Supreme Court New South Wales Medium Neutral Citation: In the matter of Idylic Solutions Pty Ltd - Australian Securities Investments Commission v David John Hobbs [2013] NSWSC 950 Hearing dates: 15 & 16 July 2013 Decision date: 16 July 2013 Jurisdiction: Equity Division - Corporations List Before: Hammerschlag J Decision: Orders and directions made approving settlement and distribution Catchwords: CORPORATIONS - Corporations Act 2001 s 601EE(2) - unregistered managed investment schemes - liquidator seeks approval to make distributions to investors in accordance with a settlement reached Legislation Cited: Corporations Act 2001 (Cth) Category: Principal judgment Parties: Australian Securities and Investments Commission - Plaintiff David John Hobbs - First Defendant Min Hua Li - Second Defendant David John Collard - Third Defendant Huimin Wu - Fourth Defendant Con Koutsoukos - Fifth Defendant Brian John Wood - Sixth Defendant Jimmy Truong - Seventh Defendant Jacqueline Hobbs - Eighth Defendant Idylic Solutions Pty Ltd ACN 121 960 754 - Ninth Defendant 888 Management Inc - Tenth Defendant Geneva Financial Ltd - Eleventh Defendant Barclaywest Ltd - Twelfth Defendant Preserved Investment Group Ltd - Thirteenth Defendant North Wave Ltd - Fourteenth Defendant G P Global Ltd - Fifteenth Defendant Representation: Counsel: D. Funston (Solicitor) - Applicant Solicitors: Norton Rose Fulbright Australia - Applicant File Number(s): 2007/258119 Judgment 1Section 601ED of the Corporations Act 2001 (Cth) ("the Act") requires certain managed investment schemes to be registered. Section 601EE(1) provides, in effect and relevantly, that if a person operates a managed investment scheme which should be, but is not, registered, the Australian Securities and Investments Commission (ASIC) may apply to the Court to have the scheme wound up. 2Section 601EE(2) provides that "[t]he Court may make any orders it considers appropriate for the winding up of the scheme." This section gives the Court broad powers. Short of creating substantive obligations, the Court can settle or prescribe any aspect of the winding up process which is necessary to supply because it cannot be obtained from any other source. 3On 20 June 2008, at the instance of ASIC, the Court appointed the applicant Mr Barry Anthony Taylor ("the liquidator") to be the Official Liquidator of the Integrity Plus Unit Trust ("the Integrity Scheme") and on 28 May 2012, also at the instance of ASIC, as Official Liquidator of the Master Fund Private Placement Memorandum Prospectus ("the Master Fund"). Where it is not necessary to distinguish between them I shall refer to the Integrity Scheme and the Master Fund collectively as the schemes. 4The schemes were unregistered managed investment schemes both operated by Mr David Hobbs ("Hobbs"), a resident of New Zealand and the first defendant to the proceedings, in contravention of the Act. 5This is an application brought by way of Interlocutory Process filed on 17 June 2013 for orders and directions pursuant to s 601EE(2) in relation to the winding up of the schemes, more particularly in relation to a proposed distribution of funds for the benefit of investors. 6In an affidavit sworn 14 June 2013 the liquidator recounts his investigations and sets out the conclusions reached by him. It will suffice to refer to only centrally relevant matters. 7The liquidator describes the Integrity Scheme, which apparently commenced in late 2004, as a ponzi scheme. It attracted some 270 investors and raised about USD$29M. It was administered by a company incorporated in Anguilla, British West Indies, which operated a bank account known as the PJCB Technocash Account. The Integrity Scheme was related to another unregistered managed investment scheme called the Super Save Scheme (which was also wound up on 20 June 2008). Funds were mixed between the two. 8On 1 December 2009 orders under s 601EE(2) of the Act were made by Barrett J to facilitate the winding up of those schemes, including by making distributions. 9Another entity, Destiny Holdings Ltd, also incorporated in Anguilla and associated with Hobbs, operated an account known as the Destiny Technocash Account into which funds from the PJCB Technocash Account were paid. Some of these funds were paid into the trust account of Fletcher Vautier Moore, a firm of solicitors practising in Nelson, New Zealand ("the solicitors"). An amount of NZD$444,000.00 paid on 25 October 2007 was credited to a trust ledger in the name of Legends of Bathurst Ltd ("LOB") the sole director of which is a former partner in the solicitors. 10The liquidator's analysis discloses that the persons beneficially entitled to the NZD$444,000.00 so deposited are the Integrity Scheme investors. 11On 7 September 2008 the liquidator recovered NZD$70,000.00 from the solicitors, which funds were pooled with other Integrity Scheme funds to make a distribution to investors. 12The balance of funds to which the Integrity Scheme investors are now beneficially entitled is accordingly NZD$374,000.00. 13The Master Fund apparently commenced in late 2004. It attracted about 44 investors residing mostly in Australia and in the People's Republic of China. It was also administered by an Anguilla company, Secured Bond Ltd, of which the beneficial owners are the second defendant (Li) and third defendant (Collard). The liquidator's investigations reveal that Hobbs originated the Master Fund and gave directions to Li and Collard with regard to it. Investors deposited their investments into a number of bank accounts including one described as the Secured Bond Technocash Account. 14During the period of operation of the Master Fund, on 1 November and 15 November 2007 respectively, amounts of NZD$655,342.45 and NZD$131,102.44 were transferred to the solicitors' trust account from the Secured Bond Technocash Account and credited to the trust ledger of LOB. 15Hobbs also operated another unregistered managed investment scheme known as the Procash Scheme. The liquidator's investigations reveal that other payments intended to be investments in the Procash Scheme were at the direction of Hobbs paid directly by Procash Scheme investors into the solicitors' trust account as follows; NZD$90,082 on or about 21 November 2007 from Hao Tai Corp, an entity associated with Hui Min Wu ("Wu"); NZD$55,873.20 on or about 23 November 2007 from BR Joyce Corp, an entity associated with Jian Zhang ("Zhang"); and NZD$26,157.47 on or about 23 November 2007 from New Day Corporation, an entity associated with James Liew ("Liew"). 16The solicitors and LOB instituted interpleader proceedings in the High Court of New Zealand with respect to the monies held by them, totalling NZD$1,332,547.56. In those proceedings Hobbs was joined as first defendant and the liquidator as second defendant (for the Integrity Scheme) and as third defendant (for the Master Fund). 17Evidence in the interpleader proceedings revealed that part of the monies paid into the solicitors' trust account was used to purchase two properties, Unit 6, 30 Echodale Place Nelson, New Zealand ("Echodale Property") (an industrial investment property registered with the New Zealand titles office to LOB) and 34 Covent Drive Stoke, Nelson, New Zealand (Hobb's permanent place of residence and also registered with the New Zealand titles office to LOB). Part of the funds was paid into a high interest earning account for the benefit of LOB. 18On 15 March 2013, in a judicial settlement conference between the parties a settlement was reached with Orders (By Consent) being signed and entered by the High Court of New Zealand on 8 April 2013. The Orders (By Consent) are in evidence. 19Salient terms of the Orders include that: * Hobbs withdraws certain claims (paragraph 1); * the settlement figure is NZD$1,175,00.00; the Echodale Property will be sold (paragraph 2) and the net proceeds paid into court in New Zealand (paragraph 3); * save for NZD$40,000.00 to be paid to the solicitors for their legal fees, the funds already in court and the net proceeds of sale of the Echodale Property will be paid to the liquidator for distribution between the schemes, Zhang, Liew and Wu (paragraph 4); * any shortfall between the amount paid to the liquidator and the settlement figure will be paid by Hobbs to the liquidator by 15 July 2013, and judgment may be entered accordingly, and this payment is in full and final settlement of all claims that have been raised in the proceedings including by Hobbs against the other parties (paragraph 5); * the payment is to be distributed in the same manner as the other payments (paragraph 6); * to the extent that Hobbs does not make payment as required the liquidator may recover the balance of the settlement sum against LOB's assets (paragraph 7). 20Paragraph 9 is in the following terms The settlement of Mr Taylor's claims recorded in paragraph 5 of this order is conditional on Mr Taylor obtaining the approval of the Supreme Court of New South Wales. 21The amount to be paid by Hobbs has apparently not yet been paid. There is NZD$551,415.57 standing in the New Zealand Court. 22The liquidator proposes to distribute the settlement sum as follows: Claimant Claim (NZD) Distribution (NZD) Integrity Scheme 374,000.00 329,781.85 Master Fund 655,332.45 577,852.27 Master Fund 131,102.44 115,602.15 Wu 90,082.00 79,431.57 Zhang 55,873.20 49,267.29 Liew 26,157.47 23,064.86 Total 1,332,547.56 1,175,000.00 23Each payment represents 88.18% of the claim. 24The liquidator seeks this Court's approval of the Orders (By Consent) as envisaged in paragraph 9 of that instrument. 25Zhang and Liew have consented to the proposed distribution. On 21 February 2013 the liquidator was appointed with Mr Andrew James Needham as Joint and Several Receivers to Wu. 26The liquidator considers the settlement embodied in the Orders (By Consent) to be a good commercial result for the investors in the schemes and for Zhang, Liew and Wu. Amongst others, he points out that the proceedings could run for 10 days and involve considerable costs, as well as the inevitable risk in litigation. 27There is nothing to doubt that the liquidator's view is proper and in good faith, or to suggest that it is erroneous. 28Some of the over 300 investors in the schemes are overseas. The vast bulk of them have notified the liquidator of email addresses for receipt of communication. He has physical addresses only for some including some outside Australia. 29On about 19 June 2013 the liquidator sent to each defendant and investor a letter giving notice of these proceedings. 30The liquidator's affidavit has also been available on his website. The defendants and investors were notified of this. 31The liquidator seeks the following orders: (1) That the applicant is not required to serve the Affidavit of Barry Anthony Taylor sworn on 14 June 2013 and the Exhibit to that affidavit, on the defendants and the persons listed in Annexure A and Annexure B to the Interlocutory Process filed in this proceeding on 17 June 2013. (2) Notice of this application to each defendant and each person listed in Annexure A and Annexure B to the Interlocutory Process by sending by ordinary pre-paid post, or by email, to the address of each such defendant's or person's last known place of business or residence: (a) a copy of the Interlocutory Process; (b) in the case of each defendant, a copy of the letter marked as Annexure A to the Affidavit of Danielle Funston filed in these proceedings on 17 June 2013; (c) in the case of each person listed in Annexure A to the Interlocutory Process, a copy of the letter marked as Annexure B to the Affidavit of Danielle Funston filed in these proceedings on 17 June 2013; (d) in the case of each person listed in Annexure B to the Interlocutory Process, a copy of the letter marked as Annexure C to the Affidavit of Danielle Funston filed in these proceedings on 17 June 2013; and (e) in the case of each of the following persons: (i) Mr James Zhang; and (ii) Mr James Liew, a copy of the letter which is Annexure D to the affidavit of Danielle Funston filed in these proceedings on 17 June 2013. is valid and effectual service of the Interlocutory Process for the purposes of these proceedings. (3) The Supreme Court of New South Wales approves the settlement sum of NZD$1,175,000 (settlement sum) reached in High Court of New Zealand proceedings number CIV-2010-442-481, on 15 March 2013. (4) The applicant is justified in distributing the settlement sum as follows: (a) NZD$329,781.85 to the applicant in his capacity as the Liquidator of the Integrity Scheme; (b) NZD$693,454.42 to the applicant in his capacity as the Liquidator of the Master Fund; (c) NZD$79,431.57 to the applicant in his capacity as the Receiver appointed to Hui Min Wu; (d) NZD$49,267.29 to James Zhang; and (e) NZD$23,064.86 to James Liew. 32With one proviso I am satisfied that the orders sought are appropriate. 33I consider that notification of the orders should be given, as the case may be, by email or posted under cover of a letter in the form of Schedule A to this judgment, and placed on the liquidator's website by no later than 17 July 2013, and that there should be an additional order that any interested party may, by application to be made no later than 9 August 2013, apply to vary or set aside these orders. 34I make orders in accordance with the Short Minutes of Order which I have initialled, dated today's date and placed with the papers. Schedule A 15 July 2013 [Defendant/Investor] Name [Defendant/Investor] Address ADVANCE \Y 328 Dear [Defendant/Investor] Dear Sir/Madam In the matter of Idlyic Solutions Pty Limited Applicant: Barry Anthony Taylor in his capacity as the Liquidator of the Integrity Plus Unit Trust (Integrity Scheme) and the Master Fund I refer to the letter dated 19 June 2013, which served a copy of an Interlocutory Process filed in the Supreme Court of New South Wales on 17 June 2013. That Interlocutory Process sought: at paragraph 3, an order that the Supreme Court of New South Wales approves the settlement sum of NZD$1,175,000 secured by me on 15 March 2013, in High Court of New Zealand proceedings; and at paragraph 4, an order that the settlement sum, be distributed proportionately as follows: NZD$329,781.85 to the Integrity Scheme; i. NZD$693,454.42 to the Master Fund; ii. NZD$79,431.57 to Hui Min Wu; iii. NZD$49,267.29 to James Zhang; and iv. NZD$23,064.86 to James Liew. As provided in the letter, the Interlocutory Process was listed for hearing on 15 July 2013 at 9.45am before the Supreme Court of New South Wales. The matter was listed before his Honour Justice Hammerschlag. Ms Danielle Funston, solicitor, appeared on my behalf, in my capacity as the Liquidator of the Integrity Scheme and the Master Fund. There were no other appearances. His Honour delivered judgment and made the Orders sought in the Interlocutory process on Tuesday, 16 July 2013. We attach a copy of the Orders made and entered by his Honour and specifically refer you to orders [5] and [6]. Order [5] provides: [The applicant is to give notice, by ordinary pre-paid post or by email, of these Orders to the defendants and those persons named in Annexure A and Annexure B to the Interlocutory Process filed on 17 June 2013 no later than 17 July 2013 Order [6] provides: [The defendants and those persons named in Annexure A and Annexure B to the Interlocutory Process filed on 17 June 2013, have leave to apply to this Court to vary these Orders, on or before 8 August 2013.] If you wish to be heard in relation to the attached Orders you or your legal representative must lodge such application with the Supreme Court of New South Wales no later than 9 August 2013. Please notify us in advance of your intention to apply to vary the Orders and provide us with a copy of the submissions you will make to the Court and any evidence you will rely on. Should you have any questions, please do not hesitate to Stuart Russell-Gibson or my solicitor, Ms Funston on (02) 9330 8066. Yours faithfully Barry Taylor Liquidator Contact: Stuart Russell-Gibson (02) 9020 4321 Encl. SHORT MINUTES OF ORDER IN THE SUPREME COURT OF NEW SOUTH WALES No 2007 of 258119 DIVISION: EQUITY REGISTRY: SYDNEY CORPORATIONS LIST IN THE MATTER OF IDYLIC SOLUTIONS PTY LIMITED AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION Plaintiff David John Hobbs - First Defendant Min Hua Li - Second Defendant David John Collard - Third Defendant Huimin Wu - Fourth Defendant Con Koutsoukos - Fifth Defendant Brian John Wood - Sixth Defendant Jimmy Truong - Seventh Defendant Jacqueline Hobbs - Eighth Defendant Idylic Solutions Pty Ltd ACN 121 960 754 - Ninth Defendant 888 Management Inc - Tenth Defendant Geneva Financial Ltd - Eleventh Defendant Barclaywest Ltd - Twelfth Defendant Preserved Investment Group Ltd - Thirteenth Defendant North Wave Ltd - Fourteenth Defendant G P Global Ltd - Fifteenth Defendant) BARRY ANTHONY TAYLOR IN THIS CAPACITY ASLIQUIDATOR OF THE INTEGRITY + UNIT TRUST AND THE MASTER FUND Applicant The Court makes the following orders and directions: 1. The applicant is not required to serve the Affidavit of Barry Anthony Taylor sworn on 14 June 2013 and the Exhibit to that affidavit, on the defendants and the persons listed in Annexure A and Annexure B to the Interlocutory Process filed in this proceeding on 17 June 2013. 2. Notice of the application to each defendant and each person listed in Annexure A and Annexure B to the Interlocutory process by sending by ordinary pre-paid post, or by email, to the address of each such defendant's or person's last known place of business or residence: (a) a copy of the Interlocutory Process; (b) in the case of each defendant, a copy of the letter marked as Annexure A to the Affidavit of Danielle Funston filed in these proceedings on 17 June 2013; (c) in the case of each person listed in Annexure A to the Interlocutory Process, a copy of the letter marked as Annexure B to the Affidavit of Danielle Funston filed in these proceedings on 17 June 2013; (d) in the case of each person listed in Annexure B to the Interlocutory Process, a copy of the letter marked as Annexure C to the Affidavit of Danielle Funston filed in these proceedings on 17 June 2013; and (e) in the case of each of the following persons: (i) Mr James Zhang; and (ii) Mr James Liew, a copy of the letter which is Annexure D to the affidavit of Danielle Funston filed in these proceedings on 17 June 2013. is valid and effectual service of the Interlocutory Process for the purpose of these proceedings. 3. The Court approves the entry into by the application of the settlement reached in High Court of New Zealand proceedings number CIV-2010-442-481 on 15 March 2013 and embodied in Orders (By Consent) made by that Honourable Court on 8 April 2013. 4. The applicant is justified in distributing the settlement sum of NZD$1,175,000.00, or any part of it pro rata, as follows: (a) NZD$329,781.85 to the applicant in his capacity as the Liquidator of the Integrity Scheme; (b) NZD$693,454.42 to the applicant in his capacity as the Liquidator of the Master Fund; (c) NZD$79,431.57 to the applicant in his capacity as the Receiver appointed to Hui Min Wu; (d) NZD$49,267.29 to James Zhang; and (e) NZD$23,064.86 to James Liew. 5. The applicant is to give notice, by ordinary pre-paid post or by email, of these Orders to the defendants and those persons names in Annexure A and Annexure B to the Interlocutory process filed on 17 June 2013 no later than 17 July 2013. 6. The defendants and those persons named in Annexure A and Annexure B to the Interlocutory Process filed on 17 June 2013, have leave to apply to this Court to vary these Orders, on or before 9 August 2013. 7. These orders are to be entered forthwith. ********** 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. Decision last updated: 17 July 2013