New South Wales Supreme Court CITATION : ASIC v Burnard & Ors [2006] NSWSC 611 HEARING DATE(S) : 13 & 14 June 2006 JUDGMENT DATE : 13 June 2006 JURISDICTION : Equity Division JUDGMENT OF : Palmer J EX TEMPORE JUDGMENT DATE : 06/13/2006 DECISION : Orders continued for short time to enable ASIC to investigate further and report to the Court. CATCHWORDS : CORPORATIONS – ASSET FREEZING ORDER – INVESTIGATIONS – ex parte orders made for surrender of passport and freezing of assets in aid of ASIC's investigations – investigations at early stage – no allegation of wrongdoing yet made – whether orders should be continued to ensure investigation not frustrated – whether affidavit disclosing assets should be required. LEGISLATION CITED : - Australian Securities and Investments Commission Act 2001 (Cth) – s.13 - Corporations Act 2001 (Cth) – s.1323, s.1324 CASES CITED : ASIC v Carey (No 3) [2006] FCA 433 Australian Securities and Investments Commission – Plaintiff PARTIES : Neil Austin Burnard – First Defendant Palentia Pty Ltd – Second Defendant Tenala Pty Ltd – Third Defendant FILE NUMBER(S) : SC 3061/06 COUNSEL : D.R. Stack – Plaintiff P.M. Wood – Defendants SOLICITORS : Conrad Gray, Solicitor for ASIC – Plaintiff Atanaskovic Hartnell – Defendants JUDGMENT – Ex tempore 13 June, 2006 1 The Plaintiff, Australian Securities and Investment Commission ("ASIC"), seeks the continuation of certain orders made under s.1323 and s.1324 of the Corporations Act 2001 (Cth) and under the Court's inherent jurisdiction against the Defendants. Additional relief is also sought. 2 On 2 June ASIC made an ex parte application to Austin J, as a result of which his Honour made orders up to and including 5pm today, the effect of which was to restrain the First, Second and Third Defendants from dealing with or disposing of their assets and which required the First Defendant, Mr Burnard, to surrender his passport so that he was prevented from leaving the country. 3 The basis of the application, in brief compass, was as follows. Mr Burnard and the Second and Third Defendants are said to have been involved in the solicitation of investment from the public in the Westpoint Group of companies, which collapsed in mid-2005 with what is thought to be a deficiency in assets of some $300 million. It is said that the Second Defendant, which I will refer to as "Kebbel", has raised in excess of $112 million from the Australian public. Kebbel is said to have earned from its activities commissions exceeding $6 million. 4 On 9 March 2006, ASIC commenced an investigation into the affairs of Kebbel and various associated companies under s.13 of the Australian Securities and Investments Commission Act 2001 (Cth) ("ASIC Act"). 5 On 13 March 2006, ASIC issued a s.30 notice to Kebbel designed to elicit the production of the documents which the notice specified. 6 On 14 March the notice was served on Mr Burnard, who is a director of Kebbel. 7 ASIC's case in this application, in essence, is that the activities of Kebbel and Mr Burnard in raising investment funds for the Westpoint Group require careful investigation to determine whether or not contraventions of the Corporations Act and of the general law have been committed. ASIC says that it has had insufficient time to conduct its investigations adequately since 9 March 2006 so that at this stage the investigation is only in a very preliminary stage. 8 However, ASIC says that there is sufficient to indicate the possibility that Kebbel and Mr Burnard may have been involved in a number of contraventions of the Corporations Act. These possible contraventions include: – the use of the word "bank" in the name of Kebbel when soliciting funds contrary to the provisions of the Corporations Act ; – the making of representations by Mr Burnard to investors in the course of his solicitation of funds on behalf of Kebbel, which representations may be misleading and deceptive; and – the giving of financial advice by Kebbel without the requisite licence under the Corporations Act . 9 It is also suggested that there may be breaches by Mr Burnard of his duties as director of Kebbel in connection with the activities of Kebbel in seeking funds for Westpoint. 10 It is emphasised by ASIC, and I should repeat that emphasis at this point, that ASIC's investigations have proceeded no further than the making of suggestions that there have been contraventions of the Act or of the general law by Mr Burnard and Kebbel. 11 On ASIC's own concession, principally in the evidence of Mr Carr, little has been done by ASIC since 9 March 2006 other than the collection of some preliminary documentation from Kebbel and the interviewing of some very few investors who have invested with Westpoint as a result of the solicitation of Kebbel. Nevertheless, without going into that evidence in any detail, I think that there is sufficient at this stage to demonstrate that there is a possibility of contraventions of the Act and of the general law by Kebbel and by Mr Burnard, and that that possibility is of sufficient strength to require that ASIC continue its investigations. 12 For example, there is some evidence that Mr Burnard was in fairly close communication with the directors of Westpoint. Further, there is some evidence to suggest that Kebbel was carrying on business activities and dealing with Westpoint at some time after December 2003 – which is in contradiction of the evidence given by Mr Burnard in his affidavit and orally in cross examination that Kebbel effectively ceased to trade and to carry on any business activity after December 2003. 13 It is not necessary, nor is it desirable, for me to embark upon any detailed factual analysis of the allegations and suggestions which are made by ASIC at this stage. This would be unfair to all parties concerned, given the early stage of ASIC's investigations and the very limited time which the Defendants have had to meet the case presented against them today. What I can say, however, is that there is sufficient to convince me that further investigation by ASIC of Kebbel's activities and the involvement of Mr Burnard in soliciting investments for Westpoint is warranted. 14 I bear in mind that the interlocutory orders which are sought by ASIC, particularly the asset preservation orders and the restrictions on Mr Burnard's travel, are onerous indeed and curtail the rights and freedoms that every Australian citizen has to move about and to deal with his or her assets until proper cause is shown for interference by regulatory bodies. 15 The discretion which I must exercise in an application of this character involves an assessment of the risk that an investigation may be frustrated, as against the hardships which the restraints sought may impose upon parties against whom no wrongdoing has yet been alleged. I bear in mind that, on ASIC's own evidence, Mr Burnard and his solicitors have demonstrated co-operation in ASIC's inquiries to date. Nevertheless, I also bear in mind that a very large sum of the public's money has been lost by what appears to have been serious mismanagement in Westpoint's affairs: ASIC v Carey (No 3) [2006] FCA 433. I bear in mind that while co-operation may be demonstrated at early stages of an investigation by a person the subject of inquiry, that co-operation may evaporate as the investigation proceeds and the complexion of matters changes. I bear in mind that once a person is beyond the immediate jurisdiction of this Court because he or she has left the country, it is often very difficult to procure that person's return to face investigation and possible prosecution. 16 I bear in mind that there have been substantial transfers of funds to the United States procured by Mr Burnard through various corporate entities since the beginning of this year, after the collapse of Westpoint became much publicised. However, the location of those assets is now determined, so it is not a complete mystery as to where those funds have been placed. 17 I also bear in mind that Mr Burnard left Australia in March 2006, having disclosed to ASIC his intention of going, and that he later returned voluntarily, This factor militates against the usual hallmarks of deliberate fraud that one finds in many cases of misappropriation of public funds. 18 With all of those factors in mind, I think that some protection should be afforded to ASIC for the continuation of its examination of Mr Burnard and to prevent any further transfer of assets overseas. The co-operation that Mr Burnard and his solicitors have extended so far leads me to think that it is incumbent upon ASIC to advance its further investigations in relation to Mr Burnard and Kebbel's affairs quickly, so that if there is no substance in the suspicions which are held, Mr Burnard and his companies may be left to go about their business untrammelled by Court orders. 19 Having regard to the fact that three months have already elapsed since the investigation into Mr Burnard and Kebbel was first commenced by ASIC, I think that ASIC should be able to report back to the Court meaningfully on its further investigations within a period of six weeks from today. At that time I would expect that ASIC would be either able to substantiate further its suspicions as to the possibility of contraventions of the Act or of the general law, or else be able to tell the Court that despite its investigations it has advanced no further. The Court can then consider whether the risk of a meaningful investigation being frustrated is of such magnitude as to warrant further extension of restrictive orders against the Defendants. 20 I will deal very briefly with the orders sought against the Defendants in the nature of receivership or the appointment of a provisional liquidator. 21 In my view, if asset preservation orders are continued against Mr Burnard and Kebbel, then there is no necessity at this stage for the appointment of a receiver to the property of Mr Burnard or a provisional liquidator to Kebbel as a means of compulsorily acquiring information and documents. As I have said, so far Mr Burnard and his solicitors have co-operated in ASIC's investigation. There is no basis for assuming at the present time that it is only by means of the compulsory processes available to a receiver and a provisional liquidator that any further information and documents will be forthcoming to ASIC. The transfer of assets overseas to date may or may not be entirely legitimate; further investigation may elucidate whether any other asset preservation orders or protections are warranted. 22 I do not think that the circumstances warrant the granting of a Mareva injunction against the Third Defendant. That application is made under the general law and not under the special powers of s.1323 and s.1324 of the Corporations Act. Suspicion unsupported by any evidence at all is insufficient for the grant of an asset preservation order under the general law and, in this case, there is nothing more than unparticularised suspicion that the Third Defendant may have been involved in contraventions of the Act or of the general law. 23 For those reasons I would not grant relief in the form of a receiver against Mr Burnard, nor would I make an order appointing a provisional liquidator as against the Second Defendant, nor would I grant an asset preservation order against Tenala, the Third Defendant. The asset preservation order presently granted against the Third Defendant will expire at 5 o'clock today. 24 In the result, I will continue the asset preservation order against Mr Burnard and against the Second Defendant up to and including 5pm tomorrow. By that I intend only to secure the continuation of the present orders until the parties can formulate, hopefully by discussion, appropriate Short Minutes to be brought in tomorrow to reflect my reasons and to make provision for the proper release to the affected Defendants of sufficient funds for their proper legal expenses and other living expenses. There may be other ancillary matters that will need to be discussed and, hopefully, agreed upon. 25 I will continue the orders in paragraphs 8 to 11 of the Orders made on 2 June 2006 up until 5pm tomorrow. 26 Subject to what the parties have to say about it, I would think costs would need to be reserved. Ex tempore judgment - 14 June, 2006 27 I make orders in accordance with paragraphs 1, 4, 5, 6, 7, 8, 9, 10 and 11 of the Short Minutes of Order dated today, initialled by me and placed with the papers. Paragraph 8 of the Orders will be amended to read as follows, adding after the word "passport" "… provided that this Order shall not prevent the First Defendant from taking any steps in connection with his application made on or about 23 May 2006 for a British passport." 28 The Plaintiff seeks what may be described as the usual ancillary orders to an asset preservation order requiring the Defendants, except to the extent of the claim of privilege against self incrimination or exposure to civil penalty, to provide an affidavit as to their assets and the location of bank accounts and so on. This order, as I say, is the usual order to make where an asset freezing order is made. However, this case is an unusual case, in my opinion, in that the asset freezing order is sought in circumstances where the Plaintiff makes no positive allegation of any wrongdoing on the part of the Defendants. 29 The restraints which have been imposed on the Defendants have been imposed for a limited time and have been made purely in order to facilitate the conduct of an investigation into their dealings in relation to the Westpoint collapse. It seems to me that, in the absence of any allegation at this stage of dishonesty or wrongful receipt of funds likely to be dissipated, it is unduly oppressive to impose an obligation on the Defendants to make such disclosure, particularly in light of the reality that it is almost certain that there will be taken the most wide ranging objection to the provision of such information on the ground of possibility of incrimination or exposure to a civil penalty. 30 I bear in mind also that the Plaintiff has at its disposal the means for procuring information as to the location of Defendants' assets if, in the course of its investigation, it is shown that such assets are likely to have been the proceeds of some wrongful activity on the Defendants' part. The Plaintiff has at its disposal the statutory means of production of documents under the ASIC Act. 31 For those reasons, I refuse to make the orders in paragraphs 2 or and 3 propounded by the plaintiff. 32 The matter will stand over before Corporation List Judge at 10am on 25 July 2006. – 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.