contain a provision expressly requiring a licensee to comply with the conditions of a dealer's licence, so that a contravention of a condition of a licence would be a contravention of the Corporations Law itself. 262 However, s.104 CL, which is found in the interpretations provisions, Chapter 1 Pt 1.2, provides: " Effect of provisions empowering a person to require or prohibit conduct Where, in accordance with a provision of this Law other than the replaceable rules, a person requires another person to do, or prohibits another person from doing, a particular act, that provision shall be taken to require the other person to comply with the requirement or prohibition, as the case may be." 263 Section 85A CL provides: " Person etc. In this Law, expressions used to denote persons generally (such as 'person', 'party', 'someone', 'anyone', 'no-one', 'one', 'another' and 'whoever'), include a body politic or corporate as well as an individual." 264 By s.8(a) of the Australian Securities and Investments Commission Act 1989 (Cth), the Commission was established as a body corporate with perpetual succession. The Commission is, therefore, a "person" within the meaning of s.104 CL. 265 It is clear that the Commission, in imposing conditions on AIF's dealer's licence in accordance with the provisions of s.786(1)(b) CL, was a "person" prohibiting another person (AIF) from doing particular acts. Pursuant to s.104 CL, the provision pursuant to which the Commission imposed that prohibition, namely s.786(1)(b) CL, is taken to require AIF to comply with the prohibition. A contravention of the prohibition in Clause 8 of the conditions to AIF's dealer's licence is, therefore, taken to be a contravention of s.786(1)(b) CL. 266 The Corporations Act came into effect on 15 July 2001. Section 1401 provides: " Creation of equivalent rights and liabilities to those that existed before the commencement under repealed provisions of the old corporations legislation (1) This section applies in relation to a right or liability (the 'pre-commencement right or liability'), whether civil or criminal, that: (a) was acquired, accrued or incurred under a provision of the old corporations legislation of a State or Territory in this jurisdiction that was no longer in force immediately before the commencement; and (b) was in existence immediately before the commencement. However, this section does not apply to a right or liability under an order made by a court before the commencement. (2) For the purposes of subsections (3) and (4), the new corporations legislation is taken to include: (a) the provision of the old corporations legislation (with such modifications (if any) as are necessary) under which the pre-commencement right or liability was acquired, accrued or incurred; and (b) the other provisions of the old corporations legislation (with such modifications (if any) as are necessary) that applied in relation to the pre-commencement right or liability. (3) On the commencement, the person acquires, accrues or incurs a right or liability (the substituted right or liability), equivalent to the pre-commencement right or liability, under the provision taken to be included in the new corporations legislation by paragraph (2)(a) (as if that provision applied to the conduct or circumstances that gave rise to the pre-commencement right or liability). Note: If a time limit applied in relation to the pre-commencement right or liability under the old corporations legislation, that same time limit (calculated from the same starting point) will apply under the new corporations legislation to the substituted right or liability—see subsection 1402(3). (4) A procedure, proceeding or remedy in respect of the substituted right or liability may be instituted after the commencement under the provisions taken to be included in the new corporations legislation by subsection (2) (as if those provisions applied to the conduct or circumstances that gave rise to the pre-commencement right or liability)." 267 By s.1430(1) CA, a holder of a dealer's licence, such as AIF, is defined as a "regulated principal" and the activities which the dealer's licence authorised a licensee such as AIF to carry out are defined as "regulated activities" . 268 Section 1431(1) CA defines a "transition period" which, for the purposes of this case, can be taken as having extended from 15 July 2001 until a receiver was appointed to AIF on 24 October 2001. 269 Section 1432 CA provides: " Continued application of relevant old legislation (1) Subject to subsection (2), during the transition period for a regulated principal, the relevant old legislation (if any) continues to apply, despite its repeal: (a) to, and in relation to, the regulated principal and their regulated activities; and (b) to any other person to whom it is expressed to apply, but only in relation to matters related to the regulated principal and their regulated activities. (2) If, because of subsection 1431(2), the relevant new legislation (within the meaning of subsection 1431(1)) starts to apply to part of a person's regulated activities from a particular time, the relevant old legislation (if any) stops applying, from that time, in relation to that part of those activities." 270 The effect of these transitional provisions is that the relevant provisions of the Corporations Law regulating AIF's dealer's licence and compliance with the conditions therein continued to apply to AIF and Mr Lloyd-Cocks at all times from the grant of the dealer's licence on 11 July 2000 to 24 October 2001. The relevant provisions of the Corporations Law include s.104 CL, which has the effect of making a contravention of a condition in the dealer's licence a contravention of the Corporations Law itself. 271 In summary: i) if AIF contravened the conditions of its dealer's licence before 15 July 2001, that contravention is taken as a contravention of the Corporations Law itself by virtue of s.104 CL and is, by s.1401(1) CA, to be taken as a contravention of the Corporations Act ; ii) if Mr Lloyd-Cocks had acquired any liability under the Corporations Law as a result of involvement in AIF's contravention of the conditions of its dealer's licence before 15 July 2001, then by virtue of s.1401(3) CA that liability would be taken to have been incurred under the Corporations Act ; iii) if AIF contravened a condition of its dealer's licence after 15 July 2001, that contravention is taken to be a contravention of the relevant provisions of the Corporations Law , including s.104 CL, which continue to apply as provisions of the Corporations Act by virtue of s.1432(1) CA – that is, a contravention of the conditions of the dealer's licence after 15 July is a contravention of the Corporations Act ; iv) if Mr Lloyd-Cocks was involved in a contravention of the conditions of AIF's dealer's licence after 15 July 2001, he is involved in a contravention of the Corporations Act and the provisions of s.79 and s.83 CA apply to him so that he would have committed a contravention of the Corporations Act for the purposes of s.206E(1)(a)(ii). The relevant facts 272 There can be no doubt that after the issue of AIF's dealer's licence on 11 July 2000 AIF received money from investors into the NAB Trust Account, for application towards investments to which the investors had subscribed. This is proved not only by the bank statements relating to the account but by the direct evidence of Messrs Goodsell and Shaheen, who were responsible, under Mr Lloyd-Cocks for administering the account. 273 Mr Lloyd-Cocks himself admitted at T658.15 that "one of the pre-IPO investors" had deposited money into the NAB Trust Account but he then suggested that all the money which had been placed in the NAB Trust Account by investors for the purpose of subscription to investments promoted by AIF was really AIF's own money to be used for its own purposes. I reject Mr Lloyd-Cocks' evidence and I accept the evidence of Mr Goodsell and Mr Shaheen. The investors' money was clearly received for the purpose of specified investments and was held by AIF on trust, as the name of the NAB account indicates. 274 The evidence relating to the Macquarie Bank Accounts is less clear. Mr Abell said that when he joined AIF's investment club in 1999 he opened a Macquarie Bank Account in his name and signed an authority to "Midland Securities Limited" to operate that account. 275 The precise relationship between "Midland Securities Limited" and AIF is not revealed by the evidence. An early flyer issued by AIF in December 1999 stated "Order execution, strategies and equities advice given to members [of AIF's investment club] by proper authority holders of Midland Securities Limited, licensed security dealers" . A letter dated 3 March 2000 was sent to Mr Devey on a letterhead entitled "Midland Securities Limited-Australian Investors Forum" . The letter is signed by Mr Lloyd-Cocks. Above his signature appears "AIF" and below the signature "Director" . A document enclosed with that letter requests cheques for membership fees to be made payable to "AIF-Midland Securities Limited" . The address of Midland Securities Limited is the same as that of AIF. 276 The initial transaction between AIF and Mr Abell could not have been in breach of AIF's dealer's licence conditions as it occurred almost six months before that licence was issued. 277 However, Mr Abell said that during the period from November 1999 to June 2001 he participated in a number of share offerings promoted by AIF. To do so he deposited money into his Macquarie Bank Account and "AIF would withdraw the money" . 278 How and by what authority AIF withdrew the money is not clearly revealed by the evidence. There is no direct evidence of an arrangement between AIF and Midland Securities Limited which entitled AIF to be paid in respect of transactions on Mr Abell's behalf without direct recourse to Mr Abell's Macquarie Bank Account. However, Mr Abell's evidence is clear that when he wished to enter into a transaction proposed by AIF which required money to be withdrawn from his Macquarie Bank Account, he gave that instruction to AIF and the instruction was duly carried out. 279 In short, the evidence strongly suggests that Midland Securities Limited was controlled by Mr Lloyd-Cocks. I infer from all of the evidence that, by some arrangement or other between AIF and Midland Securities Limited, AIF had the ability to give instructions for withdrawals from Mr Abell's Macquarie Bank Account, whether to Macquarie Bank or to Midland Securities as an intermediary, and that those instructions were effective to procure the withdrawals being made. I am satisfied that at least some of those withdrawals were arranged by AIF after the issue of its dealer's licence on 11 July 2000. 280 Mr Conrick joined the AIF investment club in August 2000. He opened a Macquarie Bank Account in his own name at the instigation of AIF. He said that in June 2001 he noticed that the money in his Macquarie Bank Account had been transferred out, without his approval. When he protested to AIF he was told that there had been a mistake and, shortly afterwards, the money was redeposited in his account. 281 How and by what authority money was transferred out of Mr Conrick's Macquarie Bank Account is not explained in the evidence. In particular, ASIC has not tendered any authority signed by Mr Conrick giving AIF the right to operate the Macquarie Bank Account. However, it is inconceivable that Macquarie Bank Limited permitted AIF to withdraw money from Mr Conrick's account without some form of authority given by Mr Conrick. I therefore infer that such authority was given and that AIF used that authority to withdraw money from Mr Conrick's account in June 2001. 282 Mr Casey said that in about the middle of 2000 he received a number of forms from AIF relating to the opening of a Macquarie Bank Account in his name, which AIF had suggested. One of the forms authorised AIF to operate the account. He completed and returned the forms to AIF. 283 On 23 October 2001 – incidentally, the day before ASIC appointed a receiver to AIF – AIF withdrew $10,000 from Mr Casey's Macquarie Bank Account without his knowledge or consent. Obviously, AIF was in possession of an authority from Mr Casey which enabled it to make that withdrawal. I infer that that authority was in AIF's possession at all material times after 11 July 2000, if not before that date. 284 Mr Devey joined AIF's investment club in about March 2000. He received a receipt for his membership fees on the letterhead "Midland Securities Limited – Australian Investors Forum" . It was signed by Mr Lloyd-Cocks as "Proper Authority Holder, Midland Securities Limited, Licensed Securities Dealer" . 285 Shortly afterwards Mr Devey received a telephone call from someone identifying himself as an AIF employee, who told him that it would be necessary for AIF to open an Macquarie Bank Account in his name in order to facilitate share transactions. Mr Devey agreed but did not sign any authority for the opening of the account or for the operation of the account by AIF. 286 Thereafter, Mr Devey began to receive bank statements from Macquarie Bank Limited in the name "Midland Securities Limited A/c Peter Devey" . In late 2000 or early 2001 Mr Devey noticed that the name of the account on these bank statements had been changed to "Australian Investors Forum Nominees A/c Peter Devey" . Mr Devey deposited various amounts into this account for share trading purposes throughout 2000. 287 On 5 March 2001 Mr Devey sent a facsimile to AIF authorising it to deduct $30,000 from his Macquarie Bank Account in order to purchase shares in AIF's pre-IPO. AIF deducted that sum from the account on 15 March 2001. 288 I conclude from the foregoing and from the fact that the Macquarie Bank statements sent to Mr Devey were styled either "Midland Securities Limited A/c Peter Devey" or "Australian Investors Forum Nominees A/c Peter Devey" , that the Macquarie Bank Account was in fact opened by AIF as a trust account for Mr Devey. I am satisfied that whereas some money was deposited by Mr Devey in this account prior to 11 July 2000, a substantial amount was deposited by him after that time. Whether AIF contravened licence conditions 289 Clause 8 of AIF's dealer's licence relevantly prohibited AIF from: i) holding monies in trust for its clients; ii) taking control of money belonging to clients. 290 As to the NAB Trust Account, I find that: – that account was established by AIF on or about 20 July 2000 as a trust account for the purpose of receiving money from clients upon trust to apply those monies in accordance with the client's investment directions; – from August 2000 AIF regularly received deposits of money from clients into the NAB Trust Account; – by accepting deposits from clients into the account from August 2000 onwards AIF contravened the first condition in clause 8 of its dealer's licence. 291 In relation to the Macquarie Bank Accounts, I find that: – after 11 July 2000 AIF exercised control over money deposited by Mr Abell in his Macquarie Bank Account for the purpose of implementing investments on behalf of Mr Abell; – the exercise of such control was pursuant to an authority granted by Mr Abell prior to 11 July 2000; – the exercise of that authority by AIF, directly or indirectly, in respect of money deposited in Mr Abell's Macquarie Bank Account after 11 July 2000 was "taking control" of that money within the meaning of the second condition of clause 8 of AIF's dealer's licence and in contravention of that condition; – AIF exercised an authority over Mr Conrick's Macquarie Bank Account in June 2001 to make a transfer of funds out of that account without Mr Conrick's knowledge and consent; – the authority which enabled AIF to make that transfer from Mr Conrick's Macquarie Bank Account was a "taking control" of the money in that account, within the second condition of clause 8 of AIF's dealer's licence and in contravention of that condition – the taking of an authority from Mr Casey in mid-2000 in respect of his Macquarie Bank Account, which AIF continued to hold up to 23 October 2000 and which enabled AIF to make a transfer on that date out of the account without Mr Casey's knowledge and consent was a taking of control of the monies in the Macquarie Bank Account within the meaning of the second condition of clause 8 of AIF's dealer's licence and in contravention of that condition; – AIF itself opened a Macquarie Bank Account for Mr Devey into which it received money after July 2000 on trust for him, in contravention of the first condition of clause 8 of its dealer's licence. 292 In summary, AIF contravened clause 8 of its dealer's licence by establishing the NAB Trust Account and receiving deposits thereon on trust for its clients, by taking control of the deposits made after 11 July 2000 into the Macquarie Bank Accounts of Messrs Abell, Conrick and Casey, and by opening a Macquarie Bank Trust Account for Mr Devey and receiving money into that trust account. Whether Mr Lloyd-Cocks involved in contraventions of licence conditions 293 In order to prove that Mr Lloyd-Cocks was involved in AIF's contraventions of its dealer's licence within the meaning of s.79 CA, ASIC must show that Mr Lloyd-Cocks had actual knowledge that: – the dealer's licence contained the prohibitions in clause 8; – the NAB Trust Account was established and used to receive monies from clients to enable AIF to apply those monies to investments in accordance with the clients' directions; – monies were received into the Macquarie Bank Accounts of Messrs Abell, Conrick, Casey and Devey after 11 July 2000; – after 11 July 2000 AIF had control over the monies deposited in those Macquarie Bank Accounts. 294 Mr Lloyd-Cocks was the director of AIF with prime responsibility for administration and procedures. When AIF first applied for a dealer's licence he had been put forward as the "key person" at AIF responsible for compliance with the conditions of the licence. ASIC considered Mr Lloyd-Cocks to have insufficient knowledge and experience and Mr Appleby was engaged and put forward as the "key man" for the purpose of compliance with the licence. 295 Mr Lloyd-Cocks' involvement with the initial application for the dealer's licence by AIF and his overall responsibility for administration and procedures within AIF make it improbable in the extreme that he did not read the conditions of AIF's dealers licence when it was issued. 296 Mr Lloyd-Cocks was not asked whether he knew of clause 8 of the dealer's licence from 11 July onwards. On the other hand, while Mr Lloyd-Cocks was keen to emphasise that Mr Appleby and Mr de Zylva were responsible for compliance with the conditions of the dealer's licence, he did not say that he himself never knew what those conditions were. 297 The conditions of the dealer's licence are not numerous or difficult to understand. I am satisfied to the requisite standard of proof that on or soon after 11 July 2000 Mr Lloyd-Cocks had actual knowledge of the conditions of clause 8 of the dealer's licence. 298 It is not open to doubt that Mr Lloyd-Cocks, together with Mr Luvara, had authority to operate the NAB Trust Account. That authority was frequently exercised by Mr Lloyd-Cocks to transfer funds deposited by clients into the NAB Trust Account for the purpose of investment. It is inconceivable that Mr Lloyd-Cocks did not know that the NAB Trust Account was established in August 2000 and that it was used frequently thereafter for the purpose of receiving money on behalf of clients. 299 I am satisfied to the requisite standard of proof that Mr Lloyd-Cocks was involved, within the meaning of s.79 CA, in the contravention by AIF of clause 8 of its dealer's licence arising from its establishment and operation of the NAB Trust Account. It follows that Mr Lloyd-Cocks himself has contravened the licence, and therefore the Act, within the meaning of and for the purposes of s.206E(1)(a)(ii). 300 There is no evidence which connects Mr Lloyd-Cocks directly with the opening or operation of the Macquarie Bank Accounts for Messrs Abell, Conrick, Casey and Devey. Other personnel of AIF dealt with those clients in connection with the operation of the Macquarie Bank Accounts. It is possible that Mr Lloyd-Cocks had no actual knowledge of the existence of the accounts and of the purpose for which they were used. 301 I am unable to be satisfied to the requisite standard of proof that Mr Lloyd-Cocks had actual knowledge of the facts relating to the Macquarie Bank Accounts such as to involve him in AIF's contraventions relating thereto, within the meaning of s.79 CA. MR ANTHONY'S PARTICIPATION IN MANAGEMENT ASIC's allegations 302 Mr Anthony was made bankrupt in accordance with a sequestration order pronounced by the Federal Court on 4 February 1999. On 14 March 2002 his bankruptcy was annulled pursuant to s.153A(1) Bankruptcy Act upon payment of all debts proved in his bankruptcy. The money to pay the debts, totalling almost $146,000 was provided by Moneytec, Arbitrage and Mortgage Circuit. 303 Section 206B(3) CA relevantly provides that a person is disqualified from managing a corporation if the person is an undischarged bankrupt. Section 206A relevantly provides: " Disqualified person not to manage corporations (1) A person who is disqualified from managing corporations under this Part commits an offence if: (a) they make, or participate in making, decisions that affect the whole, or a substantial part, of the business of the corporation; or (b) they exercise the capacity to affect significantly the corporation's financial standing; or (c) they communicate instructions or wishes (other than advice given by the person in the proper performance of functions attaching to the person's professional capacity or their business relationship with the directors or the corporation) to the directors of the corporation: (i) knowing that the directors are accustomed to act in accordance with the person's instructions or wishes; or (ii) intending that the directors will act in accordance with those instructions or wishes. (1A) For an offence based on subsection (1), strict liability applies to the circumstance, that the person is disqualified from managing corporations under this Part." 304 ASIC alleges that between late November 2000 and 24 October 2001 Mr Anthony, being an undischarged bankrupt, managed the following corporations within the meaning of s.206A(1) CA: AIF Australian Capital Forum (from incorporation on 23 January 2001 onwards) Medionics (from incorporation on 22 March 2001 onwards) Techlogica (from incorporation on 8 June 2001 onwards) Suisse Credit P/L (from incorporation on 29 March 2001 onwards) Nominee Securities (from incorporation on 8 March 2001 onwards) Finance Projects (from incorporation on 6 February 2001 onwards) Money Mint (from incorporation on 23 January 2001 onwards) Casabanca (from incorporation on 16 February 2001 onwards) Webfeatures (from incorporation on 6 February onwards) IT Genius (from December 2000 onwards) Australian Equity Forum (from incorporation on 19 January 2001 onwards) Tax Law Accounting (from incorporation on 19 January 2001 onwards) Tax Law Accounting Partnership (from incorporation on 19 January 2001 onwards) 305 ASIC alleges that, in addition to managing the above corporations as part of the AIF group of companies, Mr Anthony also managed Metrobank, a company with which he was associated before joining AIF, from the date of his bankruptcy until 24 October 2001. 306 Further details of the companies named above are given under the heading "Relevant Corporations" above. 307 In consequence of Mr Anthony's alleged contraventions of s.206A(1), ASIC seeks a disqualification order under s.206E(1)(a)(ii). Mr Anthony's Defence 308 Mr Anthony denies that he took part in the management of any corporation while a bankrupt. He says that he was merely a consultant or professional adviser to AIF and its associated companies. 309 In so far as any relevant corporation was under the control of Swiss Pacific as its sole or major shareholder Mr Anthony says that he made decisions in respect of that company, not by way of managing it, but as the representative in Australia of the controllers of Swiss Pacific and in accordance with their directions. 310 Further, Mr Anthony says that s.206A(1) cannot apply to him because, by operation of s.153A(1) Bankruptcy Act , his bankruptcy was annulled ab initio so that he is regarded in the eyes of the law as never having been bankrupt. What is "managing a corporation" within s.206A(1) CA 311 Many authorities have considered what activities are encompassed within the concept of "managing" a "corporation". The leading cases before the enactment of the present s.206A(1) CA are reviewed by McColl JA in Forge v ASIC (supra) at paras 183-200. Her Honour draws attention to the fact that in those authorities the scope of activities falling within the concept of managing a corporation was liable to expand or contract, depending upon whether the consequence was civil or criminal liability. 312 The nature of the conduct included within the prohibitions contained in the present s.206A(1) and in its predecessor in the Corporations Law is drawn largely from the judgment of Ormiston J in Corporate Affairs Commission (Vic) v Bracht [1989] VR 821. The activity now prohibited by s.206A(1) is clearly enunciated and needs no further gloss. Indeed, I would think it counter-productive to attempt any further refinement or analysis of the provisions of that subsection. It should be clear enough in every case whether or not the facts fall within the conduct proscribed by the section. 313 As the relief sought against Mr Anthony for breach of s.206A(1) is a disqualification order under s.206E(1) the civil standard of proof applies, with the Briginshaw qualification: see paragraphs 16 to 25. Whether Mr Anthony's bankruptcy was avoided ab initio 314 Section 153A(1) Bankruptcy Act provides: " Annulment on payment of debts (1) If the trustee is satisfied that all the bankrupt's debts have been paid in full, the bankruptcy is annulled, by force of this subsection, on the date on which the last such payment was made." 315 It is now well established that annulment of a bankruptcy under s.153A(1) Bankruptcy Act avoids the bankruptcy ab initio for some, but not all, purposes. In particular, where legislation creates an offence if something is done by a person while still an undischarged bankrupt, a person who commits that offence will not, as a rule, be rendered immune from prosecution thereafter by the subsequent annulment of his or her bankruptcy. The general rule will, however, always be subject to the words of the legislation creating the offence: see e.g. Smallcombe v Olivier (1844) 13 M&W 77, at 86 [153 ER 32]; Director of Public Prosecutions v Ashley [1955] Crim LR 565; Oates v Federal Commissioner of Taxation (1990) 27 FCR 289, at 297 (Hill J); Re Coyle (1993) 42 FCR 72, at 77 (Drummond J). 316 In Bond v Rozenes (1996) 67 FCR 122, the appellant was under investigation for offences against the Bankruptcy Act committed while he was bankrupt. The bankruptcy was later annulled but the investigation into the offences continued. The appellant sought to restrain continuation of the investigation on the ground that, his bankruptcy having been annulled, he was to be treated as never having been made bankrupt at all so that he could never have committed offences under the Bankruptcy Act . 317 The Full Court of the Federal Court rejected this argument. Referring to s.275(a) of the Bankruptcy Act , which expressly provided that a person may be prosecuted for an offence against the Act although his bankruptcy has been annulled, the Chief Justice said at p.125: "It may be accepted that for many purposes, annulment has effect as if a bankruptcy had never been. But there is no reason why that should be the case in all circumstances, and s.275 shows that, in respect of the prosecution for offences under the Bankruptcy Act , the legislature intended otherwise." 318 The only decision directly upon the point whether annulment of a bankruptcy expunges ab initio the offence of managing a corporation while an undischarged bankrupt is that of Master Seaman QC (as his Honour then was) in Re Baysington Pty Ltd; Gillon v National Companies and Securities Commission (1987) 12 ACLR 412. 319 In that case, sequestration orders had been made against the directors of a company. Later, when they had entered into compositions with their creditors, their bankruptcies were annulled under s.74(5) Bankruptcy Act . The NCSC commenced proceedings against the directors, alleging offences under s.227(1) of the Companies (WA) Code , which provided: "A person who is an insolvent under administration shall not be a director or promoter of, or be in any way (whether directly or indirectly) concerned in or take part in the management of, a corporation without the leave of the Court. Penalty: $5000 or imprisonment for one year, or both. 'Insolvent under administration' is defined relevantly in s.5 to mean a person who: (a) under the Bankruptcy Act 1966 or the law of an external Territory, is a bankrupt in respect of a bankruptcy from which he has not been discharged; or" 320 The directors, claiming to be person aggrieved by the NCSC's decision to prosecute, appealed against that decision to the Court under s.537 of the Code. The directors argued that, because of the annulment of their bankruptcies, they were deemed never to have been bankrupts so that they could never have committed a contravention of s.227(1). 321 The learned Master rejected the directors' submission. Having reviewed the cases, including Smallcombe v Olivier and DPP v Ashley , he said at p.416: "In my opinion the general statements in the cases that annulment remits a bankrupt to his former condition are not directed to the criminal consequences of acts at the time when they were done nor do I consider that assistance is to be derived from cases concerned with annulment of marriage or the construction of wills. In my view the matter is to be resolved by determining the meaning of s.227 of the Companies Code …" At p.418 the Master said: "In my view the word 'discharged' is not used in any technical sense in the definition 'insolvent under administration' [in s.227(1)] and reveals that the question to be put before the jury at a trial is whether an accused, at the time he took part in the management of a company was then a bankrupt in respect of a bankruptcy from which he had not been discharged. I am not persuaded that there is anything to be drawn by implication from the Bankruptcy Act which cuts down the ordinary meaning of the words used in s.227 of the Companies Code ." The Master's decision was reversed on appeal but on a different point: see sub nom Salter v NCSC (1988) 13 ACLR 253. 322 In my respectful opinion, the Master was entirely correct in his statement of the law and in his construction of s.227(1) of the Code . In the present case, the words of s.206A(1), like those of s.227(1) of the Code , show clearly that the offence is committed and is complete when a person, who is at the time an undischarged bankrupt, acts in a managerial capacity in relation to a corporation. The fact that the accused later obtains an annulment of the bankruptcy does not remove the criminality of his act in disobeying s.206A(1) at a time when it applied to him. 323 For these reasons, Mr Anthony's Defence founded upon annulment of his bankruptcy fails. The perceptions of AIF employees 324 Mr Anthony is ten years older than Mr Lloyd-Cocks and thirteen years older than Mr Luvara. When Mr Anthony first commenced his association with AIF in November 2000 Mr Anthony claimed to have, and appeared to have, a great deal more experience in financial planning and general business strategy than did Mr Lloyd-Cocks and Mr Luvara. From my observations in Court, Mr Anthony generally appears to be far more self-assured and assertive than Mr Lloyd-Cocks. I think it is fair to say that Mr Lloyd-Cocks permitted Mr Anthony to take the lead in the conduct of the defence of the case. I gained the distinct impression that Mr Lloyd-Cocks is the sort of person who would usually defer to Mr Anthony in areas in which Mr Anthony claimed knowledge and experience. 325 That Mr Anthony quickly assumed a role in decision-making in AIF's business which was equal to that of Mr Lloyd-Cocks and Mr Luvara – if, indeed, not actually a dominant role – was the perception of several senior employees of AIF. Employees' perceptions as to a person's role or authority are, of course, relevant to a consideration of whether that person has the capacity significantly to affect a corporations' financial standing: s.206A(1)(b). That is so because employees within a corporation tend to accept instructions without question from someone they perceive to be in a position of authority. 326 Mr Appleby, whose title in AIF was "Head of Corporate Finance" , said that he believed that Mr Anthony had been appointed by Mr Lloyd-Cocks and Mr Luvara as "Chief Executive Officer" and that he himself was supposed to be reporting to Mr Anthony. He said that the "proper authority holders" under AIF's dealer's licence, being employees authorised to deal in securities, were as approved by Mr Lloyd-Cocks and Mr Anthony. Mr Appleby was aware that Mr Anthony had given instructions to Mr Shaheen for the incorporation of a large number of companies and that Mr Shaheen had carried out those instructions. 327 I accept Mr Appleby's evidence. It is corroborated by other evidence, as will appear. 328 Mr Goodsell gave evidence that when he applied for an advertised position with Tax Law Accounting Partnership he had an interview with Mr Anthony, who explained the nature of AIF's business and that Tax Law Accounting Partnership would be a part of that business. Mr Goodsell said that Mr Anthony represented himself to be the Assistant General Manager of AIF. 329 Mr Goodsell remained working in the offices of AIF for about two and a half months. He observed that Messrs Anthony, Lloyd-Cocks and Luvara each had offices together on the fourth floor of the building. Mr Anthony had a secretary or personal assistant but Messrs Lloyd-Cocks and Luvara did not. 330 Mr Goodsell gave evidence that whenever he spoke to Mr Lloyd-Cocks or Mr Luvara about some decision they told him to "clear it with Dennis Anthony" . Mr Goodsell's perception was that while Mr Anthony was known not to be formally appointed as a director of AIF he had all the influence of a director. 331 Mr Anthony asked Mr Goodsell to bring AIF's accounts up to date as at 31 March 2001. Mr Goodsell, in carrying out that task, reported to Mr Anthony alone. 332 When AIF began to receive complaints from investors in the AIF Strategic Trust, Mr Goodsell was asked to prepare the accounts for the Trust but was told by Mr Luvara to confer with Mr Anthony first. Mr Anthony drafted a letter to investors in the Trust and instructed Mr Goodsell to send it out. The letter told investors why they could not withdraw their money from the Strategic Trust. 333 Mr Goodsell said that cheque requisitions for payment by AIF of items such as rent or reimbursement of expenses had to be approved by Mr Anthony, Mr Lloyd-Cocks or Mr Luvara. However, about eighty percent of the cheque requisitions were approved by Mr Anthony. Mr Goodsell's perception was that Mr Anthony was the "controlling person in the office … (and) had a tight rein on what expenses were authorised and who received what" : Exhibit P3, p.32.25. 334 It was part of Mr Goodsell's duties to prepare daily banking summaries, showing what monies were transferred between the various accounts operated in AIF's business. He forwarded those summaries to only three people, Messrs Anthony, Lloyd-Cocks and Luvara. 335 As confirmation of his perception that Mr Anthony was at least at the same level of authority in managing AIF's business as Messrs Lloyd-Cocks and Luvara, Mr Goodsell pointed to what happened when, on 21 May 2001, AIF's issued share capital was increased by 230,000,000 shares. 20,000,000 of those shares were issued at a price of one dollar each, partly paid to $0.001, to Nominee Securities, supposedly to be held by that company on trust for people who were investing in AIF's pre-IPO. The remaining 210,000,000 shares were issued at a price $0.0001 each, fully paid, to companies controlled by Messrs Anthony, Lloyd-Cocks and Luvara in equal proportions. 336 This issue of shares in AIF was designed to ensure that control of AIF remained securely with the existing "executives" after the listing of the company on the stock exchange, if that ever happened: see "The AIF Share Dilution". The fact that a very substantial part of the controlling shares in this issue went to Mr Anthony's companies demonstrates that he was on an equal footing in all respects with Messrs Lloyd-Cocks and Luvara in the control and management of AIF's business. 337 I accept without reservation the evidence of Mr Goodsell and the accuracy of his perceptions of Mr Anthony's position within AIF. 338 Mr Faroungas, an accountant, gave evidence that in June 2001 he applied for an advertised position as an accountant with AIF. He was interviewed by Mr Anthony and Mr Lloyd-Cocks. During the interview Mr Faroungas was told that, if he were successful in the application, he would be reporting to Mr Anthony. That is, in fact, what happened. 339 Mr Faroungas' title in AIF was "Financial Controller" . However, all Mr Faroungas' instructions as an employee came from Mr Anthony and Mr Faroungas himself did not have any part in decision-making about the accounts, finances or strategic directions of AIF. Mr Faroungas said that anything that he did in relation to the bank accounts of AIF had to be approved by Mr Anthony. 340 Mr Faroungas said that after a short time working in the offices of AIF he formed the perception that Mr Anthony was senior to everyone else in AIF except Messrs Lloyd-Cocks and Luvara. Mr Anthony would frequently give Mr Faroungas instructions on financial matters after meetings with Messrs Lloyd-Cocks and Luvara. Mr Faroungas observed that Messrs Anthony, Lloyd-Cocks and Luvara were the only people in AIF who had separate offices. 341 To Mr Faroungas' perception, Mr Anthony had a more detailed knowledge of AIF's accounts than did Messrs Lloyd-Cocks and Luvara. When issues with AIF's accounts arose Mr Faroungas usually discussed them with Mr Anthony alone. 342 Mr Faroungas observed that payments of $4,000 per week began to be made to each of Messrs Anthony, Lloyd-Cocks and Luvara through Finance Projects Pty Ltd and that the payment cheques were being drawn up by Mr Shaheen. Mr Faroungas asked Mr Anthony what these payments were, remarking that they looked like weekly salaries. Mr Anthony told him that the payments were "weekly loans" pursuant to "verbal agreements" . 343 In my view, it is highly significant that Mr Anthony was receiving "weekly loans" at the same rate and on the same basis as were Messrs Lloyd-Cocks and Luvara. 344 Mr Lee was engaged in about mid-2001 to do some work on the foreshadowed listing of AIF. Precisely what Mr Lee did is not clear, but he was frequently in AIF's offices from that time onwards. 345 Mr Lee said that in October 2001 Messrs Anthony and Lloyd-Cocks informed him that they were interested in arranging a back door listing of AIF through a company called Optum Group Limited ("Optum"), instead of through the previously intended vehicle, Farnell & Thomas Ltd. Mr Anthony said that he was "close to" the chairman of Optum, Dr Albert Ho. Subsequently, Mr Lee was able to observe, through the glass walls of Mr Anthony's office, that Mr Anthony had a number of meetings with Dr Ho. 346 I accept the evidence of Mr Lee; it is corroborated by the evidence of Dr Ho to which I will come shortly, and by other substantial documentary evidence: see, e.g., "The Sage-Techlogica Transaction" below. 347 Mr Ridhalgh, a chartered accountant, responded to an advertisement for a position as an accountant with AIF in early July 2001. He attended an interview with Messrs Lloyd-Cocks and Anthony. Mr Anthony was introduced to him as "AIF's Vice President Global Operations" . 348 Mr Ridhalgh was engaged and worked for AIF from 15 July 2001 until the company's demise. During that time he reported primarily to Messrs Anthony and Lloyd-Cocks. 349 In about mid-September 2001, Mr Anthony instructed Mr Ridhalgh to assist him in developing a business plan for TRACCESS, a software package which Techlogica, a company in the AIF group, was to acquire from Optum. Mr Ridhalgh prepared a business plan. In early October 2001, Mr Anthony asked Mr Ridhalgh to become a director of Techlogica. Mr Ridhalgh agreed but was never formally appointed as a director. Mr Ridhalgh never played any part in the decision-making for Techlogica. 350 I accept the evidence of Mr Ridhalgh. It is corroborated by documents to which I will come shortly: see "The Sage-Techlogica Transaction" below. 351 Mr Shaheen commenced employment with AIF in March 2000 as a junior administration clerk. In January 2001, he was promoted to "Accounts Clerk" . In that role he worked with Mr Goodsell and, later, Mr Faroungas. He remained in this employment until the demise of AIF. 352 Mr Shaheen formed the impression that soon after Mr Anthony joined AIF he had the same level of power and authority in its business as did Messrs Lloyd-Cocks and Luvara. The facts and circumstances which led him to form that impression were: – Messrs Anthony, Lloyd-Cocks and Luvara were the only persons to have separate offices and their offices were next to one another; – Messrs Anthony, Lloyd-Cocks and Luvara had frequent meetings together; – Mr Anthony was the only person in AIF to have a personal assistant; – between January and October 2001 Mr Shaheen frequently received instructions from Mr Anthony to transfer money to and from companies in the AIF group; – Mr Anthony instructed Mr Shaheen to procure the incorporation of over seventy companies with himself (i.e. Mr Shaheen) as sole director of most of those companies; – Mr Anthony instructed Mr Shaheen to open bank accounts for the companies which Mr Shaheen had incorporated and, as director of those companies, to nominate Mr Anthony to operate many of their bank accounts; – Mr Shaheen observed that Mr Anthony received the same level of weekly payments by way of remuneration as did Mr Lloyd-Cocks and Mr Luvara – the payments of $4,000 per week to which I have referred above; – Mr Shaheen observed that all AIF staff who worked in the financial planning section of the business reported to Mr Anthony; – while Mr Shaheen was the director of most of the companies in the AIF group which he had incorporated, he always acted on the directions of Mr Anthony in relation to the affairs of those companies and was never otherwise involved in decision-making for those companies; – on 20 June 2001 Mr Anthony sent an e-mail to Mr Shaheen confirming his verbal instructions to Mr Shaheen to appoint named persons as directors of companies within the AIF group before himself resigning as a director. The companies were: Finance Projects Nominee Securities Money Mint Medicoman Webfeatures Investment Research and Marketing Pty Ltd Australian Equity Forum Suisse Credit P/L 353 I accept the evidence of Mr Shaheen. It is corroborated by many other witnesses and documents. 354 The perception of Messrs Appleby, Goodsell, Faroungas and Shaheen that Mr Anthony had at least the same authority as Messrs Lloyd-Cocks and Luvara is confirmed by an e-mail which Mr Anthony sent to "All AIF Staff" on 13 July 2001. The e-mail directed all staff to submit their reports on specified activities to him by 12 noon that day, before he went on holidays. The e-mail concluded: "Note: If you cannot provide these reports then I cannot authorise wage and drawings until my return … in which case make sure you have up-to-date reports ready for when I get back." 355 The witnesses' impressions are further confirmed by an e-mail which the AIF Office Manager sent to "All AIF Staff" on 17 October 2001. It included the statement: "Senior Management (DA, MLC and DL) have requested that they not be disturbed while in their offices …" It is significant that Mr Anthony ("DA") precedes the rest of "Senior Management" , namely, Martin Lloyd-Cocks and Dominic Luvara. Mr Anthony's dealings with third parties 356 There is a great deal of other material which confirms the perceptions of AIF executives. A small sample follows. 357 Dr Albert Ho is the Chairman of Optum Group Limited, a small listed public company. Dr Ho gave evidence that in June and July 2001 AIF or one of its associated companies invested some $500,000 in a rights issue of Optum. There were protracted and complicated negotiations between Optum and AIF around that time whereby AIF or one of its associated companies would acquire from a subsidiary of Optum a licence to intellectual property in a software product called TRACCESS for a considerable sum of money. The product was also referred to by the parties as "TTG". Dr Ho said that in his negotiations with AIF for the acquisition of TTG he dealt mostly with Mr Anthony. I accept this evidence of Dr Ho. It was not challenged by Mr Anthony. It is corroborated and amplified by the following evidence. 358 Mr Anthony wrote a letter dated 12 June 2001 to Dr Ho on the letterhead of "A.I.F. Technology Holdings Limited" enclosing a draft contract for the TTG acquisition. He requested that Dr Ho acknowledge that the terms reflected their agreement and asked that signed copies of the document be returned to himself. He referred to another meeting to be held between himself and Dr Ho. The letter is signed by Mr Anthony above the words "VP – Global Operations" . 359 Mr Anthony agreed in cross examination that "VP" signified "Vice President". He also admitted that neither at June 2001 nor at any time did AIF or any of its associated companies actually conduct any operations outside Australia. 360 A document described as "Heads of Agreement" dated 15 June 2001 was signed by Dr Ho and Mr Anthony. The agreement contains a variety of complex terms relating to several transactions involving substantial sums of money. It is not necessary to go into detail as nothing came of this agreement. Mr Anthony's signature appears above the words "Vice-President-Global Operations Australian Investors Forum Pty Ltd" . 361 A fax from Mr Anthony to Dr Ho dated 20 June 2001 confirms some operational matters for the TTG acquisition. The fax is signed by Mr Anthony above the words "VP Global Operations Australian Investors Forum Pty Ltd" . 362 On 20 June 2001 Mr Anthony sent a letter to Dr Ho concerning the acquisition of the TTG product. The letter is on the letterhead of IT Genius. Below Mr Anthony's signature appear the words "VP Global Operations IT Genius Ltd" . 363 On 1 July 2001 Dr Ho wrote to Mr Anthony requesting his confirmation of their agreement as to the chairmanship of companies proposed to be transferred to AIF. Mr Anthony counter-signed the letter by way of confirmation. His signature appears above the words "Vice President – Global Operations and Counsel Australian Investors Forum Ltd" . 364 On 5 July 2001 Mr Anthony sent to Dr Ho a letter confirming further terms of agreement. Mr Anthony's signature appeared above the words "VP – Global Operations Australian Investors Forum" . 365 Mr Anthony and Mr Luvara played the primary role in negotiating the acquisition of a company called Financial Services Group (Holdings) Ltd ("FSG"), which was endeavouring to obtain ASX listing. FSG was acquired by Suisse Credit P/L in July 2001: "The AIF Share Dilution" below. In a letter dated 19 June 2001 written by Mr Luvara to the chairman of FSG, Mr Luvara made the following statements: "Both Dennis Anthony (Vice President – AIF Global Operations) & I believe we can structure a worthwhile transaction for FSG based on the following points, as outlined in the discussion with you. … Kindly contact Dennis Anthony at the office or myself direct on 0413.065.959 should there be queries that need attention." 366 There are many other examples in the evidence of Mr Anthony signing correspondence on the letterhead of AIF or Medionics over the description "Vice President – Global Operations" . Mr Anthony's relationship with Messrs Lloyd-Cocks and Luvara 367 Mr Anthony was a co-signatory with Mr Lloyd-Cocks on the bank account of Nominee Securities. In June and August 2001, Mr Anthony co-signed with Mr Lloyd-Cocks cheques and an authority for transfer out of the Nominee Securities' account of sums totalling more than $500,000. 368 Mr Lloyd-Cocks' evidence corroborated that from the very beginning of his association with AIF Mr Anthony was no mere consultant or employee. Paragraph 18 of Mr Lloyd-Cocks' affidavit of 29 January 2003 states: "In December 2000 AIF offered Swiss Pacific Inc, which employed Dennis Anthony, an opportunity to earn up to 30% of AIF should certain revenues be generated through initiatives conceptualised by him. As the relationship developed the arrangement was amended to include a 50% equity share in any new business that was introduced to AIF by Dennis Anthony/Swiss Pacific Inc. The amendments also included the payment of a licence fee to a Swiss Pacific Inc subsidiary Suisse Credit Inc, covering the intellectual property rights to unique financial services, ideas and products designed by Suisse Credit Inc. I reject Mr Lloyd-Cocks' attempt in paragraph 20 of the affidavit to categorise Mr Anthony as "a consultant" . One does not give to a consultant up to fifty percent of the profits of joint endeavours. 369 The most eloquent evidence of the nature of Mr Anthony's role in AIF and its business and of the relationship which he had with Messrs Lloyd-Cocks and Luvara appears in an e-mail which Mr Anthony sent to Messrs Lloyd-Cocks and Luvara on 25 June 2001. The sender of the e-mail is "Swiss Pacific" which was the name on Mr Anthony's e-mail address, as all AIF staff knew. I will come to Mr Anthony's role in Swiss Pacific Inc shortly. 370 The e-mail deserves to be considered closely: "From: Swiss Pacific Sent: Monday, 25 June 2001 9:46 To: Martin Lloyd-Cocks Cc: Dominic Luvara Subject: Break Squirrels / oops I mean Turtles I'm planning to have a break Probably same time Remy is off. That is in about 2 weeks from now. (Allow 3 weeks of RnR) There will be various things YOU must attend to before, during and after my absence. 1) Move to 53 Walker St. 2) Arrange Loan for Purchase of 53 Walker St. 3) Settlement on 53 Walker St NOTE: I have done my bit on 53 Walker Street NOW it is up to you guys to attend to completion … like apply for the loan to start! Capiche ? 4) AUDIT … of AIF 5) Preparation of Prospectus for FSG 6) F&T takeover 7) Global Solutions – proceed to wind up that company (assuming they do not want a Friendly takeover by Photonic Labs) 8) Progress Golden Beach – sale to Investors (RETAIN the MANAGEMENT Rights but lease it out for a $1 million Rights fee – 5 year term) … and keep the best unit for moi! 9) Complete TTG transaction 10) Progress ROCKSOFT … reissue prospectus – include IT Genius 11) Recruit, train and Develop IT Genies … to sell TRACCESS under licence from IT Genius i.e. Independent Agencies 12) AUDIT for AIF … essential for Prospectuses to issue 13) Keep Michael Fung Warm 14) Supervise Investments by SAGE … and look at new SAGE Raising 15) Progress S.A.I.L. 16) Progress VENTURE-IN 17) Develop the following: Mortgage Circuit Money Mint Equity Participation Property Forum 18) Attend to my Emails from O/S 19) Nearly forgot … send money to me while I'm away Regards Dee" 371 The content of the e-mail is highly significant; the tone in which it is written is even more significant. One does not normally address one's superiors as "squirrels" or "turtles". In this e-mail Mr Anthony is not only giving Messrs Lloyd-Cocks and Luvara a list of things to do while he is away on holiday, but the tone in which he addresses them, although jovial, is distinctly paternalistic; it is as if a headmaster is giving directions to two schoolboys. Swiss Pacific Inc 372 In denying that he was participating in the management of AIF or of any of its associated companies, Mr Anthony relied heavily on the assertion that in whatever he did he was merely representing the shareholders of Swiss Pacific Inc, a company incorporated in the Philippines, and it was Swiss Pacific, not himself, which was providing services to AIF and its associated companies pursuant to a joint venture agreement with AIF dated 12 December 2000 ("the Joint Venture Agreement"). That Agreement was signed by Messrs Lloyd-Cocks and Luvara as directors of AIF and by Mr Anthony as "General Manager" of Swiss Pacific. 373 The Joint Venture Agreement contained the following relevant provisions: " Swiss Pacific (SP) and its management have over 20 years experience in the Investment and Financial Planning industry – having established and operated 6 Financial Planning firms in Australia and one overseas; including founding Friends Financial Planners as well as having established and managed Unit Trusts for a Major Life Office. The Management of Swiss Pacific has extensive experience in recruiting, training and supervising industry advisors and has designed many investment product offerings and financial programs – most of which are still in the market place – including the now popular Mortgage Reduction Programs. … AIF wish to appoint SP under a joint venture profit sharing/equity arrangement to establish and manage a Financial Planning business as an adjunct to its current business; and to engage SP to provide management advisory and new product services to itself and select clients. Essential Terms of Agreement SP shall have Management Responsibilities for establishing and running the JV Financial Planning Division to include the Private Banking Division, Corporate Investment, Administration Systems and the International Division. SP will also offer general management functions, consulting, marketing and product development across the entire organisation. General consulting will also include advice on structuring the; Offshore Investment Division Offshore Private Banking Asset Protection Strategies including tax structuring, design of financial products and establishing domestic and offshore subsidiaries. AIF will meet all establishment and ongoing costs to provide; … Profits The Share of Profits between SP and AIF shall be 50/50 after all expenses of the Financial Planning Division and related Divisions and Products. Profit splits will be made quarterly or as required. Where Private Banking produces funds under management Swiss Pacific shall be entitled to 50% of the investment management fees – including a percentage of the bonus profit share incentives, currently 30% of gross returns for clients. SP will be entitled to 30% of the fees AIF receives from existing AIF clients and 50% of the fees from new clients. Equity SP will be entitled to up to 30% equity in the Australian Investors Forum against certain capital/profit benchmarks being met. … Contracting The Management of SP is not to be regarded as employees of AIF unless a release fee has been paid to SP. AIF acknowledges that this is a non exclusive agreement which does not restrict SP providing services to other parties." 374 Mr Anthony was at pains in his evidence to assert that it was Swiss Pacific itself which had made management decisions. For example, Swiss Pacific was shown as the sole shareholder of Techlogica, which was to acquire the TTG product from Optum. Mr Anthony said that Techlogica was controlled by Swiss Pacific and he represented Swiss Pacific. He was asked whether it was Swiss Pacific which had appointed Mr Shaheen as the initial sole director of Techlogica. Mr Anthony said: "A. In terms of the continuing operations. In terms of how things initially operated when he had concept companies we basically discussed who we thought would best be the directors of the company. Mr Shaheen in all instances first registered the companies. It was not an issue and it was a matter of the directors of AIF. And the share holders of Swiss Pacific were happy that that was the procedure that occurred. Subsequently to Mr Shaheen being there, the share holders of Swiss Pacific saw no need to change that until the Techlogica business was actually started producing in which case Geoff Ridhalgh was appointed." 375 By this answer Mr Anthony sought to convey the impression that the shareholders of Swiss Pacific had made decisions about Techlogica and that he was merely implementing those decisions. 376 After further cross examination, it transpired that the shareholders of Swiss Pacific who were supposed to be giving instructions to Mr Anthony were Mr Anthony's son and daughter, who each held twenty percent of the shares, and possibly three other Philippines' citizens of whose identity Mr Anthony was not quite sure. 377 A little later in the cross examination, it was elicited that the three Philippines shareholders had been employees of a holiday resort in the Philippines in which Swiss Pacific had some interest. Mr Anthony seemed to be not quite sure of the nature of that interest. The resort comprised about forty rooms and a restaurant. 378 Mr Anthony said that he had long since lost contact with the Philippine employees of the resort who were still shareholders and directors of Swiss Pacific. 379 Enquiries made by ASIC with the Philippines Securities & Exchange Commission reveal that the company was incorporated in 1993, that the directors and shareholders are three Philippinos and the two children of Mr Anthony, and that the addresses for Mr Anthony's children are given as care of Mr Anthony himself. It appears that no returns relating to the company have been filed since the end of 1996 or early 1997. The latest auditors report in respect of the company for the year ended 31 December 1995 shows that the company had suffered a loss of almost PHP350,000. 380 Mr Anthony was asked in cross examination: "Q. … you were the only representative of Swiss Pacific in Australia, is that not so? A. That's not so. Q. That's not so? A. No. Q. Who else from Swiss Pacific was in Australia? A. I have just given evidence Mr Stack in terms of the directors and shareholding in the company Swiss Pacific Inc of my son and my daughter and they were both in Australia. Q. They played an active role in AIF; did they? A. My son and daughter played no role in AIF. … Q. Did your son and daughter play any role in Swiss Pacific in terms of management? A. My daughter went to the Philippines and actually ran The Resort and the office in Manila in either '97 or '98 and she was there for at least a year. Q. Say from the beginning of 2000 onwards, did your daughter or your son take any active involvement in the management of Swiss Pacific's affairs? A. They were no longer active in terms of running the company on day to day. They remained to be directors of the company." 381 Mr Anthony's evidence concerning his relationship with Swiss Pacific and its directors was false in every particular. In 1994 he alone had executed mortgage documents on behalf of Swiss Pacific as the President of that company. In September 2001, in order to avoid the mortgagee realising on the Swiss Pacific security, he extracted $500,000 from Sage to keep the mortgagee at bay: see "The Sage Techlogica Transaction" under the heading "The real reason for the payment", paras 483ff. 382 I find that by the time Mr Anthony became associated with AIF in November 2000 Swiss Pacific was not being managed by any of the persons shown in its records as its directors. In so far as the company had any activity at all, the activity was managed solely and exclusively by Mr Anthony In truth, Swiss Pacific was nothing more than a name which Mr Anthony used in a dishonest attempt to represent that he was not directly participating in management of Australian companies while a bankrupt but was merely carrying out the instructions of an overseas corporation. All of the services to be provided by Swiss Pacific under its Joint Venture Agreement dated 12 December 2000 with AIF were in fact intended to be provided by Mr Anthony himself. 383 Ironically, even if Swiss Pacific were a genuinely independent company which had given Mr Anthony instructions as to the way he should perform the services to be provided under the Joint Venture Agreement with AIF, it would not have removed Mr Anthony from the reach of s.206A(1) CA. Whether as employee or agent of Swiss Pacific, Mr Anthony himself would still have been performing under the Joint Venture Agreement the very acts which s.206A(1) prohibited him, as an undischarged bankrupt, from doing. Conclusion 384 I am left in no doubt whatsoever that Mr Anthony contravened the provisions of each of the paragraphs of s.206A(1) CA from December 2000 to 24 October 2001. 385 I make the following findings: i) from December 2000 to 24 October 2001 Mr Anthony made, or participated with Messrs Lloyd-Cocks and Luvara, in making decisions which affected the whole of the business of AIF, in contravention of s.206A(1)(a); ii) it follows that at all times from December 2000 to 24 October 2001 Mr Anthony was an officer of AIF as defined by s.9 CA; iii) Mr Anthony directed Mr Shaheen to incorporate the following companies, appoint himself director, open bank accounts, appoint specified persons to be directors and then resign: Finance Projects Nominee Securities Money Mint Medicoman Webfeatures Australian Equity Forum Suisse Credit P/L Techlogica; iv) in giving such directions to Mr Shaheen, Mr Anthony made decisions which affected the business of each of those companies whereby he managed each of those companies in contravention of the provisions of s.206A(1)(a) and (c)(i) and (ii); v) in negotiating on behalf of IT Genius with Optum for the acquisition of the TTG product and in making decisions as to what were the terms upon which that company would contract with Optum, Mr Anthony made and, with Messrs Lloyd-Cocks and Luvara, participated in making decisions which affected the whole or a substantial part of the business of IT Genius, in contravention of s.206A(1)(a). THE 'ROUND ROBIN PAYMENTS' ASIC's allegations 386 Between 22 March and 30 May 2001 AIF paid to Suisse Credit P/L and Webfeatures a total of $2.708M. 387 A very substantial part of this money came from the subscription monies which investors paid for shares in AIF's pre-IPO. As will be recalled, the money had been raised on the promise that AIF would list on the ASX and that investors would receive shares in a listed company. Between March and May 2001 AIF was nowhere near achieving a listing. It was never listed. The state of its accounts and the illusory nature of its business would never have survived scrutiny. 388 The AIF pre-IPO subscription monies were not held in a trust account pending listing of AIF and pending the issue of shares to investors, as they should have been. That part of the subscription monies which was not used for the running expenses of AIF and other companies within the group was almost immediately paid out of AIF between March and the end of May 2001. 389 Of the $2.708M paid out, ASIC alleges that: – $1,011,835.50 was used to repay money owed by Mr Luvara to AIF; – $384,326.21 was used to repay money owed by Mr Lloyd-Cocks to AIF; – $80,000 was paid to Mr Lloyd-Cocks' company, Sacvere; – $84,000 was paid to Mr Luvara's company, Associated Asset Management; – $102,244.50 was paid to Mr Anthony's company, Internet Currency Exchange. 390 These transactions have come to be referred to as "the round robin payments". I will continue to use that general description for ease of reference. 391 The sum of $2.708M which came out of AIF was made up of six payments. The first was a payment of $300,000 to Webfeatures on 22 March 2001. The remaining five payments were made to Suisse Credit P/L: $300,000 on 10 April, $730,000 on 18 April, $220,000 on 19 April, $900,000 on 24 April, and $258,000 on 30 May 2001. 392 According to Mr Anthony and Mr Lloyd-Cocks, the five payments to Suisse Credit P/L were made pursuant to and in performance of an agreement dated 10 April 2001 between AIF and Suisse Credit Inc, whereby Suisse Credit Inc licensed to AIF the intellectual property in "unique financial services and products" designed and owned by Suisse Credit Inc. Suisse Credit Inc is said to have directed AIF to make the payments due to it to Suisse Credit P/L. 393 ASIC alleges that the Suisse Credit Inc agreement was a sham, that there were no such "unique financial services and products" designed or owned by Suisse Credit Inc, and that the agreement was no more than an attempt to disguise the fact that AIF's money – most of which should have been held in trust for the pre-IPO investors – was used to repay debts owing to AIF by Messrs Lloyd-Cocks and Luvara and to make unjustified payments to Mr Anthony. 394 ASIC alleges that the payment by AIF to Webfeatures of $300,000 on 22 March 2001 was without any justification. Mr Lloyd-Cocks says that the sum of $300,000 was not AIF's money but was, in fact, part of the proceeds of sale of shares owned by him in a company called Australian Liquor Group Limited, and was paid by AIF to Webfeatures at his direction to fund the development of that company. He says that shortly after the payment he was advised by Mr Anthony that the funds would be better utilised by repaying his personal loan account with AIF "as the ASX listing [of AIF] was scheduled for the end of the year and a company valuation was to be prepared" : Mr Lloyd-Cocks' written submissions, p.28. 395 ASIC alleges that: – by virtue of Mr Anthony's involvement in the management of AIF and by virtue of his part in the transactions with Webfeatures, Suisse Credit P/L and Finance Project (an indirect recipient of some of the money from AIF), Mr Anthony was a director or officer of each of those companies, as defined by the Corporations Act ; – by authorising or permitting the relevant companies to engage in the round robin payments, Mr Anthony, as a director or officer of those companies: breached his duties of care and diligence under s.180(1) CA; breached his duties of good faith under s.181(1) CA; improperly used his position as a director or officer to gain an advantage for himself or for some other person or to cause detriment to the companies, in breach of s.182(1) CA. 396 ASIC alleges that Mr Lloyd-Cocks, as a director of AIF and Sacvere, in authorising or permitting the round robin payments: -– breached his duties of care and diligence under s.180(1) CA; – breached his duties of good faith under s.181(1) CA; – improperly used his position to gain an advantage for himself or others or to cause detriment to those companies, in contravention of s.182(1) CA. The Suisse Credit Inc Agreement 397 As I have noted, ASIC alleges that the Suisse Credit Inc Agreement ("SCI Agreement") was a sham in that it was never intended to have effect. Mr Anthony and Mr Lloyd-Cocks at all times insisted that the SCI Agreement, far from being a sham, was a genuine and highly valuable asset of AIF which would have turned out to be of immense value to AIF's business. 398 I have no hesitation in concluding that the SCI Agreement was brought into existence by Messrs Anthony, Lloyd-Cocks and Luvara solely for the purpose of enabling money to be channelled out of AIF at will, for the benefit of each of them. It was not only a sham – it was a bare-faced fraud. 399 The evidence which supports this conclusion is voluminous. The following is a summary. 400 The SCI Agreement is a two and a half page document dated 10 April 2001, the day upon which the first payment by AIF to Suisse Credit P/L was made. It contains fifteen clauses and is signed by Mr Anthony as "Authorised Attorney on behalf of Suisse Credit Inc" and by Messrs Lloyd-Cocks and Luvara on behalf of AIF. The document was not prepared by an outside lawyer. It was doubtless prepared by Mr Anthony himself. 401 The significant provisions of the SCI Agreement are as follows: "Whereas: A. SC is the designer of unique financial services and products (the "products") – including being the inventor of a novel financial security, (the "Security") which is currently being develop by SC and which shall be market as 'Suisse Credits'. B. AIF wishes to apply for Australian patent rights for the products and Security. C. Upon grant of patent rights AIF wishes to assign such patent rights to SC. D. AIF wish to establish, manage and supervise various businesses in Australia through which the products and Security can be marketed and distributed. E. SC wish to appoint AIF as a licensee for the purposes of distributing, sub-licensing and marketing its products and Security. F. AIF for purposes of this Agreement shall also extend to include all companies, parties, partnerships and the like with whom AIF is associated, or has business with, including all concerns with whom AIF is proper authority holders might have or might develop commercial relationships. It is agreed: 1. Application for patent SC appoints AIF as its agent for the purpose of making application to IP Australia for patents for the products designed by SC. AIF shall do all things necessary or convenient to enable SC to make such application. 2. Costs of application AIF shall bear all the costs of making such application. AIF may proceed or not proceed with any application as it sees fit in its sole discretion. … 4. Grant of Licence SC grants AIF a licence to distribute and market its products and the Security; and to manage and supervise all businesses in Australia that also distribute, market and promote the products and Security. 5. AIF shall be entitled to retain 10% (ten percent) of the before tax operating profit, fees, and income resultant in Australia from sale, leasing, licensing, and otherwise distributing the product and Security. 6. AIF agrees to obtain or otherwise direct the remainder of pre-tax income resulting from the products and Security, and to deposit them in an account to be held for the sole benefit of SC or its Australian nominee/s. 7. Term The term of this Agreement is four years from the date of this Agreement or the date on which a patent is granted. If no application for a patent is made by AIF or a designated business under supervision and or management within one year of the date of this Agreement then the Agreement shall terminate one year from the date of this Agreement. Upon such termination SC itself may make application for a patent at its sole discretion. 8. Providing AIF adheres to all terms of this agreement SC shall not unreasonably withhold consent from renewing this contract for a further period of 4 years. In which case this agreement shall conclude eight years from the date of this Agreement. … 14. AIF further agrees to pay to SC $8,000 towards initial legal expenses, and to cover all subsequent legal and administration expenses. 15. Consideration In consideration for SC entering into this Agreement AIF agrees to pay to SC or its nominees as directed the sum of Two Million Seven Hundred Thousand Dollars to be used as capital in various of SC's businesses – which may be utilised at the sole discretion of SC as it sees fit. AIF further agrees to pay to SC $8,000 towards initial legal expenses, and to cover all subsequent legal and administration expenses." 402 There is no definition, identification or description in the SCI Agreement of what is the "Security" to be developed and marketed as "Suisse Credits" or what are "the products" for which AIF is to apply for patents. 403 Suisse Credit Inc was described in the document as "the designer" of "the products" and "the inventor" of the "novel financial security" . Mr Anthony at first endeavoured to convey the impression that Suisse Credit Inc was an entity unrelated to himself except that he was appointed as its attorney in Australia. He gave this evidence: "A. Suisse Credit Inc was the offshore company. I was not responsible for the company. However, I was responsible for the Suisse Credit contract with AIF. Q. I see. What was your role with Suisse Credit Inc? A. I was their appointed attorney. Q. You were their appointed attorney? A. That's right. HIS HONOUR: Q. Appointed by whom? A. By the Directors of Suisse Credit Inc. Q. Who are the directors? A. The only director I had contact with was Oscar Villareal. Q. And who is that gentleman? A. He is the Director of Suisse Credit Inc. Q. Could you tell me something about him? Where does he live? What does he do? A. He lives in Panama your Honour. He is a solicitor with a law firm. He was in fact introduced to me by another gentleman over there whose name I forget with the intention that we would be doing business together at a later date. Q. As attorney for Suisse Credit Inc, did you make all of the business decisions? A. In Australia I made the business decisions your Honour." 404 In fact, Suisse Credit Inc was a company incorporated in Panama on 10 April 2001, the date on the SCI Agreement. A little later, Mr Anthony gave the following evidence in cross examination: "HIS HONOUR: Q. Just a moment Mr Stack. I want to understand something more about Suisse Credit Inc. Its sole director, as you understood it, was? A. No, there were three directors but the only director I had any dealings with was Oscar Villareal. Q. Were you instrumental in having that company incorporated in Panama? A. I was not instrumental in so much as the gentleman whose name I can't remember was the one responsible in incorporating it. We had discussed some business proposals and in fact I was going to represent the company here in Australia. The gentleman in fact was in Brisbane on business and in fact I think I was flying to the Philippines. We had a brief meeting and he established the company and it was to be the vehicle through which I would be operating with the business relationship with him so I was responsible in so much as requesting the company to be established. Q. This gentleman that you were to be involved with and for which Suisse Credit Inc was to be the vehicle, this is a gentleman whose name you can't remember? A. That's right your Honour. I don't deny that I was involved in instructing that gentleman to establish a company through which I could operate. HIS HONOUR: Yes thank you. HIS HONOUR: Q. Why did you instruct this gentleman, whose name you can't remember, to set up this company in Panama through which you could operate, not being yourself shown as a director of this company? A. Your Honour, I actually received an email – this is how I had initial contact with the gentleman – in fact, it wasn't from the particular person; it was one of his staff. Subsequently, I responded to that email and then had contact with another gentleman in that office who I can't remember. I can remember the name of the company, POSI Inc. Anyhow, subsequent to that I was referred to the principal of the firm. We had discussions about what they were doing. They were lawyers in Panama and I expressed an interest - because of my involvement overseas - of having a relationship with the law firm. I also have relationships with lawyers in the Philippines and, after our discussions, it became apparent that we could actually work together in matters concerning investments and legal matters offshore and it was a matter of – again, because I was the resident in the Philippines and not in Australia – that a company be established for that purpose and I, I took the opinion that it would be useful to have the company established in Panama. Q. Why? A. Well, in terms of where this law firm was located, it was located in Panama and I had visions of actually going there myself and operating from there. Q. This was a company incorporated in Panama, the directors were Panamanian lawyers who offered a service to international clients to incorporate companies in Panama and be the nominee directors; is that the case? A. Yes, well, in addition to other items, but in terms of the relationship between myself and the firm, I was actually to become a consultant for that firm. Q. Why did you want to be able to operate through a Panama company without being shown as a director? A. In terms of incorporations in Panama, it's basically shelf companies where there are various shares which can be transferred. There was no need for me to be a director as long as I was given power of attorney to represent the company. STACK: Q. So this company was incorporated at your request; is that not so? A. Essentially, Mr Stack. Q. And so the directors were simply your nominee directors; is that not so? A. No, Mr Stack. Mr Oscar Villareal was not my nominee, but was in fact the gentleman whose name escapes me was nominee and I accepted him in that role as the managing director of the company. Q. Yes, but they simply followed your directions, did they not? A. No, Mr Stack, they basically followed their own directions. However, I was given power of attorney to operate in Australia and then in terms of my proposed visit, which never occurred, to Panama would have determined what the nature of the relationship would then be. Q. And how did you come to this decision that you needed this Panama company? A. As I said, Mr Stack, I had discussions with the principal of POSI and I had decided that I would like to be a consultant for the firm and, subsequent to that decision, the company was established to facilitate that relationship. … Q. Did you arrange for this company, Suisse Credit Inc, to be incorporated in the way you've described in order that AIF could enter into the licence agreement with Suisse Credit? A. No, your Honour. Suisse Credit was a concept which I was responsible for. It was something that would have been applicable globally, not just in Australia and not just for AIF. However, I discussed – there's a number of items. There is the Suisse Credit concept as distinct from the companies that emanated out of the Suisse Credit agreement with AIF. Now the Suisse Credit concept was a global concept, not pertaining just to Australia and it was a concept I'd been working on for a number of years and that I'm still working on, your Honour. 405 It is quite obvious that Suisse Credit Inc was incorporated in Panama by Panamanian lawyers at Mr Anthony's request, that the directors were merely nominee directors, that Suisse Credit Inc did not conduct any business in Panama, and that it had not designed and did not own any of "the products" referred to in the SCI Agreement. 406 It is noteworthy that Mr Anthony gave no satisfactory reason for incorporating the company in Panama and for not including himself as one of its directors. His denial that the nominee Panamanian directors followed his instructions and his assertion that "they basically followed their own directions" are patently false. 407 I am in no doubt that Suisse Credit Inc was, in truth, established by Mr Anthony in Panama with nominee directors with the express purpose of enabling an offshore company, which could not be readily linked to Mr Anthony, to enter into an agreement with AIF pursuant to which more than $2M would be paid out of AIF, to be disposed of as Messrs Anthony, Lloyd-Cocks and Luvara determined. 408 Mr Anthony was asked to describe the "novel financial security" which was to be marketed as "Suisse Credits" , the major "product" for which AIF agreed to pay $2.7M on 10 April 2001. He gave this evidence: "Q. What is this Suisse Credit concept, Mr Anthony? A. Suisse Credit concept is like a discount voucher, Mr Stack. The purpose is – let's say how it applies. Someone wishing to make an investment in an IPO could purchase a voucher, let's say, for a discount of 20 cents on the dollar. So the person may pay 80 cents for the voucher and at a later date, when the company lists and assuming the company lists at a dollar, the person with the voucher could actually buy those shares with the voucher and thus make 20 cents, such that they've made a 25 per cent profit. Now the concept was that the individual buying the voucher would provide the funds. The funds could then be used by the companies towards listing. However, there was no obligation by the individual to actually use that voucher to buy those shares until they saw the actual listing price and, at that point in time, is when they would make a decision whether they wanted to exercise the voucher on that particular IPO or whether they could use it on another IPO, another company at another date. … HIS HONOUR: Q. Isn't that simply an option? A. It's not an option in so much as it could be applied against any company, any IPO … Q. I just want to try and understand it. Who would issue this voucher? A. The idea was that it would be issued by Suisse Credit itself, right. Q. Suisse Credit? A. Yes. Q. And then how would Suisse Credit procure that the floating company would issue shares to the purchaser of the voucher? A. The idea would be and it had been hoped that we could sell this concept to an entity, an investment bank, such as Macquarie Bank, but in terms of – with AIF we were looking at initially it being useful for AIF. AIF would be floating a number of companies and if Suisse Credit had an arrangement or a contract with AIF, AIF in fact would permit the holder of the Suisse Credit voucher to purchase shares in any of the IPOs that AIF would put forward over a period of time. So, if in the year AIF might have floated say four or five companies, the holder of the voucher would be entitled to use that voucher to purchase shares in any of the IPOs as they came up. So it wasn't an option over any shares in any particular company. It was a novel concept. I don't believe that it had existed anywhere else in the world and it was something which I believe would be revolutionary and change the face of investment banking. Q. And did you have discussions with Macquarie Bank about … A. We had not … Q. Sorry, you did or did not? A. We did not, your Honour. It was something which I believe needed – well, we were considering whether we could – should patent it or could patent it and whether we actually would – it would be classified as a security. Q. So you weren't sure whether or not this idea was, in any shape or form, subject to any intellectual property rights ? A. That's right, your Honour. It's being developed ." [Emphasis added] 409 This evidence demonstrates that the "Suisse Credits" concept was as devoid of substance as thin air. 410 Mr Anthony said that in addition to paying for the "Suisse Credits" concept, AIF under the SCI Agreement was paying for about one hundred "business concepts" which Mr Anthony had not yet developed. He said that at the time that the agreement was signed there was no list of these "products" – the payment was for "products as they rolled out" . I conclude that these "products" were just as illusory as "the Suisse Credit concept" . 411 It is hardly necessary to add that: – there was never any assignment by Mr Anthony to Suisse Credit Inc of any intellectual property in any of the "concepts" or "products" which he said he had been working on; – AIF never applied for any patent of any of these "concepts" or "products" . 412 Mr Gregory Ralph, a chartered accountant and registered company auditor, was engaged by AIF in about August 2001 to prepare an Independent Expert's Report to the shareholders of Farnell & Thomas Ltd, the vehicle through which AIF was seeking back-door listing on the ASX. Mr Ralph was provided with several different versions of AIF's accounts for the year ended 30 June 2001. He gave this evidence: "Each of the set of accounts referred to in paragraph 7 above contained a reference to an asset referred to as a licence. I note that the value attributed to the licence varied between $2,700,000 and $2,062,500, the latter value including an amortisation of $137,500. I was initially informed by Dennis Anthony that the licence was confidential. Some attempt was made to explain the nature of this licence to me in subsequent meetings, but I was unable to understand what 'products' were being provided under the licence. Accordingly I was not prepared to recognise any value for the licence for the purposes of the IER at that time." 413 Mr Alexander Macintosh, a highly experienced accountant and liquidator, who was appointed as receiver and then as liquidator of AIF, said that from the examinations of AIF's affairs which he and his staff had conducted, no income had been derived by AIF from the "products" referred to in the SCI Agreement. He said that there seemed to be no prospect of the company ever deriving any income from the "products" . He said that when had asked AIF's directors to explain how AIF would derive income from the "products" , no satisfactory answer was given. Accordingly, Mr Macintosh valued AIF's rights under the SCI Agreement at nil. 414 The evidence of Messrs Ralph and Macintosh confirms the obvious: far from being worth the $2.708M which AIF had paid for it, the SCI Agreement was never worth even so much as the two and half sheets of paper it was written on. No honest person, let alone a director charged with acting in good faith in the best interests of AIF, could ever have believed otherwise. The payment to Webfeatures 415 Webfeatures was incorporated on 6 February 2001 with Mr Shaheen as its only director. Its bank account was opened on 29 March 2001. On the same day, $300,000 was received into the account from AIF and Mr Lloyd-Cocks signed requests to the bank authorising the payment out of the account of $240,000 to Sacvere, his company, and $55,000 to Mortgage Circuit. Mortgage Circuit had been incorporated on 1 February 2001 with Mr Topperwien as its director. Mr Lloyd-Cocks became a director on 15 May 2001. Mr Topperwien was a solicitor closely associated with Mr Anthony. 416 AIF's cheque for $300,000 in favour of Webfeatures was drawn on 22 March 2001 on AIF's NAB Trust Account. AIF's internal records show that by 22 March 2001 AIF had received from subscribers to AIF's pre-IPO $471,500, which went into the NAB Trust Account. An internal reconciliation prepared by AIF shows that the money in the NAB Trust Account was used to make the payment of $300,000 to Webfeatures. 417 Mr Lloyd-Cocks asserted, however, that the sum of $300,000 was in fact his own money. He gave differing versions of the facts which, he said, supported this assertion: see T658ff. 418 First, Mr Lloyd-Cocks said that the money was part of proceeds of sale of shares which he had received in the public listing of Australian Liquor Group Ltd ("ALG"). Mr Lloyd-Cocks could not produce a share certificate in his own name for the shares. His attention was drawn to the fact that the records of AIF did not show him as having been issued with ALG shares as part of the issue underwritten by AIF. AIF had entered into an agreement with ALG to underwrite $3M of ALG's public issue. 419 Mr Lloyd-Cocks then said that 900,000 shares in ALG had been issued to Mr Luvara and himself directly, as a success fee in connection with ALG's listing. Then he said that the shares were given to him and to Mr Luvara "free as part of the underwriting agreement we had with ALG at the time" . In the next breath, he repeated that the shares were an underwriting fee. 420 It was put to Mr Lloyd-Cocks that if the shares had been issued by ALG as part of an underwriting fee then the fee was due to AIF as it was AIF which had underwritten ALG's listing. Mr Lloyd-Cocks then said that as he and Mr Luvara owned AIF equally, he believed that he and Mr Luvara could anything they liked with the ALG shares, as if they belonged to them and not to AIF. 421 I do not accept Mr Lloyd-Cocks' evidence that the sum of $300,000 paid by AIF to Webfeatures came from money to which he was entitled. It will have emerged from my comments about the SCI Agreement and Mr Lloyd-Cocks' participation in that transaction that I do not regard Mr Lloyd-Cocks as an honest man, worthy of any credit. 422 Mr Lloyd-Cocks has produced no documents supporting has assertion that ALG shares were issued to him personally and that their proceeds were used to pay $300,000 to Webfeatures on 22 March 2001. His evidence seemed, in the end, to suggest that whatever money AIF had, he believed that he and Mr Luvara were free to use it as they pleased. In my opinion, this is, in truth, the attitude that Mr Lloyd-Cocks had at all times. 423 I find that the payment of $300,000 to Webfeatures by AIF on 22 March 2001 came, not out of monies to which Mr Lloyd-Cocks was entitled, but rather out of monies received by AIF for subscription in AIF's pre-IPO. It was money which should have been held by AIF in trust, pending either a successful listing of AIF and the issue of its shares to its subscribers or else returned to the investors if listing did not eventuate. Where the 'round robin payments' went 424 Prior to 30 June 2001 Mr Luvara's loan account with AIF stood at $1,139,730.19, $875,063.75 of which had been borrowed during 2000, $264,666.44 of which had been borrowed during 2001. Mr Lloyd-Cocks' loan account stood at $574,519.47, $400,365.69 of which had been borrowed during 2000, and $174,153.78 of which had been borrowed during 2001. 425 As at 30 June 2001, the loan accounts of Messrs Lloyd-Cocks and Luvara with AIF had been extinguished: $976,163 had been paid to AIF by Finance Projects in reduction of Mr Luvara's loan account, and $420,000 had been paid to AIF by Sacvere in reduction of Mr Lloyd-Cocks' loan account. Finance Projects and Sacvere received and paid away those monies by the following routes. 426 On 22 March 2001 AIF drew a cheque for $300,000 in favour of Webfeatures. On 29 March, when Webfeatures' account was opened and received the proceeds of that cheque, $240,000 was paid out of the account to Sacvere. 427 On 6 April Sacvere paid $200,000 to AIF, $52,959.14 being in reduction of Mr Lloyd-Cocks' loan account and $147,040.86 being in reduction of Mr Luvara's loan account. 428 On 29 March 2001 Webfeatures paid $55,000 – almost the whole of the rest of the payment of $300,000 which it had received from AIF – to Mortgage Circuit, of which Mr Topperwien was then a director and Mr Lloyd-Cocks was shortly to become a director. What has happened to that money is not known. 429 Mr Lloyd-Cocks asserts that the payment of $300,000 by AIF to Webfeatures was "an investment" in Webfeatures for the purpose of enabling it to develop its business. I am in no doubt that that evidence is false. The timing of the payments into and out of Webfeatures' account shows that the money was never intended to be invested in Webfeatures' business – it never had any kind of business, in any event – but was always intended to be applied in reduction of the directors' loan accounts. 430 On 10 April 2001, AIF paid $300,000 to Suisse Credit P/L. Mr Anthony and Mr Lloyd-Cocks say that this payment was made pursuant to AIF's obligations under the SCI Agreement, signed that day, and was made to Suisse Credit P/L at the direction of Suisse Credit Inc – in other words, at the direction of Mr Anthony. Suisse Credit P/L had been incorporated on 29 March 2001 by Mr Shaheen at Mr Anthony's direction and at the time of the payments pursuant to the SCI Agreement Mr Shaheen remained as sole director of Suisse Credit P/L. 431 A week after receiving $300,000 from AIF, Suisse Credit P/L paid $227,000 to Sacvere on 17 April 2001. Two days later, on 19 April, Sacvere paid $220,000 to AIF in reduction of Mr Lloyd-Cocks' loan account. 432 On 18 April 2001, AIF paid $730,000 to Suisse Credit P/L which, on the same day, paid the same amount to Finance Projects. On the next day, 19 April, AIF paid $220,000 to Suisse Credit P/L which, on the following day paid the same amount to Finance Projects. On the same day, 20 April, Finance Projects, which had received a total of $950,000 from AIF via Suisse Credit P/L in the space of less than two days, paid $923,000 to AIF in reduction of the loan accounts of Messrs Lloyd-Cocks and Luvara. 433 Four days later, on 24 April, AIF paid $900,000 to Suisse Credit P/L which, on the same day paid $600,000 to Mr Luvara's company, Associated Asset Management, and on 2 May paid $200,000 to Finance Projects. On 3 May, Finance Projects paid $53,162 to AIF in reduction of Mr Luvara's loan account. What has become of the $600,000 paid by AIF to Associated Asset Management via Suisse Credit P/L is not revealed by the evidence. 434 On 30 May 2001, AIF paid $258,000 to Suisse Credit P/L which, on the same day paid the same amount to Finance Projects. Between 1 June and 19 October 2001 Finance Projects used the money to pay weekly amounts to each of the companies controlled by Messrs Anthony, Lloyd-Cocks and Luvara: a total of $102,244 to Mr Anthony's company, Internet Currency Exchange, $84,000 to Mr Luvara's company, Associated Asset Management, and $80,000 to Mr Lloyd-Cocks' company, Sacvere. These payments were arranged by Mr Shaheen on Mr Anthony's instructions. When Mr Faroungas queried Mr Anthony as to the nature of the payments he was told that they were "weekly loans" pursuant to "verbal agreements" . 435 The result of the decision by Messrs Anthony, Lloyd-Cocks and Luvara that AIF would enter into the SCI Agreement and make the payments thereunder which followed may be summarised thus. AIF's position had been that it had had assets comprising cash of $2.708M and directors' book debts amounting to almost $1.4M, a total of approximately $4.1M. After implementation of the SCI Agreement and the round robin payments that ensued, $1.4M of AIF's cash had been used to make $1.4M in directors' book debts disappear from AIF's balance sheet. The remaining $1.3M of AIF's cash had ended up in companies controlled by Messrs Anthony, Lloyd-Cocks and Luvara. All that AIF had to show in exchange for expending $2.708M was the SCI Agreement – two and a half worthless sheets of paper. 436 AIF's loss through the SCI Agreement was, in round figures, $2.708M: $1.4M in book debts which had artificially been made to evaporate and about $1.308M which went into the directors' pockets. Whether contraventions of the Act 437 Mr Lloyd-Cocks was unquestionably a director of AIF: see paragraphs 28, 29. Mr Anthony denies that he was a director or officer of AIF. 438 Section 9 CA relevantly defines "officer" as follows: "(a) a director or secretary of the corporation; or (b) a person: (i) who makes, or participates in making, decisions that affect the whole, or a substantial part, of the business of the corporation; or (ii) who has the capacity to affect significantly the corporation's financial standing; or (iii) in accordance with whose instructions or wishes the directors of the corporation are accustomed to act (excluding advice given by the person in the proper performance of functions attaching to the person's professional capacity or their business relationship with the directors or the corporation) …" 439 Paragraph (b) of the definition of "officer" sets out the same criteria as are given in s.206A(1)(a) and (b) for determining whether a person has been managing a corporation. I have come to the conclusion that Mr Anthony was managing AIF from November 2000 to 24 October 2001: see "Mr Anthony's Participation in Management" above. It follows that during that period – and at the time of the transactions involving the SCI Agreement – Mr Anthony was an officer of AIF within the meaning and for the purposes of s.180(1), s.181(1) and s.182(1) CA. 440 There could not be the slightest doubt that Mr Anthony and Mr Lloyd-Cocks knew exactly what was intended to be done with the $2.408M which was paid to Suisse Credit P/L pursuant to the SCI Agreement. Mr Lloyd-Cocks himself said that "the requirement, timing, justification and amounts of all payments to reduce my personal loan account with AIF were overseen by Dennis Anthony as part of his role to restructure AIF towards an ASX listing" : written submissions p.28. 441 Neither could there be the slightest doubt that the payment of $300,000 by AIF to Webfeatures on 22 March 2001 was made pursuant to a plan devised by Mr Anthony and Mr Lloyd-Cocks to use AIF's money to repay Mr Lloyd-Cocks' loan account with AIF. As I have said, I do not accept Mr Lloyd-Cocks' evidence that the $300,000 was his own money or that it was originally paid by AIF to Webfeatures to fund the development of the latter company's business. 442 Both Mr Anthony and Mr Lloyd-Cocks have said that removal of the loan accounts of Messrs Lloyd-Cocks and Luvara from the balance sheet of AIF using AIF's own money was necessary or desirable in AIF's interests in order to assist it in achieving ASX listing. I do not accept that assertion. I am unable to see how making the directors' loan accounts disappear as assets of AIF by means of a round robin of payments could reasonably be said to be either in AIF's interests or in any way assisting it towards achieving listing on the ASX. 443 In summary, I find that Mr Anthony and Mr Lloyd-Cocks, as officers of AIF, procured AIF to enter into the SCI Agreement, knowing that that document was nothing more than a device to enable the directors' loan accounts to be repaid with AIF's own money and to enable the balance of available cash in AIF to be used for the purposes of Messrs Anthony, Lloyd-Cocks and Luvara. I find that the round robin payments made by AIF between March and May 2001 were made at the direction of Messrs Anthony and Lloyd-Cocks for the purposes of carrying out this scheme. 444 The scheme was dishonest. No reasonable person could have entertained the slightest doubt otherwise. Neither Mr Anthony nor Mr Lloyd-Cocks obtained the advice of accountants or solicitors before implementing the scheme – they must have known what advice they would have received. 445 I have no hesitation in finding that in authorising the payment of $300,000 by AIF to Webfeatures in March 2001 both Mr Anthony and Mr Lloyd-Cocks, as officers of AIF: – breached their duties of care and diligence to AIF; – failed to act in good faith in the best interests of AIF; – acted for an improper purpose, namely, to benefit Mr Lloyd-Cocks at the expense of AIF and those who had subscribed for its shares; – acted to gain an advantage for Mr Lloyd-Cocks; – caused detriment to AIF, whereby each of them has contravened the provisions of s.180(1), s.181(1) and s.182(1) CA. 446 I find that in devising the scheme whereby AIF entered into the SCI Agreement and paid $2.408M to Suisse Credit P/L both Mr Anthony and Mr Lloyd-Cocks, as officers of AIF: – breached their duties of care and diligence to AIF; – failed to act in good faith in the best interests of AIF; – acted for an improper purpose, namely, to benefit themselves at the expense of AIF and those who had subscribed for its shares; – acted to gain an advantage for themselves and Mr Luvara; – caused detriment to AIF, whereby each of them has contravened the provisions of s.180(1), s.181(1) and s.182(1) CA. THE SAGE-TECHLOGICA TRANSACTION ASIC's allegations 447 Sage was incorporated on 10 April 2000 as a public company. Its original directors were not associated with AIF or its directors. 448 Sage was listed on the ASX on 8 August 2001 and on that day Mr Lloyd-Cocks became a director. The original directors resigned on 17 September 2001 and were replaced by Messrs Luvara and Topperwien. 449 On 28 September 2001, when the Board of Sage comprised Messrs Lloyd-Cocks, Luvara and Topperwien, Sage paid $560,000 to Techlogica in consideration of the issue of 2.8 million ordinary shares in Techlogica, which amounted to 10% of the issued share capital of Techlogica. On 5 October 2001 Techlogica paid $135,000 to Finance Projects, $203,123 to Money Mint, and $201,160 to Casabanca. On 8 October, Finance Projects paid $100,000 to Business Franchises Pty Ltd ("Business Franchises"), Money Mint paid $200,000 to Business Franchises, and Casabanca paid $200,000 to Business Franchises. 450 ASIC alleges that: – at the time of the payment from Sage to Techlogica, Mr Anthony was a director or officer of Techlogica, Finance Projects, Money Mint and Casabanca; – Mr Anthony procured the payments by Techlogica to Finance Projects, Money Mint and Casabanca and the payments by those companies to Business Franchises and, in doing so, contravened s.180(1), s.181(1) and s.182(1) CA; – Mr Lloyd-Cocks, as a director of Sage, authorised the payment by Sage to Techlogica of $560,000 and, in doing so, contravened s.180(1), s.181(1) and s.182(1) CA; – at the time of the payments from Sage to Techlogica, Techlogica was a related party of Sage as defined by s.228 CA; – the payment by Sage to Techlogica was a financial benefit to Techlogica within the meaning of s.229 CA; – the payment by Sage to Techlogica was made without the approval of the members of Sage and did not fall within one of the exceptions provided in s.210 to s.216 CA whereby both Sage and Techlogica contravened the provisions of s.208(1) CA; – Messrs Anthony and Lloyd-Cocks were each involved in the contraventions of s.208(1) CA by both Sage and Techlogica within the meaning of s.79 CA; – Messrs Anthony and Lloyd-Cocks have, accordingly, themselves contravened the Corporations Act and are liable to a disqualification order under s.206A(1) and to pay compensation to Sage or Techlogica under s.1317H(1) or s.1324(10) CA. The Defences 451 Mr Anthony: – denies that he was a director or officer of Techlogica, Finance Projects, Money Mint and Casabanca; – denies that Techlogica was a related party of Sage, as defined in the Corporations Act ; – says that if Sage and Techlogica were related parties, the approval of the members of Sage to the transaction was not required because the transaction fell within the exception to s.208(1) CA provided by s.210 CA. 452 Mr Lloyd-Cocks: – denies that Sage and Techlogica were related parties; – says that the transaction fell within the exception provided in s.210 CA. 453 Both Mr Anthony and Mr Lloyd-Cocks say that they were not informed by the secretary of Sage, Mr Lee, that the transaction might be a related party transaction and that they were entitled to rely upon Mr Lee to inform them if that was the case. The test in s.210 CA 454 Section 210 CA provides: " Arm's length terms Member approval is not needed to give a financial benefit on terms that: (a) would be reasonable in the circumstances if the public company or entity and the related party were dealing at arm's length; or (b) are less favourable to the related party than the terms referred to in paragraph (a)." 455 The test prescribed by s.210(a) is expressed broadly and I am aware of no decision of the Courts which gives it consideration. It is clear, nevertheless, that in applying the test the Court is required to assess the terms of the subject transaction against objective standards: what the parties themselves thought about the reasonableness of the terms is relevant as an explanation of the transaction but is not decisive as to whether the terms were reasonable for the purposes of the section. 456 In applying the test the Court assumes that the transaction is being entered by a public company which is: – unrelated to the other party to the transaction in any way, financially or through ties of family, affection or dependence; – free from any undue influence or pressure; – through its relevant decision-makers, sufficiently knowledgeable about the circumstances of the transaction, sufficiently experienced in business and sufficiently well advised to be able to form a sound judgment as to what is in its interests; – concerned only to achieve the best available commercial result for itself in all of the circumstances. The terms of the transaction, as would reasonably be achieved by the hypothetical public company in this position, are the standard against which the terms of the transaction in question are measured. 457 What is a reasonable commercial result for the public company in the transaction is, of course, in itself a matter of judgment upon which honest and experienced commercial minds may legitimately differ. The Court may receive expert evidence as to what would be within the range of reasonable outcomes of the transaction for the public company. Common experience or usual terms of trade in a particular market may sometimes prove a useful guide. 458 The Court is not, however, bound to rely only upon such expert evidence and to blind itself to common sense and obvious commercial prudence. A transaction may be so clearly improvident from the public company's point of view that the Court can see for itself that the transaction could never have resulted from an arm's length dealing in which the public company was able to advance and protect its own commercial interests. The transaction 459 The origin of the payment by Sage to Techlogica of $560,000 on 28 September 2001 is convoluted in the extreme. 460 In June 2001, Dr Ho, the chairman of Optum, had negotiated with Mr Anthony for the investment by AIF of $500,000 in a rights issue by Optum. In the course of discussions, Dr Ho said that he wished to dispose of a business carried on by his private company, which had been wholly acquired by a public listed company, now Optum, in order to achieve a back-door listing. That business was the distribution of a software product called TRACESS. 461 Mr Anthony, Mr Lloyd-Cocks and Mr Luvara then set about acquiring the TRACESS business, using funds sourced from AIF. 462 An agreement dated 12 June 2001 was signed on behalf of Optum by Dr Ho and by Mr Lloyd-Cocks on behalf of AIF Technology Holdings Limited, which very soon thereafter changed its name to IT Genius Limited. The agreement relevantly provided as follows: – it was recited that Optum was the owner of all shares in TTG Asia-Pacific Ltd ("TTG Asia-Pacific") and that IT Genius intended to purchase all of the shares in TTG Asia-Pacific; – it was agreed that the purchase price for the shares of TTG Asia-Pacific was $680,000 and would be paid no later than 31 July 2001. 463 The agreement was obviously prepared without the involvement of outside lawyers on either side. It is one and a quarter pages in length and amateurishly drawn. It was doubtless prepared by Mr Anthony himself as he negotiated its terms directly with Dr Ho. 464 TTG Asia-Pacific held a licence to distribute TRACESS in Australia, New Zealand, Papua New Guinea and Singapore pursuant to a licence agreement dated 25 November 1996 with the owner of the intellectual property, TTG Systems Inc ("TTG"), a Canadian company. Under that agreement, TTG was entitled to terminate the licence if TTG Asia-Pacific was in default of its licence fee obligations. 465 As at 12 June 2001, the date of the agreement between Optum and IT Genius for the acquisition of the shares in TTG Asia-Pacific, TTG Asia-Pacific was in default under its licence agreement with TTG in an amount of about $200,000, and was in dispute with TTG as to whether TTG was entitled to terminate the licence agreement. Dr Ho said that he told Mr Anthony of the dispute with TTG during the course of negotiations. 466 IT Genius failed to make payment of the whole of purchase price of $680,000 due to Optum on 31 July 2001 under the agreement for the acquisition of TTG Asia-Pacific. It had paid $400,000 of the purchase price by two cheques of $200,000 each, drawn by Money Mint and Casabanca, and after 31 July there were negotiations concerning the issue of further shares in IT Genius to Optum in lieu of payment in cash of the balance of the purchase price, $280,000. 467 On 8 October 2001 Mr Lloyd-Cocks wrote to Dr Ho confirming a verbal agreement whereby IT Genius would issue 1.4M shares to Optum in lieu of the cash payment of $280,000. On 10 October Dr Ho replied to Mr Lloyd-Cocks in terms suggesting agreement to that proposal. However, Dr Ho said in evidence that he regarded his agreement with Mr Lloyd-Cocks as subject to the approval of the Optum board. When the Optum board met on 21 October 2001 to consider this proposal, amongst others, the directors, according to Dr Ho, were nervous of accepting IT Genius shares instead of cash, as Optum needed money. The directors wished to negotiate the proposal further. I accept Dr Ho's evidence. 468 IT Genius never issued 1.4M shares to Optum in performance of the alleged agreement. 469 There is no evidence as to whether the "verbal agreement" referred to in Mr Lloyd-Cocks' letter of 8 October was made before or after Sage's payment of $560,000 to Techlogica on 28 September. If the verbal agreement had been made on or before that date, it was not evidenced in writing by that date. 470 I turn now to the obscure means by which Techlogica was to obtain rights to TRACESS. 471 Under the agreement between IT Genius and Optum made on 12 June 2001, IT Genius was to acquire the rights to TRACESS by acquiring the whole of the shares in TTG Asia-Pacific, which held the distribution licence for that product from TTG. There is no written agreement between IT Genius and Techlogica whereby Techlogica was to get the benefit of whatever rights to TRACESS were acquired by IT Genius. The only document evidencing any agreement whereby Techlogica might acquire any rights in TRACESS is a Minute recording a board meeting of IT Genius on 1 October 2001. The document shows Messrs Lloyd-Cocks and Luvara as the directors in attendance at the meeting. A Mr Haylock was also a director of IT Genius as at 1 October, but there is no explanation for his absence at the directors' meeting. 472 The Minute relevantly states: "BUSINESS Terms and conditions for the marketing and distribution rights for the Traccess software with Techlogica Pty Ltd It was resolved to deliver all marketing and distribution rights of IT Genius Limited software products, to include Traccess, to Techlogica Pty Ltd in exchange for 50% of the net revenues and a 2.5% licence fee on gross revenue. Techlogica Pty Ltd will receive 100% of the ongoing consulting fees and any installation fees generated by these software products. Techlogica Pty Ltd agree to pay a 2.5% sub licence fee in return for the Australian and Asian rights to market and distribute Traccess to IT Genius Limited. TERMS & CONDITIONS Techlogica Pty Ltd agree to repay outstanding loans to both Money Mint Pty Ltd and Casabanca Pty Ltd – $200,000 to both parties, to secure the marketing and distribution agreement with IT Genius Limited secured via IT Genius Limited Convertible Note. Convertible Note – Convertible for shares on listing of IT Genius Limited – $400,000 equivalent, or to cash 6 months after listing. Convertible Note – Interest payable at 7% pa. Techlogica Pty Ltd have an option to take cash or shares equivalent on cash option date at the agreement of both parties." The Minute is signed by Mr Lloyd-Cocks. 473 It is remarkable that although Techlogica is required to reimburse Money Mint and Casabanca for the whole of the cash component of the purchase price which those companies paid to Optum on behalf of IT Genius, namely, $400,000, Techlogica is nevertheless to receive only fifty percent of the nett revenue which might be received from the TRACESS business and is, in addition, to pay IT Genius a licence fee of 2.5% on gross revenue. 474 That Techlogica should agree to such terms is even more remarkable when one takes into account Dr Ho's evidence that at this time the TRACESS business was generating a profit of only about $200,000 per annum. 475 The Minutes for the Sage board meeting on 28 September 2001 which approved the payment of $560,000 to Techlogica show that present at that meeting were Messrs Lloyd-Cocks (chairman), Messrs Luvara and Topperwien (directors) and Messrs Lee and Faroungas (secretaries). 476 All that the Minutes of the meeting record in relation to the payment to TRACESS is as follows: " (II) Investment into Information Technology The Board considered an investment into Techlogica Pty Ltd, a technology company involved in the information technology area and resolved to invest $560,000 into Techlogica Pty Ltd." 477 The Minutes do not record that the payment of $560,000 by Sage to Techlogica was in consideration of the issue of shares amounting to only ten percent of Techlogica's then issued share capital. Summary of the transaction 478 The relevant facts, as they were at 28 September 2001 when the Sage board approved the payment of $560,000 to Techlogica, may be summarised thus: – Sage had not sought any advice about the transaction with Techlogica from external lawyers or accountants; – the payment of $560,000 to Techlogica was for the purpose of investing in "information technology" but Techlogica had no business or assets other than whatever rights it might acquire to distribute TRACESS in Australasia; – the distribution rights which Techlogica might acquire were to be derived from an agreement with IT Genius which was not documented as at 28 September but which may have been agreed verbally as between Messrs Anthony, Lloyd-Cocks, Luvara and Topperwien; – the distribution to TRACESS which IT Genius and, in turn, Techlogica, were to acquire depended upon an agreement between IT Genius and Optum under which IT Genius was in default in the payment of $280,000; – there was no documented agreement in place between Optum and IT Genius waiving the default of IT Genius pursuant to some agreed variation of the terms of payment; – the distribution rights to TRACESS which IT Genius might acquire depended upon the rights of TTG Asia-Pacific under its licence agreement with TTG but TTG Asia-Pacific was then in default in payment to TTG under that agreement in an amount of about $200,000 and was in dispute with TTG as to whether TTG was entitled to terminate the licence agreement; – the TRACESS business was producing a profit of about $200,000 per year; – under the (apparently) verbal agreement between Messrs Anthony, Lloyd-Cocks, Luvara and Topperwien, Techlogica was to retain only 50% of the nett revenue of the TRACESS business and was to pay in addition 2.5% of gross revenue as a fee to IT Genius. 479 In short, on 28 September 2001 the directors of Sage agreed to pay $560,000 for a ten percent interest in a business which was entitled to less than half of the profits of TRACESS, then about $200,000 per year, at a time when IT Genius was in default of the agreement whereby it was to acquire TRACESS from TTG Asia-Pacific for $680,000 and at a time when TTG Asia-Pacific itself was in default of the agreement whereby it held the rights to TRACESS from the licensor. 480 On 28 October 2001, after the appointment of a receiver to AIF, Optum rescinded the agreement with IT Genius whereby Techlogica indirectly was to acquire an interest in TRACESS. The $560,000 paid to Techlogica has been dissipated, as will shortly appear, and has been lost to Sage. 481 The mere statement of these facts demonstrates the sheer folly of the Sage board in entering into the transaction with Techlogica. There is no doubt that Mr Lloyd-Cocks, at least, knew every one of the facts which I have recited except, perhaps, that he says that did not know that TTG Asia-Pacific was in default of its licence agreement with TTG. If Mr Lloyd-Cocks did not know of that critical fact, it was only because he, as a director of Sage, had failed to require any external investigation at all of the proposed transaction by solicitors or accountants on behalf of Sage. Such an investigation would have revealed very quickly the status of the licence agreement with TTG. 482 The investment by Sage in Techlogica was so manifestly and grossly improvident that no honest director of a public company could properly have committed a single cent of shareholders' money to it, let alone $560,000. The real reason for the payment 483 The real reason for Sage paying $560,000 to Techlogica had nothing to do with a considered decision by the Sage board to invest in information technology through Techlogica: the payment was made simply because Mr Anthony needed $500,000 quickly to pay a personal debt and Sage had sufficient cash in hand which could be appropriated for that purpose. 484 The following evidence was given on affidavit by Mr Anthony Bonvino. Neither Mr Anthony nor Mr Lloyd-Cocks required Mr Bonvino for cross examination and I accept his evidence. 485 Mr Bonvino met Mr Anthony in about 1988 and entered into a number of business transactions with him. Mr Topperwien acted as Mr Bonvino's solicitor. 486 In 1994 Mr Anthony persuaded Mr Bonvino to lend approximately $1.3M to Swiss Pacific to be used in the acquisition of a beach resort in the Philippines. A mortgage dated 11 October 1994 was entered into to secure the loan. The parties were Swiss Pacific and Mr Bonvino. The mortgage stated that Swiss Pacific was "represented in this act by its President, Dennis Anthony" . The document was signed by Mr Anthony on behalf of Swiss Pacific. 487 On 3 December 1999 a mortgage over the real estate upon which the resort was built was executed to secure further the loan by Mr Bonvino to Swiss Pacific. The mortgagor was Encenada Beach Resort Inc. The mortgage was signed on behalf of the mortgagor by its President, Mr Anthony. 488 Mr Bonvino's loan to Swiss Pacific was due for repayment by 30 June 2001. It was not repaid in full on that date. More than one million dollars remained outstanding to Mr Bonvino, secured by the mortgage over the beach resort. 489 In June 2001 Mr Bonvino contacted Mr Anthony enquiring about repayment of the loan in full. They arranged to meet to discuss the matter. 490 In or about September 2001, Mr Bonvino met Mr Anthony and a conversation to the following effect took place: "I [Mr Bonvino] said words to the following effect: 'Dennis, what can you do about repaying the $1.3M that is owed by Encenada. The money was due to be repaid at the end of June 2001.' He said words to the following effect: 'Encenada cannot repay you the loan there is no money.' I said words to the effect: 'I need funds to buy and redevelop a block of apartments at Bellevue Hill. It's a great opportunity. I desperately need the money. How can I get some money?' He said words to the effect: 'I can accommodate your needs. I can come up with half a million for the time being. Business Franchises can issue some redeemable preference shares.' I said words to the effect: 'Why can't the loan be repaid?' He said words to the effect: 'This is the best I can do. I should be able to pay you out in full within the next year or two.'" 491 Mr Bonvino was not happy that only $500,000 was being repaid but he believed that it was the best he could do as matters then stood. 492 On 8 October 2001, Mr Bonvino attended the offices of AIF where Mr Anthony handed him three cheques totalling $500,000 in favour of Mr Bonvino's company, Business Franchises. The cheques were as follows: – a cheque from Casabanca for $200,000 signed by Mr Lloyd-Cocks and Mr Shaheen; – a cheque from Money Mint for $200,000 signed by Mr Anthony and Mr Lloyd-Cocks; – a cheque from Finance Projects for $100,000 signed by Mr Anthony and Mr Lloyd-Cocks. 493 When Mr Bonvino saw the names of the drawers of the cheques he asked Mr Anthony: "Who are these companies?" Mr Anthony replied: "Don't you worry about that. Issue the redeemable preference shares to Casabanca" . 494 The three cheques had been prepared by Mr Shaheen at the direction of Mr Anthony. 495 On or about 16 October 2001, Mr Bonvino provided to Mr Anthony a share certificate for 500,000 redeemable preference shares in Business Franchises in the name of Casabanca. Mr Bonvino had no discussions with Mr Anthony as to when the shares would be redeemed. 496 Mr Anthony admitted in cross examination that when he was asked by Mr Bonvino to repay the loan to Swiss Pacific he believed that he could obtain about $500,000 from the money "flowing into AIF" . He said that he discussed with Mr Lloyd-Cocks and Mr Luvara "whether they saw any difficulty in being able to provide that sort of money" . He said: "I advised the directors that the resort could be sold at fire sale by Mr Bonvino because of his situation. If they did think that it would be appropriate for Casablanca to take an interest in the resort at a later date, then they should facilitate Mr Bonvino's need for some money. That is the basis on which the directors agreed to provide funds for Mr Bonvino. … Q. At what time did you form the view that Finance Projects, Money Mint and Casablanca would have the capacity to loan jointly a sum of 500,000 to business franchises? A. I don't know whether I ever did form that view. We are talking about Mr Bonvino's need for funds. It was something that I went to the directors with and basically put to them the proposition that they could have an interest in the resort but that would disappear, in fact, Mr Bonvino was forced to sell it. I don't think it was a matter of looking to see if funds were there and going to directors. It was the other way around. Going to the directors first, seeing whether they were interested in facilitating Mr Bonvino. And then we looked to see where those funds could come from. But there was no doubt that there would be funds within the system." 497 There were, indeed, "funds within the system" : they were Sage's funds and they were used with the agreement of Messrs Lloyd-Cocks, Luvara and Topperwien to relieve Mr Anthony's pressing need for money to avoid his beach resort being sold up by Mr Bonvino. Mr Lloyd-Cocks' own evidence confirms what Mr Anthony said about his discussions with the directors: T679-682. Conclusions 498 I find that the "investment" by Sage in Techlogica upon such egregiously improvident terms was a dishonest pretext for making $500,000 available from Sage's money to enable Mr Anthony to repay Mr Bonvino. I reject as false the evidence of Messrs Anthony and Lloyd-Cocks to the contrary. 499 Accordingly, I find that Mr Lloyd-Cocks, in approving the transaction as a director of Sage: – failed to act with due care and diligence; – did not act for a proper purpose in that he acted to benefit Mr Anthony at the expense of Sage. Accordingly, Mr Lloyd-Cocks contravened s.180(1), s.181(1)(a) and (b) and s.182(1)(a) and (b) CA. 500 As I have found, Mr Anthony was at all times an officer of Techlogica, Money Mint, Casabanca and Finance Projects. He procured and was party to all of the payments into and out of the accounts of those companies for the ultimate purpose of paying $500,000 to Mr Bonvino's company, Business Franchises. The payments were made by Techlogica, Money Mint, Casabanca and Finance Projects purely for Mr Anthony's own purposes and not for the benefit of those companies. Accordingly, as an officer of each of those companies, Mr Anthony contravened s.180(1), s.181(1)(a) and (b) and s.182(1)(a) CA. Whether Sage and Techlogica related parties 501 "Related parties" are relevantly defined in s.228 CA as follows: " Related parties (1) Controlling entities An entity that controls a public company is a related party of the public company. (2) Directors and their spouses The following persons are related parties of a public company: (a) directors of the public company; (b) directors (if any) of an entity that controls the public company; (c) if the public company is controlled by an entity that is not a body corporate - each of the persons making up the controlling entity; (d) spouses and de facto spouses of the persons referred to in paragraphs (a), (b) and (c). (3) Relatives of directors and spouses The following relatives of persons referred to in subsection (2) are related parties of the public company: (a) parents; (b) children. (4) Entities controlled by other related parties An entity controlled by a related party referred to in subsection (1), (2) or (3) is a related party of the public company unless the entity is also controlled by the public company." 502 ASIC contends that Sage and Techlogica were, as at 28 September 2001, related parties as defined because: – the directors of Sage, Messrs Lloyd-Cocks, Luvara and Topperwien, were "related parties" of Sage pursuant to s.228(2)(a); – Messrs Lloyd-Cocks, Luvara and Topperwien were also directors of AIF and controlled its business; – Techlogica was part of AIF's business; – Messrs Lloyd-Cocks, Luvara and Topperwien therefore controlled Techlogica; – Techlogica was, therefore, an entity controlled by related parties of Sage and was itself a related party of Sage, as provided by s.228(4). 503 I accept ASIC's contentions as correct, for the following reasons. 504 Techlogica was incorporated on 8 June 2001 by Mr Shaheen at the direction of Mr Anthony. The incorporation expenses were paid by AIF. Mr Shaheen, an employee of AIF, was Techlogica's sole director and secretary. The registered office and principal place of business of Techlogica was shown as AIF's offices. 505 On 3 October 2001, shortly after the transaction with Sage, a bank account was opened for Techlogica in order to receive the payment of $560,000 from Sage. The persons authorised to operate the bank account were Messrs Anthony and Lloyd-Cocks. 506 Mr Shaheen says, and I accept, that he never took part in any decisions relating to the business of Techlogica. In October 2001, Mr Anthony told him: "I've arranged for Geoff Ridhalgh to replace you as the director of Techlogica." Mr Shaheen understood that from that time onwards he was no longer to be regarded as the director of Techlogica. 507 Mr Ridhalgh says that on 5 October 2001 Mr Anthony asked him to become a director of Techlogica. Mr Ridhalgh signed a consent to act as a director but he was never formally appointed as such. He was never invited to any directors' meeting for Techlogica and did not participate in any decision relating to its business. In particular, he did not know that Sage had acquired shares in Techlogica for a payment of $560,000 until it was announced by the ASX. 508 Techlogica was to be the vehicle whereby the software product known as TRACESS, or TTG, was to be marketed: see paragraphs 349, 357, 471. 509 There is no question but that Mr Anthony was primarily responsible for conducting the negotiations with Optum and its chairman, Dr Ho, for the acquisition of TRACESS: ibid. However, the business of Techlogica, if it succeeded in obtaining rights to TRACESS, was regarded as part of the business of AIF. 510 Mr Lloyd-Cocks conceded in cross examination that although AIF was not recorded as a shareholder in Techlogica he considered that Techlogica was part of the "bigger scheme" of the AIF group of companies. He understood that AIF was to receive a financial benefit from the business of Techlogica if the company became profitable in the future. He said that AIF was keen to promote the success of the company and that AIF employees undertook work for Techlogica: T605. 511 Mr Anthony said that in conducting the negotiations for Sage's investment of $560,000 in Techlogica, he "represented the principal shareholder" of Techlogica, i.e., Swiss Pacific Inc, and that the "concept" of Techlogica belonged to Suisse Credit Inc. He said that AIF was to receive a benefit or financial interest in Techlogica "at a subsequent date, but not immediately" , if Techlogica was successful: T458. 512 I am of the opinion that Mr Anthony was being deliberately vague in these answers. He was concerned to put some distance between Techlogica and AIF, for some reason known to himself. I accept nothing that Mr Anthony says; the facts speak for themselves. 513 AIF paid for the incorporation of Techlogica; its employee was Techlogica's sole director at all relevant times; its registered office was the office of AIF and Mr Lloyd-Cocks was a joint signatory on Techlogica's bank account when it was opened to receive the payment of $560,000 from Sage. 514 I cannot accept that Messrs Lloyd-Cocks, Luvara and Topperwien, as directors of both Sage and AIF, would never have permitted $560,000 to be taken out of Sage simply to go into Mr Anthony's pocket through Techlogica, without any share for themselves, through AIF or one of AIF's businesses, in whatever benefit Techlogica might derive from the rights to the TRACESS product. That is, doubtless, why Mr Lloyd-Cocks was also a signatory to Techlogica's bank account when Techlogica received the payment from Sage. 515 I conclude that at the time of the Sage payment to Techlogica, Messrs Lloyd-Cocks, Luvara and Topperwien, as directors and controllers of AIF, also controlled Techlogica despite the fact that the sole shareholder was Swiss Pacific. The fact is that at that stage Messrs Anthony, Lloyd-Cocks, Luvara and Topperwien were all working in concert. Whether that would have continued to be the case indefinitely is not to the point: it was the case as at the time of the payment by Sage to Techlogica so that, at that time, Sage and Techlogica were related parties within the meaning of s.228 CA. 516 There can be no question but that the payment by Sage to Techlogica of $560,000 was the giving of a financial benefit to Techlogica by Sage within the meaning of s.229 CA. There is no issue that Sage did not obtain the approval of its members to the payment. Whether contravention of related party provisions 517 It will be obvious from the conclusions which I have set out above as to the real reason for the transaction, that the payment by Sage to Techlogica could not conceivably fall within the exceptions to s.208 CA provided by s.210(a) or (b). Accordingly, in making payment to Techlogica without the approval of its shareholder, Sage contravened s.208(1) CA. 518 Because of Mr Lloyd-Cocks' knowledge of, and participation in, every aspect of this transaction, as I have found above, it follows that I find that Mr Lloyd-Cocks was party to, and knowingly involved in, the Sage contravention of s.208, within the meaning of s.79 CA. By virtue of s.209(2) CA, Mr Lloyd-Cocks has himself contravened s.208(1) within the meaning and for the purposes of s.206E(1)(a)(i) and (a)(ii). 519 Mr Anthony was primarily responsible for negotiation of the acquisition of TRACESS by IT Genius from Optum. There can be no doubt that even though Mr Anthony was not present at the Sage board meeting which took place on 28 September 2001, he was party to the decision by Messrs Lloyd-Cocks, Luvara and Topperwien that Sage would pay $560,000 to Techlogica. It was Mr Anthony who had directed the opening of Techlogica's bank account to receive that payment, who was a co-signatory to that account with Mr Lloyd-Cocks, and who directed the disbursement of the monies received from Sage ultimately to Business Franchises, as I have set out above. 520 I am in no doubt that as at 28 September 2001, Mr Anthony was fully aware of all of the facts which made the payment by Sage to Techlogica a contravention of s.208(1) CA and that he encouraged the directors of Sage to proceed with the payment. Techlogica was, of course, itself a party to the transaction and Mr Anthony was an officer of Techlogica, as I have earlier found. 521 I find that Mr Anthony was party to, and knowingly involved in, the contravention by Sage of s.208(1), within the meaning of s.79 CA. By virtue of s.209(2) CA, Mr Anthony has himself contravened s.208(1) within the meaning and for the purposes of s.206E(1)(a)(i) and (a)(ii). THE SAGE-AIF MANAGEMENT FEE ASIC's allegations 522 On 28 September 2001, Sage paid a total of $250,000 to, and for the benefit of, AIF in payment of an invoice dated 27 August 2001 issued by AIF for "management fees" . The payment was made up of two cheques drawn on Sage, one in favour of the Australian Taxation Office for $96,731 and the other in favour of AIF for $153,269. 523 ASIC alleges that: – Sage and AIF were related parties, as defined by s.228 CA; – the payment by Sage to AIF was a financial benefit to AIF within the meaning of s.229 CA; – the payment was made without the approval of the members of Sage and did not fall within any of the exceptions in s.210 to s.216 CA, whereby both Sage and AIF contravened s.208(1) CA; – Mr Anthony and Mr Lloyd-Cocks were involved in the contraventions by Sage and AIF of s.208 within the meaning of s.79 CA whereby, in accordance with s.209(2) CA they themselves have contravened the Corporations Act and are liable to disqualification orders under s.206E(1)(a)(i) and (ii) and to pay compensation to Sage pursuant to s.1317H(1) or s.1324(10) CA. Defences 524 In his written submissions Mr Anthony does not appear to contest that Sage and AIF were related parties and that approval of the members of Sage to the payment was not obtained. He contends that the payment fell within the exception to s.208 provided by s.210. 525 Mr Lloyd-Cocks denies that Sage and AIF were related parties as defined and says further that the payment came within the exception provided by s.210. Whether Sage and AIF related parties 526 There can be no doubt that Sage and AIF were related parties as defined by s.228 at the time of the payment of $250,000 to AIF. Messrs Lloyd-Cocks, Luvara and Topperwien were at that time the directors of both Sage and AIF. The directors of Sage were therefore related parties of Sage as provided by s.228(2)(a). AIF was an entity controlled by Messrs Lloyd-Cocks, Luvara and Topperwien and was, therefore, itself a related party of Sage as provided by s.228(4). 527 Likewise there can be no doubt that the payment to AIF and the payment on its behalf to the Australian Taxation Office were financial benefits received by AIF, as defined by s.229 CA. How the management fee was calculated 528 The only real issue is whether the payment by Sage to AIF for "management services": – would have been reasonable in the circumstances if Sage and AIF had been dealing at arm's length; – were less favourable to AIF than if the parties had been dealing at arm's length. 529 Mr Faroungas gave evidence that on or about 27 August 2001 Mr Anthony gave him an instruction to draw up a tax invoice from AIF to Sage for management fees for $250,000 for the 2001/2002 financial year. Mr Anthony gave him no particulars as to how the amount was calculated. Mr Faroungas complied with the instruction and prepared the invoice. All that it shows is "management fees for 2001/2002 year" and the break-up of GST and the fee, totalling $250,000. Mr Faroungas gave the invoice to Mr Lloyd-Cocks. 530 On or about 25 September 2001, Mr Lloyd-Cocks told Mr Faroungas that Sage was going to pay $250,000 to AIF. On 28 September Mr Luvara instructed Mr Faroungas to prepare the necessary cheques in favour of AIF and the Australian Taxation Office. 531 No document was ever prepared by AIF or Sage showing what "management services" had been, or were to be, provided by AIF to Sage, how the sum of $250,000 had been calculated, or why the whole of the fee for management services for the financial year ending 30 June 2002 was being paid by Sage in September 2001. 532 There is no record in the board minutes of sage of any discussion concerning the payment of a management fee to AIF. Mr Lloyd-Cocks said that the board had discussed and approved such payment but he could give no explanation why there was no record of the discussion in the board minutes. 533 I do not accept Mr Lloyd-Cocks' evidence. It is not corroborated by any other reliable evidence and it is not inherently probable. It is difficult to accept that minutes of Sage board meetings were formally prepared and verified yet no one noticed the omission of a minute recording approval of a very large payment by Sage to AIF. I find that the payment was not discussed at a Sage board meeting. 534 Mr Anthony said that the management service fee of $250,000 was arrived at on the basis of his advice to Messrs Lloyd-Cocks, Luvara and Topperwien that $5,000 a week was a reasonable amount for Sage to pay AIF. Mr Lloyd-Cocks confirmed that a figure of $5,000 per week seemed reasonable. 535 Mr Anthony gave this evidence: "Q. Did you prepare any paper which identified why $260,000 should not be charged, but 250,000 should? A. Well, we just basically picked a ballpark figure based on five grand a week. It was a matter that the directors and I discussed what we actually should charge Sage, and Mr Luvara basically, I think, came up with the figure. Q. I thought you came up with the figure of $5,000 per week? A. Well, in terms of the fact that there should be a charge, I basically, you know, was providing advice that I figured it was reasonable that well, sorry, not reasonable that in fact there should be fees charged, a bill by AIF to Sage. In terms of the amount, I don't actually recollect who exactly came up with the figure, but I would say it would have been Dominic that ultimately picked the figure out of the air, but it was nothing more than that: What would be a reasonable figure? And five grand a week is what was determined." 536 Mr Anthony said that the fee was for the use by Sage of AIF's office space, office facilities and AIF's staff. When it was pointed out to him that the invoice required payment for "management services", he agreed that that description of what was to be provided by AIF was not accurate. It was pointed out to Mr Anthony that Sage had its own board of directors, which was charged with the management of the company. He was asked what management of Sage would be undertaken by AIF staff. He could give no satisfactory reply. 537 Mr Lloyd-Cocks said that the management fee was not for management services alone. Like Mr Anthony, Mr Lloyd-Cocks considered that the payment was for the use of AIF's office facilities and staff. 538 Neither Mr Anthony nor Mr Lloyd-Cocks gave any evidence as to why it was in Sage's interests to pay the "management fee" for the whole of the 2001/2002 financial year in September 2001. Conclusions 539 I find that the payment by Sage of the management fee of $250,000 in September 2001 was manifestly improvident and would not have been made if the parties had been dealing at arm's length. A reasonable party dealing at arm's length with AIF for the provision of management or other services at a substantial fee would, as a matter of ordinary commercial prudence, have insisted on: – a contract in writing setting out what were the services to be provided and upon what terms; – payment to AIF as and when services were provided by it rather than payment of the whole of the fee a year in advance; – an invoice properly particularising what were the services provided for which a charge was being made. 540 I find that in fact the management fee was paid by Sage to AIF: – because Sage was controlled by AIF's directors and AIF wished to have $250,000 of Sage's funds in September 2001; – because the directors of Sage were not concerned to achieve the best commercial result for Sage in all the circumstances of the transaction. 541 The payment of $250,000 by Sage to AIF was, therefore, made upon terms which were not reasonable for the purposes of s.210 CA. It follows that Sage, in making the payment, contravened the provisions of s.208(1) CA. 542 There can be no question but that both Mr Anthony and Mr Lloyd-Cocks knew all of the facts and circumstances constituting Sage's contravention of s.208 and that they themselves directly participated in that contravention. Accordingly, each of them was involved in the contravention within the meaning of s.79 CA whereby each contravened s.208, as provided in s.209(2) CA. THE MEDIONICS-OPTUM TRANSACTION ASIC's allegations 543 On 29 May and 31 May 2001, Medionics received a total of $563,000 – $260,000 from AIF Strategic Management, as trustee of the AIF Strategic Trust, and $303,000 from AIF. 544 On 1 June 2001 Medionics paid $500,000 to Optum in consideration of which Optum issued shares bearing a face value of $500,000 not to Medionics but to Biotech ($120,000), Medicoman ($100,000), Med Properties ($50,000), Medclinx ($80,000) and Medical Securities ($150,000). 545 Biotech had been incorporated on 9 May 2001 with Messrs Lloyd-Cocks, Luvara and McDonald as directors. Medical Securities had been incorporated on the same day with Messrs Lloyd-Cocks and Luvara as directors. 546 Medicoman had been incorporated on 22 March 2001 on Mr Anthony's instructions with Mr Shaheen as sole director and Swiss Pacific as sole shareholder. On Mr Anthony's instructions, Mr Shaheen resigned on 20 June 2001 and Mr Lloyd-Cocks was appointed director in his place. 547 Medical Properties and Medclinx were also incorporated on 22 March 2001 on Mr Anthony's instructions with Mr Shaheen as sole director and Swiss Pacific as sole shareholder. Mr Shaheen resigned as director on 14 June 2001 but the evidence does not show who was appointed in his place. It is safe to assume that Mr Shaheen was replaced by either or both of Messrs Lloyd-Cocks and Luvara. 548 Medionics had been incorporated on 21 March 2001 on Mr Anthony's instructions with Mr Shaheen as sole director. Mr Topperwien was appointed in place of Mr Shaheen on 13 July 2001. 549 ASIC alleges that: – the payments by AIF Strategic Management of $260,000 to Medionics, and the payment by AIF of $303,000 to Medionics were made for an improper purpose; – as officers of AIF, Messrs Anthony and Lloyd-Cocks procured the payment by it to Medionics and thereby acted in contravention of s.180(1), s.181(1) and s.182(1) CA; – as an officer of AIF Strategic Management, Mr Lloyd-Cocks procured the payment by it to Medionics and thereby acted in contravention of s.180(1), s.181(1) and s.182(1) CA; – the payment of $500,000 by Medionics to Optum was for an improper purpose; – as an officer of Medionics, Mr Anthony procured the payment by it to Optum and thereby acted in contravention of s.180(1), s.181(1) and s.182(1) CA. The defences 550 Mr Anthony asserts: – Medionics was a company of substance which intended to develop a business in medical technology with the assistance of Professor Earl Owen, a distinguished micro-surgeon; – Mr Anthony was not involved in procuring AIF Strategic Management to invest in Medionics: the decision to invest was that of Mr Luvara; – as to AIF's payment of $303,000 to Medionics, this was made in accordance with a decision by Mr Shaheen in order to rectify a mistake: Optum had intended to invest $200,000 in Medionics but had made the cheque payable to AIF in error so that AIF was required to pay $200,000 to Medionics; – AIF's payment to Medionics was also made to correct a mistake made by a Dr Fung who intended to invest $400,000 in Biotech but erroneously wrote a cheque for that amount in favour of AIF: "as Biotech wished to invest in Optum the funds were transferred by AIF to Medionics to facilitate this" and it was Mr Shaheen's decision to make the transfer of funds in this way: written submissions p.31. 551 Mr Lloyd-Cocks asserts: – on 29 May 2001 AIF Strategic Management paid $263,000 to Medionics by way of subscription for shares in Medionics; – on 30 May 2001 "AIF invested $200,000 in Medionics on behalf of Optum Group" : written submissions p.43; – on 30 May 2001 "AIF invested $100,000 into Medionics on behalf of Biotech Securities from investor Mr Fung" : ibid; – on 1 June 2001: Medionics bought $500,000 of Optum shares and issued $100,000 in Optum shares to five new medical start-up companies reflecting loans from Medionics to each of the five new medical start-up companies" : ibid; – these "loans" by Medionics "in the form of Optum shares [were] in anticipation of AIF being listed on the ASX via Optum" : ibid; – the five medical start-up companies "would have generated substantial profits on the listing of AIF through Optum injecting much-needed capital into each of the companies prior to the repayment of the loan funds or an exchange of equity" : ibid. 552 The assertions put forward by Mr Lloyd-Cocks as to the justification for the transactions were never explained in any contemporaneous documents brought into existence by AIF, AIF Strategic Management, Optum, Medionics or any of the other five companies involved. The facts 553 AIF Strategic Management was the trustee of a unit trust styled "AIF Strategic Trust" pursuant to a Deed of Trust dated 25 December 1999. The directors of AIF Strategic Management were Messrs Lloyd-Cocks, Luvara and de Zylva, a financial planner who had been engaged as an accountant by AIF in October 1999. Messrs Lloyd-Cocks and Luvara had 42.5% each of the shares in the company and Mr de Zylva held the remaining 15%. 554 The Trust Deed for the AIF Strategic Trust was a standard 'off the shelf' trust deed giving the trustee the widest possible discretionary powers of investment. However, the trust was promoted by means of an Information Memorandum which was sent to members of AIF's "investment club". The Information Memorandum stated the investment strategy of the Trust as follows: "Investments will take place in any of the following situations: Established unlisted companies, which require additional capital to fuel revenue growth, increase market share and increase bottom line profits and could be listed on an approved exchange within 3 to 24 months. Technology based companies, which have secured a major contract/s and require capital to perform its contractual obligations with the view of making a profit or with the view of increasing the value of our investment. Invest in listed securities via a discounted private placement or rights issue. Or where we are offered free ASX tradable options as part of the capital raising. Invest in a listed or unlisted company which requires capital for a merger or acquisition which will be seen positive for the investee company and has the potential to deliver substantial profits to the fund. Invest in a company, which may be listed on the ASX but is suspended and will be re-listed subject to funding and ASX compliance requirements being met. Invest in IPOs or pre-IPO situations with a view of making short to medium term profits." 555 Mr Anthony went to some lengths in his evidence to emphasise that Medionics had every prospect of being a very successful medical technology company because of the involvement of Professor Owen. Prof Owen had, in fact, signed a consent to act as a director of Medionics but he was never appointed a director, never entered into any contract to perform services for Medionics, and never actually engaged in any undertaking on its behalf. 556 Dr Ho had procured Optum to invest $200,000 in Medionics. The timing of the investment is somewhat unclear and I shall return to it shortly. Dr Ho had engaged in discussions with various doctors about possibilities of doing business but nothing ever came of these discussions. I accept that Mr Anthony and Mr Lloyd-Cocks also had discussions with various parties, including doctors, about some form of association with Medionics, but nothing ever came of these discussions. In terms of substance and business reality, as at the end of May 2001, Medionics was nothing more than a name and a bank account. 557 In these circumstances, at the end of May 2001 Medionics very clearly did not fall into any of the investment categories stated in the Information Memorandum for the AIF Investment Trust. Nevertheless, AIF Strategic Management invested in Medionics almost the whole of the then available trust fund, namely, $260,000 out of a total of $265,000. 558 The payment of $303,000 to Medionics came from AIF's trust account. The payment was made on 31 May 2001. Mr Anthony said that $200,000 of the payment was Optum's money invested in Medionics but paid to AIF by mistake. Dr Ho agreed that Optum had invested $200,000 in Medionics but, as I have noted, the time of that payment was never clarified. A letter agreement dated 15 June 2001 signed by Dr Ho and Mr Anthony provides that "Optum shall invest $200,000 at 0.50 cents a share as seed capital into Medionics Pty Ltd" . This term suggests that as at 15 June 2001 the investment by Optum had not yet been made. 559 In the absence of any evidence to the contrary to which I have been taken, I find that the investment made by Optum of $200,000 in Medionics occurred after 15 June 2001. Accordingly, I do not accept Mr Anthony's evidence that AIF's payment of $303,000 to Medionics on 31 May 2001 included Optum's $200,000 investment in Medionics, paid by mistake to AIF. 560 Mr Shaheen's evidence was that the payment from AIF to Medionics and the payment from Medionics to Optum were carried out by him upon Mr Anthony's instructions. Mr Anthony admitted that he and Mr Lloyd-Cocks had authorised the payment by Medionics to Optum. 561 Mr Anthony asserted that the $563,000 received by Medionics on 29 and 31 May from AIF Strategic Management and AIF was start-up capital for Medionics' business. When he was asked why all of this "start-up capital" for Medionics' business had immediately been paid away to Optum in exchange for the issue of Optum shares in Biotech, Medicoman, Med Property, Medclinx and Medical Securities, Mr Anthony gave a rambling and evasive answer, the gist of which was that it was Mr Shaheen who had made the decision to pay the money out of Medionics to Optum: T499-500. 562 Mr Anthony's answer made no sense and it was contradicted by Mr Shaheen's evidence, which I regard as reliable. I reject Mr Anthony's explanation of the entire transaction whereby the money of AIF and the AIF Strategic Management Trust went to Medionics, resulting in the issue of Optum shares to the five companies associated with the directors. 563 The explanation of the transaction which Mr Lloyd-Cocks gave in his written submissions (above) likewise made no sense whatsoever. I reject it as false. The timing of the payments to and from Medionics and the destination of the benefit of the whole transaction are the surest indication of what the transaction was intended to achieve. Conclusions 564 I find that: – $260,000 of the money of the AIF Strategic Trust was paid to Medionics with the intention that the money would be used by Medionics to pay Optum for shares to be issued to five companies in which Messrs Anthony, Lloyd-Cocks and Luvara had interests; – the payment of $260,000 from the AIF Strategic Trust was not a prudent investment of the trust fund nor was it intended to benefit the trust fund; rather, the payment was intended to benefit the five companies which ultimately received the Optum shares; – the payment of $303,000 by AIF to Medionics was made with the intention that the money would be used by Medionics to pay Optum for shares to be issued to five companies in which Messrs Anthony, Lloyd-Cocks and Luvara had an interest; – the payment was not for the benefit of AIF or for the benefit of Medionics, but was for the benefit of Messrs Anthony, Lloyd-Cocks and Luvara as controllers of the companies which ultimately received the Optum shares; – Messrs Anthony and Lloyd-Cocks were party to the scheme whereby the money of the AIF Strategic Trust and AIF was so used and they authorised implementation of the scheme. 565 It follows that I find that: – Mr Anthony, as an officer of AIF and Medionics, in approving the payment by AIF to Medionics of $303,000 on 31 May 2001 and the payment by Medionics to Optum of $500,000 on 1 June 2001 contravened s.180(1), s.181(1) and s.182(1) CA; – Mr Lloyd-Cocks, as a director of AIF Strategic Management and AIF, in approving the payment by AIF Strategic Management of $263,000 to Medionics on 29 May 2001 and in approving the payment by AIF of $303,000 to Medionics on 1 June 2001 contravened s.180(1), s.181(1) and s.182(1) CA. THE AIF-BIOTECH TRANSACTION ASIC's allegations 566 On 16 October 2001 Biotech issued an invoice to AIF for $425,000. The description of the subject matter of the invoice was "retainer consulting fees re: Optum Group Limited" . 567 On 17 October 2001 Mr Lloyd-Cocks and Mr Luvara executed a transfer of shares whereby AIF transferred to Biotech 500,000 shares in Sage for a consideration of $275,000, in part satisfaction of the Biotech invoice. Mr Anthony had given instructions to Mr Faroungas to prepare the Biotech invoice and to prepare the transfer of the Sage shares from AIF to Biotech. 568 ASIC alleges that AIF also paid $250,000 to Optum in consideration of Optum issuing shares to Biotech, in part payment of the Biotech invoice. No supporting documents for this transaction have been tendered by ASIC. 569 ASIC alleges that there was no proper basis for the Biotech invoice to AIF. It alleges that Messrs Anthony and Lloyd-Cocks, as officer and director of AIF respectively, permitted or procured AIF's transfer of Sage shares to Biotech and AIF's payment to Optum for the issue of its shares to Biotech in payment of the Biotech invoice. In so doing, ASIC says, Messrs Anthony and Lloyd-Cocks contravened s.180(1), s.181(1) and s.182(1) CA. The defences 570 Mr Anthony's defence is encapsulated in his written submissions as follows: "Work was performed by myself in restructuring Optum, negotiating with Dr Ho the takeover of Optum and the development of OPTUM MEDICAL as a vehicle for the transfer of Telepathy for Dr Ho. Swiss Pacific had also agreed to swap its shareholding for the $1million convertible held by Dr Ho in OPTUM and to retire the note for no payment. The shell of Farnell & Thomas was priced at $400,000 and was far less attractive and of less value as a vehicle for AIF to get to market. Biotech was in the process of becoming an investment bank in the Biotech field. Therefore it was appropriate for that company to receive fees for consulting services of less than half a million dollars for the work performed on behalf of AIF. It was certainly a fair price and more than reasonable – and payment was approved by the directors of AIF." 571 Mr Lloyd-Cocks' defence is encapsulated in his written submissions as follows: "On 16th October 2001 AIF transferred Optum and Sage shares to Biotech Securities to the value of $425,000 against an invoice from Biotech Securities covering the listing of AIF into Optum and the continuing restructuring of Optum towards the AIF backdoor. I submit the ASX listing of AIF through Optum would have delivered substantial tax-free profits to Sage shareholders through a significant shareholding in Optum. Optum shares would also have substantially appreciated on the announcement of AIF listing on the ASX via Optum. The increase in Sage and Optum shares would have capitalized Biotech Securities assisting to fund the company moving forward. Under the Suisse Credit Agreement AIF would have been entitled to 10% of the profit immediately and 50% of the available equity in Biotech Securities over time as its fee for funding the company. I submit I am not in contravention of section 180(1) of the Corporations Act as I believed I exercised my powers and discharged my duties with the degree of care and diligence that a reasonable person would have done in the same circumstances had they been a company officer at the time and were implementing a quality funding strategy for a developing company. I also submit I am not in contravention of section 181(1) of the Corporations Act as I believed AIF's investment strategy was made in good faith and I believed the expected return was in the best interests of both AIF and Biotech Securities for the proper purpose. I also submit I am no in contravention of section 182(1) of the Corporations Act as I in no way used my position to gain a personal advantage from the funding of Biotech Securities and the investment did not cause any detriment to AIF. In fact AIF shareholders were to participate in an immediate entitlement of 10% of the profit and a free carried 50% equity interest in Biotech Securities as a direct result of the investment to benefit all AIF shareholders. In relation to the PARTICULARS in the Further Amended Statement of Claim: I submit the funding of Biotech Securities would have provided AIF with 10% of the profit immediately and 50% of the equity over time. I submit the funding was made for the specific purpose of generating profit and capitalising the new company Biotech Securities. The funding was made by AIF against an invoice covering the expected listing of AIF through Optum and other restructuring activities prior to listing. Dennis Anthony structured the funding on behalf of the company." 572 In view of Mr Lloyd-Cocks' admission that AIF procured the transfer of Optum shares to Biotech in part payment of the Biotech invoice, I find that this part of the transaction did, in fact, occur despite the absence of supporting documentation from AIF's records. The facts 573 Mr Faroungas gave evidence, which I accept, that on 16 October 2001 Mr Anthony instructed him to prepare an invoice on behalf of Biotech to AIF for $425,000 and a transfer of 500,000 in Sage from AIF to Biotech. Mr Faroungas was then the sole director of Biotech. He complied with Mr Anthony's instructions. 574 On 17 September 2001 a transfer of the Sage shares was executed by Messrs Lloyd-Cocks and Luvara as directors of AIF and by Mr Faroungas and another unidentified person as directors of Biotech. The signature of the unidentified person is unintelligible and his or her description as "director" of Biotech seems to be erroneous, at least so far as ASIC records reveal. 575 Mr Anthony agreed in cross examination that he had given instructions to Mr Faroungas for the whole of the transaction to be carried out and that the amount of $425,000 to be charged by Biotech for its consulting fees had been "calculated" by him. The "services" performed or to be performed by Biotech for AIF were performed or to be performed by himself as "consultant" to Biotech. He himself had placed a valuation on his own efforts in that regard. As at 16 October 2001 some work had already been done on behalf of Biotech and more work remained to be done. 576 Precisely what consultancy services Biotech or Mr Anthony was to perform for AIF in consideration of a fee of $425,000 was never specified in any written agreement between Biotech and AIF nor in any memorandum or other document, nor was it stated with any specificity by Messrs Anthony and Lloyd-Cocks in their evidence. 577 Biotech never had any business or active employees. According to ASIC records, as at 16 October 2001 its only director was Mr Faroungas and it is clear that Mr Faroungas acted in accordance with Mr Anthony's direct instructions. As at 16 October 2001 Biotech was nothing more substantial than a name. The statement by Mr Anthony in his written submissions that "Biotech was in the process of becoming an investment bank in the biotech field" is false. So too are suggestions by Messrs Lloyd-Cocks and Anthony that AIF was, October 2001, anywhere near listing on the ASX through a back-door listing with Optum. There had been preliminary discussions in that regard but nothing more. 578 Mr Lloyd-Cocks suggested in his submissions that the transfers of Sage and Optum shares to Biotech were more for the purpose of giving Biotech a substantial business and that the transaction was in AIF's interests because "AIF shareholders were to participate in an immediate entitlement of ten percent of the profits and a free carried fifty percent equity interest in Biotech" . Whatever this statement is intended to mean, no such agreement between AIF and Biotech was ever documented or otherwise recorded. Conclusion 579 It is beyond question that Messrs Anthony and Lloyd-Cocks actively participated in every step of the Biotech transaction. No honest and competent director or officer of AIF could have approved payment by AIF in cash or in kind, to the value of $425,000 for "consulting services" to be rendered by Biotech which were unspecified, not the subject of any written agreement or other record, and not the subject of any independent evaluation. 580 I find that the Biotech invoice was merely a pretext engineered by Messrs Anthony and Lloyd-Cocks for procuring Sage and Optum shares to be acquired by Biotech at the expense of AIF. The transaction was intended to be entirely for the benefit of Biotech. 581 It follows that I find that in procuring and approving the payment by AIF of the Biotech invoice in the amount of $425,000 dated 16 October 2001 Mr Anthony, as an officer of AIF, and Mr Lloyd-Cocks as a director of AIF: – failed to discharge his duties with reasonable care and diligence, in contravention of s.180(1) CA; – failed to discharge his duties in good faith, in the interests of AIF and for a proper purpose, in contravention of s.181(1) CA; – improperly used his position as a director or officer of AIF respectively to gain a benefit for Biotech and to cause detriment to AIF, in contravention of s.182(1) CA. THE MORTGAGE CIRCUIT-SWISS PACIFIC LOAN ASIC's allegations 582 On 7 June 2001 Mortgage Circuit paid $200,000 to Sage in consideration for the issue of 400,000 shares in Sage to Swiss Pacific. The evidence does not show how Mortgage Circuit acquired the subscription monies. 583 ASIC alleges that the payment by Mortgage Circuit was not made for a proper purpose and that Mr Lloyd-Cocks as a director of Mortgage Circuit authorised or permitted the payment, whereby he contravened s.180(1), s.181(1) and s.182(1) CA. The defences 584 Mr Lloyd-Cocks says that the payment of $200,000 by Mortgage Circuit to Sage was by way of a loan to Swiss Pacific to enable it to subscribe for shares in Sage's listing on the ASX. He says that the loan to Swiss Pacific was approved by Mr Topperwien, as a director of Mortgage Circuit, and was secured by the deposit of the share certificate for the Sage shares with Mr Topperwien on behalf of Mortgage Circuit. Conclusion 585 There is no evidence which contradicts the assertion by Mr Lloyd-Cocks that the payment by Mortgage Circuit of $200,000 to Sage was pursuant to a loan to Swiss Pacific. The loan was said to be interest-free and the time for payment had not been stipulated. There is no evidence upon which I could conclude that the Sage share certificate was not deposited with Mr Topperwien as security for the loan. 586 ASIC does not allege that the money which Mortgage Circuit used to lend to Swiss Pacific came from AIF. The source of the money is unidentified: it could have come from Mr Topperwien or his interests and it could have been lent to Swiss Pacific with Mr Topperwien's consent as director of Mortgage Circuit. 587 An interest-free loan, secured and repayable on demand, from one company to another is not, without more, necessarily improvident or improper. However, nothing more than these facts are proved in evidence concerning this transaction. 588 On such sparse facts as have been proved, I cannot find that Mr Lloyd-Cocks has contravened the Corporations Act in relation to the loan, as alleged by ASIC. THE AIF SHARE DILUTION ASIC's allegations 589 Immediately prior to 16 May 2001 the issued share capital of AIF was three million shares held as to 47.75% by Mr Luvara, 47.75% by Mr Lloyd-Cocks and 4.5% by Diamond Wheels Pty Ltd. 590 On 16 May 2001, AIF issued a further 230,000,000 shares, 210,000,000 shares being issued for $0.0001 per share fully paid (i.e. for a total consideration of $21,000) and 20,000,000 shares being issued for $1.00 per share partly paid to $0.001 per share (i.e. for a total consideration of $20,000). 591 210,000,000 shares fully paid to $0.0001 each were issued as follows: – Swiss Pacific (controlled by Mr Anthony) – 60,000,000 shares representing 25.75% of the new issued share capital; – Sacvere (controlled by Mr Lloyd-Cocks) – 25,000,000 shares representing 10.73% of the new issued share capital; – Associated Asset Management (controlled by Mr Luvara) – 25,000,000 shares representing 10.73% of the new issued share capital; – Metrobank (controlled by Mr Anthony) – 10,000,000 shares representing 4.29% of the new issued share capital; – Suisse Credit P/L (controlled by Mr Anthony) – 90,000,000 shares representing 38.63% of the new issued share capital; 592 20,000,000 shares of $1.00 each, partly paid to $0.001, were issued to Nominee Securities. 593 ASIC alleges that the issue of shares in AIF on 16 May 2001 was not made in the interests of AIF but was made for the improper purpose of securing control of AIF to Messrs Anthony, Lloyd-Cocks and Luvara after AIF was listed on the ASX. ASIC alleges that Messrs Anthony and Lloyd-Cocks, as officers of AIF, authorised or permitted the new issue and that they thereby contravened s.180(1), s.181(1) and s.182(1) CA. The defences 594 Mr Anthony says (written submissions pp.37-38) that: – no shares in AIF had been issued to outside investors prior to 16 May 2001 so that no shareholding of investors was diluted by the new issue; – AIF issued the new shares to be used as "currency" to enable new investment acquisitions for AIF, so that the new issue was in AIF's best interests; – the newly issued shares were to be used to acquire the vehicle by which AIF was to be listed, Farnell & Thomas Pty Ltd, and after the successful acquisition of that company AIF would "wind back the shares in AIF three to one so that the total number of shares after the successful takeover would be reduced to 77,000,000" : written submissions p.38. I take Mr Anthony to mean that the shares would be consolidated on the basis he suggests. 595 Mr Anthony made a virtue of the admission that the purpose of the issue was to ensure that control of AIF remained with himself and Messrs Lloyd-Cocks and Luvara. At p.38 written submissions he said: "It was appropriate that the shares be issued prior to the takeover activities to ensure directors of AIF retained control of the company in order to guarantee the successful backdoor listing. Dominic and Martin were concerned that they did not want a repeat performance of what they experienced with GPHealth – a company which AIF established and funded – and of which they lost the right to take it to market (GPHealth still has not listed – whereas AIF were able to list SAGE in a matter of a few months)." 596 Further, Mr Anthony said: "Swiss Pacific had performed services under the terms of its agreement with AIF and was entitled to 30% of the issued share capital of AIF as something which it had earned. Swiss Pacific held its shares to facilitate acquisition of Optum and the $1million convertible note – which was to be returned to the company for free. Through a series of complex restructuring of Optum and transfer of Telepathy into Optum Medical Dr Ho could be satisfied and he had indicated that he would do the deal subject to a formal takeover proposal being put forward for the board of Optum." 597 Mr Lloyd-Cocks submitted (written submissions pp.48-50) that: – 90,000,000 AIF shares were issued in exchange for 100,000,000 shares in FSG, giving AIF control of FSG: p.48; – "60,000,000 shares were to be used to purchase a $1M debt the CEO of Optum Group, Dr Albert Ho, had with Optum Group as part of the restructuring of the Optum business prior to the back-door listing of AIF into Optum" : p.49; – 25,000,000 were issued to each of his company (Sacvere) and Mr Luvara's company (Associated Asset Management) "to maintain a similar percentage ownership of the group prior to the issue" : p.48; – "10,000,000 shares were issued to Metrobank as payment for fees involving work done and to be done on FSG, Farnell & Thomas and the Optum back-door listing" : p.49; – "20,000,000 shares were issued to Nominee Securities on behalf of AIF shareholders in the lead-up to the back-door listing of AIF through Optum Group" : p.49; – "the issue of shares is a common tool used in building companies towards listing on the Stock Exchange. The issue of shares is used as currency to attract business without the requirement of cash" : p.49; – "the issue of shares to Sacvere, Associated Asset Management, Suisse Pacific Inc (sic – probably Swiss Pacific Inc) and Suisse Credit Inc (sic – probably Suisse Credit P/L) was to maintain control of the group vitally important to protecting all existing shareholders towards listing" : p.50. The facts 598 AIF's internal records show that as at 16 May 2001 AIF had received $645,249 from investors in AIF's pre-IPO. The number of AIF shares "allocated" to such investors at that time, as disclosed in AIF's internal records, was 2.101 million at an average price of $0.31 per share. On 8 May 2001, Mr Anthony gave instructions to Mr Goodsell to arrange the issue of 230,000,000 shares, as has been described. 599 It must have been clear to Messrs Anthony, Lloyd-Cocks and Luvara by 8 May 2001 that if shares in AIF were actually issued to the investors in the AIF pre-IPO according to the allocations shown in AIF's records, they themselves would lose control of the company. I conclude that the primary reason for making the allocation of 210,000,000 of the 230,000,000 shares issued on 16 May 2001 was the retention of control of AIF in the hands of Messrs Anthony, Lloyd-Cocks and Luvara in the event that shares in AIF had to be issued to outside parties who had invested in it. My reasons for the conclusion are two-fold. First, because retention of control was expressly admitted by Messrs Anthony and Lloyd-Cocks as their intention; second, because I reject the other reasons given for the issue. I now turn to those other issues. 600 The shares were not issued as "currency" to acquire other companies or interests for AIF. This reason may have carried some weight if AIF shares had been issued directly to a party in consideration for the acquisition of some investment from that party. However, the shares were issued to companies controlled by Messrs Anthony, Lloyd-Cocks and Luvara in return for a comparatively small sum of money. 601 In particular, the submission by Mr Lloyd-Cocks that 90,000,000 of the AIF shares were issued in exchange for 100,000,000 FSG shares is patently wrong. The 90,000,000 AIF shares were issued to Suisse Credit P/L, a company controlled by Mr Anthony, more than a month before Mr Anthony began negotiations in June 2001 with FSG for the acquisition of that company. When control of FSG was acquired, it was acquired by Suisse Credit P/L, by means of an issue to that company of FSG shares in exchange for a transfer by Suisse Credit P/L to FSG of AIF shares owned by Suisse Credit P/L. There is no documentary evidence demonstrating that Suisse Credit P/L held the FSG shares on trust for, or otherwise for the benefit of, AIF. 602 How acquisition of Farnell & Thomas Ltd was to be achieved by issuing 210,000,000 shares to companies controlled by Messrs Anthony, Lloyd-Cocks and Luvara was never explained. 603 Whatever Mr Lloyd-Cocks meant in his statement that 60,000,000 AIF shares were to be used to purchase a $1M debt that Dr Ho "had with Optum" – and it is impossible to know what this meant – there is no evidence that a transaction fitting this description was agreed and documented as at 16 May 2001. Indeed, the evidence suggests that negotiations between AIF and Optum for the acquisition of TRACESS commenced in about June 2001, after the share issue had taken place on 16 May. There is no evidence to suggest that Mr Anthony and Dr Ho had had detailed discussions about a back-door listing of AIF through Optum prior to 16 May 2001. Documents, such as file notes of the solicitors acting for AIF on the back-door listing and a draft memorandum explaining the back-door listing prepared by Mr Lee, show that the back-door listing using the vehicle of Farnell & Thomas, not Optum, was still being actively pursued as late as October 2001. 604 As to the 10,000,000 shares issued to Metrobank, there is no evidence of an agreement in writing, or otherwise, between Metrobank and AIF for the performance of any work by Metrobank. 605 Mr Anthony's point that a consolidation of AIF shares was intended on the basis of one consolidated share for three former shares has no substance. Consolidation would still result in the same proportionate shareholding amongst the company's shareholders. 606 I am prepared to accept that the 20,000,000 shares issued to Nominee Securities were intended, by some means or other, to be issued to investors in AIF's pre-IPO and other investors in AIF, if the company ever achieved listing. Conclusion 607 I find that the purpose of the issue of 210,000,000 fully paid shares in AIF on 16 August was to preserve control of AIF in the hands of Messrs Anthony, Lloyd-Cocks and Luvara in the event that AIF achieved ASX listing. 608 Another possible purpose of the issue was to place AIF shares in the hands of companies controlled by Messrs Anthony, Lloyd-Cocks and Luvara so that they could be dealt with by those companies ultimately for the benefit of AIF's controllers. This motive is suggested by the manner in which AIF shares were used by Suisse Credit P/L to acquire the shares of FSG in circumstances in which there was no direct or documented benefit to AIF. If this was, indeed, an additional purpose of the issue, it too was improper and impermissible. 609 I do not need to find whether the second possible purpose was also a purpose of the issue. I am satisfied that retention of control was the predominant purpose of the issue. 610 It is well established that it is an improper exercise of the powers of directors to cause the company to issue shares predominantly for the purpose of ensuring that the incumbent directors remain in control: Ngurli Ltd v McCann (1953) 90 CLR 425, at 440; Harlowe's Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Co NL (1968) 121 CLR 483; Whitehouse v Carlton Hotel Pty Ltd (1987) 162 CLR 285, at 289ff. 611 There can be no question on the evidence that the issue of 210,000,000 AIF shares was procured by both Mr Anthony and Mr Lloyd-Cocks. The issue was made without any advice from legal or accounting advisers as to its propriety. It was not made in good faith and for a proper purpose; no reasonable person could have believed that it was. 612 I find that Mr Anthony, as an officer of AIF, and Mr Lloyd-Cocks as a director, each procured the issue of 210,000,000 shares in AIF on 16 May 2001: – in contravention of his duties of care and diligence under s.180(1) CA; – in contravention of his duties of good faith under s.181(1) CA; – in contravention of his duty under s.182(1) CA not to gain an advantage for himself or someone else. THE MEDIONICS SHARE DILUTION ASIC's allegations 613 On 13 June 2001 Medionics issued 48.12 million shares, 920,000 of which were issued at 50¢ per share to AIF Strategic Management as trustee of the AIF Strategic Trust and to Optum, and 47.2 million of which were issued at $0.0001 per share to companies controlled by Messrs Anthony and Topperwien. 614 ASIC alleges in its submissions, but not in its pleading, that there was no proper purpose for the issue of these shares. The Further Amended Statement of Claim simply pleads the fact of the issue and alleges that Mr Anthony, by authorising, permitting or otherwise allowing the issue, contravened s.180(1), s.181(1) and s.182(1) CA. 615 Mr Anthony denies that he committed any contravention of the Act. Conclusion 616 ASIC's pleading does not allege any fact which would support the conclusion of contravention by Mr Anthony of the Act. Its written and oral submissions are likewise devoid of particularity. Obviously, it is not sufficient for ASIC merely to say in its submissions – as it does – that the Medionics issue was not made for a proper purpose. ASIC must positively plead and prove what the purpose of the issue was and that such purpose was improper. This ASIC has not undertaken to do. Mr Stack did not put to Mr Anthony in cross examination any motive or purpose for permitting the Medionics issue and Mr Anthony volunteered no purpose in his written submissions. 617 In short, the Medionics share dilution allegation received scarcely any attention at all at the trial. I cannot find that the allegations have been proved. THE TECHLOGICA SHARE DILUTION ASIC's allegations 618 ASIC's Further Amended Statement of Claim alleges that: – on 2 October 2001 Techlogica issued 25,199,900 fully paid "Founder" shares to Swiss Pacific; – by authorising, permitting or otherwise allowing the Techlogica issue, Mr Anthony contravened s.180(1), s.181(1) and s.182(1) CA. 619 ASIC's written submissions merely contain the allegation that there was "no proper purpose" for the Techlogica issue. 620 Mr Anthony denies any wrongdoing. Conclusion 621 Even more starkly than in the allegation concerning the Medionics share dilution, ASIC's pleading concerning the Techlogica share dilution does not allege any fact upon which it could be concluded that Mr Anthony contravened the Act as alleged. Neither has ASIC undertaken to prove what was the purpose of the issue. 622 For the reasons I have given in relation to the allegation concerning the Medionics share dilution, I cannot find that the allegation concerning the Techlogica share dilution has been proved. THE ALLEGED BANKRUPTCY PAYMENTS ASIC's allegations 623 Moneytec received the following payments: – from AIF, a total of $63,634.68 between 17 January and 20 March 2001; – from AIF Strategic Management, $22,000 on 2 April 2001. 624 On 28 June 2001 Moneytec paid $120,155 to Mr Anthony's bankruptcy trustee towards satisfaction of Mr Anthony's bankruptcy debts. 625 ASIC alleges that the payments to Moneytec by AIF and AIF Strategic Management were made for an improper purpose, namely, to place Moneytec in funds in order to discharge Mr Anthony's bankruptcy debts. 626 Messrs Anthony and Lloyd-Cocks say that Moneytec received the payments from AIF and AIF Strategic Management as fees for services rendered. 627 ASIC alleges that Mr Anthony, as an officer of AIF, authorised and procured the payments by AIF to Moneytec whereby he contravened s.180(1), s.181(1) and s.182(1) CA. It alleges that Mr Lloyd-Cocks, as a director of AIF Strategic Management, authorised or permitted the payment by that company to Moneytec, whereby he contravened s.180(1), s.181(1) and s.182(1) CA. The facts 628 Mr Anthony did not dispute that Moneytec received about $64,000 from AIF between January and March 2001: T448. Mr Anthony's explanation for the payments was that he was working for Swiss Pacific and was providing financial planning services to AIF on behalf of Swiss Pacific pursuant to the Joint Venture Agreement between AIF and Swiss Pacific dated 12 December 2000 as Swiss Pacific did not hold a securities dealer's licence he believed that the fees for the financial services had to be paid to a "financial services compliant company in Australia that had a business in Australia" and "there was an arrangement between Swiss Pacific and Moneytec that Moneytec would receive the fees that resulted from the financial planning" : T448. 629 The allegation that money of AIF had been used improperly to discharge Mr Anthony from bankruptcy was only very briefly developed in the evidence during the hearing and I have not been assisted by ASIC's submissions in this regard. It seems that the issue is whether or not ASIC has proved on the balance of probabilities that the payment to Moneytec did not represent fees payable to Mr Anthony or at his direction for services performed by him pursuant to the agreement between Swiss Pacific and AIF dated 12 December 2000. It does not matter in this regard that I consider Swiss Pacific to be nothing more than Mr Anthony under another name. If services were provided by Mr Anthony, under whatever name, then prima facie he was entitled to some remuneration from AIF. 630 Although, as a general rule, I do not believe anything that Mr Anthony says, yet it is clear that he did perform services for AIF from December 2000 onwards. No invoices or claims for remuneration addressed by Swiss Pacific to AIF pursuant to the 12 December 2000 Joint Venture Agreement have been produced. However, I do not think that it is inherently improbable that Mr Anthony was entitled to some remuneration for work done during the period from January to March 2001 and that he may have directed that remuneration to be paid to Moneytec. 631 There is no evidence that Mr Anthony alone was responsible for procuring the payment by AIF to Moneytec. 632 It was not put to Mr Anthony that the payments by AIF to Moneytec between January and March 2001 were for the purpose of enabling payments by Moneytec in June 2001 to Mr Anthony's bankruptcy trustee. The timing of the relevant payments does not, in itself, point in this direction. 633 On 16 March 2001 Moneytec issued an invoice to AIF Strategic Management for $22,000. The invoice is signed by Mr Anthony and directed to Mr Luvara. It sets out separately sixteen items of work said to have been performed by Mr Anthony for AIF Strategic Management. The work relates to a dispute between AIF Strategic Management and unitholders of the AIF Strategic Trust, represented by Mr de Zylva. Conclusion 634 The evidence in support of ASIC's allegation that this payment was improper is extremely sparse. The timing of the payment to Moneytec and the payment by Moneytec to Mr Anthony's trustee does not, in itself, indicate that the purpose of the payment was as ASIC alleges. I am unable to find that the work charged in the Moneytec invoice was not done or that the fees charged were manifestly unreasonable. Accordingly, I cannot hold that these allegations against Mr Anthony and Mr Lloyd-Cocks have been proved. SUMMARY OF CONCLUSIONS Mr Anthony 635 For the reasons given in the judgment I hold that Mr Anthony has committed the following contraventions of the Corporations Act : i) Mr Anthony contravened s.206A(1) CA in that, from December 2000 to 24 October 2001, while an undischarged bankrupt, he managed the following corporations within the meaning and for the purposes of s.206A(1): AIF Finance Projects Money Mint Medicoman Webfeatures Australian Equity Forum Suisse Credit P/L Techlogica IT Genius Nine contraventions of the Act by Mr Anthony are found proved under this heading. ii) In authorising the payment by AIF of $300,000 to Webfeatures in March 2001 and the payment of $2.408M to Suisse Credit P/L in April and May 2001 Mr Anthony, as an officer of AIF, breached his duties of diligence and good faith to AIF, in contravention of s.180(1), s.181(1) and s.182(1) CA. Six contraventions of the Act by Mr Anthony are found proved under this heading. iii) In procuring the payment by Sage to Techlogica of $560,000 on 28 September 2001, the consequent payments by Techlogica to Finance Projects, Money Mint and Casabanca and the payments by those companies to Business Franchises, Mr Anthony, as an officer of Techlogica, Finance Project, Money Mint and Casabanca, breached his duties of diligence and good faith to each of those companies, in contravention of s.180(1), s.181(1) and s.182(1) CA. Twelve contraventions of the Act by Mr Anthony are found proved under this heading. iv) In that the payment of $560,000 by Sage to Techlogica was also a contravention by Sage of s.208(1) CA, Mr Anthony was party to and was knowingly involved in that contravention within the meaning of s.79 CA whereby, in accordance with s.209(2) and for the purposes of s.206E, Mr Anthony himself has contravened s.208(1) CA. One contravention of the Act by Mr Anthony is found proved under this heading. v) In that the payment of $250,000 by Sage to AIF in September 2001 was a contravention by Sage of s.208(1) CA, Mr Anthony was knowingly involved in that contravention within the meaning of s.79 CA whereby, in accordance with s.209(2) and for the purposes of s.206E, he himself has contravened s.208(1) CA. One contravention of the Act by Mr Anthony is found proved under this heading. vi) In approving the payment by AIF to Medionics of $303,000 on 31 May 2001 and the payment by Medionics to Optum of $563,000 on 1 June 2001 Mr Anthony, as an officer of AIF and Medionics, breached his duties of diligence and good faith to those companies, in contravention of s.180(1), s.181(1) and s.182(1) CA. Six contraventions of the Act by Mr Anthony are found proved under this heading. vii) In procuring and approving payment by AIF of an invoice dated 16 October 2001 from Biotech in an amount of $425,000 Mr Anthony, as an officer of AIF, breached his duties of diligence and good faith to that company, in contravention of s.180(1), s.181(1) and s.182(1) CA. Three contraventions of the Act by Mr Anthony are found proved under this heading. viii) In procuring AIF to issue 210,000,000 shares on 16 May 2001 Mr Anthony, as an officer of AIF, breached his duties of diligence and good faith to that company, in contravention of s.180(1), s.181(1) and s.182(1) CA. Three contraventions of the Act by Mr Anthony are found proved under this heading. 636 In total, forty-one contraventions of the Act by Mr Anthony have been found proved. In several cases, a number of contraventions arise out of the same circumstances. Mr Lloyd-Cocks 637 For the reasons given in the judgment I hold that Mr Lloyd-Cocks has committed the following contraventions of the Corporations Act : i) In that AIF contravened s.727(1) CA in respect of offers of securities made to Messrs Devey, Markotic, Abell and to Mrs Conrick, Mr Lloyd-Cocks, as a director of AIF, was knowingly involved in those contraventions within the meaning of s.79 CA whereby, in accordance with s.83 and for the purposes of s.206E, he himself has contravened s.727(1) CA. Four contraventions of the Act by Mr Lloyd-Cocks are found proved under this heading. ii) In that AIF contravened Condition 8 of its dealer's licence in holding clients' money on trust in its NAB Trust Account and thereby contravened the Act itself, Mr Lloyd-Cocks was knowingly involved in that contravention within the meaning of s.79 CA, whereby in accordance with s.83 and for the purposes of s.206E he himself has contravened the Act. One contravention of the Act by Mr Lloyd-Cocks is found proved under this heading. iii) In authorising the payment by AIF of $300,000 to Webfeatures in March 2001 and the payment of $2.408M to Suisse Credit P/L in April and May 2001, Mr Lloyd-Cocks, as a director of AIF, breached his duties of diligence and good faith to AIF in contravention of s.180(1), s.181(1) and s.182(1) CA. Six contraventions of the Act by Mr Lloyd-Cocks are found proved under this heading. iv) In procuring the payment by Sage to Techlogica of $560,000 on 28 September 2001 Mr Lloyd-Cocks, as a director of Sage, breached his duties of diligence and good faith to that company, in contravention of s.180(1), s.181(1) and s.182(1) CA. Three contraventions of the Act by Mr Lloyd-Cocks are found proved under this heading. v) In that the payment of $560,000 by Sage to Techlogica was also a contravention by Sage of s.208(1) CA, Mr Lloyd-Cocks was party to and was knowingly involved in that contravention within the meaning of s.79 CA whereby, in accordance with s.209(2) and for the purposes of s.206E, he himself has contravened s.208(1) CA. One contravention of the Act by Mr Lloyd-Cocks is found proved under this heading. vi) In that the payment of $250,000 by Sage to AIF in September 2001 was a contravention by Sage of s.208(1) CA, Mr Lloyd-Cocks, as a director of Sage, was knowingly involved in that contravention within the meaning of s.79 CA whereby, in accordance with s.209(2) and for the purposes of s.206E, he himself has contravened s.208(1) CA. One contravention of the Act by Mr Lloyd-Cocks is found proved under this heading. vii) In approving the payment by AIF Strategic Management of $260,000 to Medionics on 29 May 2001 and in approving the payment by AIF of $303,000 to Medionics on 1 June 2001, Mr Lloyd-Cocks as a director of AIF Strategic Management and AIF breached his duties of diligence and good faith to both companies, in contravention of s.180(1), s.181(1) and s.182(1) CA. Six contraventions of the Act by Mr Lloyd-Cocks are found proved under this heading. viii) In procuring and approving payment by AIF of an invoice dated 16 October 2001 from Biotech in an amount of $425,000 Mr Lloyd-Cocks, as a director of AIF, breached his duties of diligence and good faith to that company, in contravention of s.180(1), s.181(1) and s.182(1) CA. Three contraventions of the Act by Mr Lloyd-Cocks are found proved under this heading. ix) In procuring AIF to issue 210,000,000 shares on 16 May 2001 Mr Lloyd-Cocks, as a director of AIF, breached his duties of diligence and good faith to that company, in contravention of s.180(1), s.181(1) and s.182(1) CA. Three contraventions of the Act by Mr Lloyd-Cocks are found proved under this heading. 638 In total, twenty-eight contraventions of the Act by Mr Lloyd-Cocks have been found proved. In several cases a number of contraventions arise out of the same circumstances. ORDERS 639 I stand the proceedings over to a date to be fixed for the hearing of evidence and submissions as to the relief sought by ASIC in its Further Amended Statement of Claim. I will decide all questions of costs at the conclusion of the proceedings. – oOo – DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.