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New consultation paper on disclosure for hedge fund investors

by Hilary Kincaid 24. February 2011 15:17

ASIC released CP 147 Hedge funds: Improving disclosure for retail investors today. As ASIC points out, the complexity of hedge funds means that investors need a better understanding of how things work than with other retail funds; before they can make an informed decision regarding investment, asset valuation and leveraging (see the FIDO site for more detail). In particular, ASIC is seeking feedback on the interaction of proposed disclosure guidance with tailored PDS requirements for simple managed investment schemes.


More information is available on the ASIC site.


Comments on the paper are due by 21 April 2011.

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Litigation funding class order relief extended again

by Hilary Kincaid 22. February 2011 16:35

ASIC has once more extended the operation of the relief granted in CO 10/333 Funded representative proceedings and funded proof of debt arrangements, until 1 June 2011.

Our previous post on the subject sets out details of the Corporations Act requirements addressed by the relief.

A copy of the amending class order ([CO 11/128]) is available on the Comlaw site, together with explanatory material.


ASIC | Litigation

Snapshot from the ASIC Summer School

by Hilary Kincaid 22. February 2011 16:28

"The pace of new regulatory requirements has never been quicker and this raises particular challenges for non-executive directors".

Professor Ian Ramsay, Harold Ford Professor of Commercial Law, University of Melbourne

(via the Australian Financial Review, 22 February 2011, p 5)


Ford's Principles of Corporations Law

In the matter of Carrington Equipment Pty Ltd - Carrington Equipment Pty Ltd v Hyundai Construction Equipment Australia Pty Ltd [2010] NSWSC 1392

by Martha.Ware 10. February 2011 09:01



The plaintiff, Carrington, applied under s 459G of the Corporations Act 2001 (Cth) (the Act) to set aside a statutory demand served on it by the defendant, Hyundai: [1].


Although Carrington admitted the incurring of the debt, it claimed it had offsetting claims that exceeded the amount claimed in the statutory demand, and that therefore the statutory demand should be set aside pursuant to s 459H of the Act: [1], [7].


Carrington claimed that it had offsetting claims in contract, as well as arising from estoppel and breaches of the misleading conduct provisions in the Trade Practices Act 1974 (Cth) and Fair Trading Act 1987 (NSW): [39].




Ward J summarised the applicable principles as follows:

  • A company challenging a statutory demand on genuine dispute grounds will fail only if the contentions on which it seeks to rely are so devoid of substance that no further investigation is warranted: [72].
  • A genuine dispute must be found to exist if there is any factor which indicates on reasonable grounds an arguable case, even if the case against the company appears stronger: [72].
  • The court’s task is not to resolve competing claims, but to determine whether there is a genuine dispute regarding the debt or a genuine offsetting claim, and if so, in what amount. It is neither necessary nor appropriate for a court to consider the merits of the dispute or offsetting claim: [74].
  • A genuine dispute is one which is bona fide and truly exists in fact, and is not spurious, hypothetical, illusory or misconceived. It exists where there is a plausible contention which places the debt in dispute and requires further investigation: [77].

Ward J was satisfied that on the material before her that there was a genuine dispute as to the liability of Carrington to pay the amount claimed in the statutory demand, with regard being had first to the offsetting amounts: [80]. The statutory demand was accordingly set aside and Hyundai ordered to pay the costs of the application.


Relevant paragraphs of Ford:

[27.062], [27.063], [27.067]


Ford's Principles of Corporations Law

Georges & Anor v Peter Wieland & Ors [2010] NSWSC 1378

by Martha.Ware 10. February 2011 08:58



The plaintiffs previously commenced proceedings against the defendants to enforce a share sale and loan agreements entered into with the fourth defendant (PRWI) and fifth defendant (Grintara) in 2005. Claims were also made against the first and second defendants (Wielands) for breach of their statutory and fiduciary duties as directors, oppression, and conducting the affairs of the second plaintiff (PPT) in a manner contrary to the interests of the members as a whole.


Specific performance was ordered by Brereton J on 18 June 2009. Liberty to apply was also granted “in the event of any difficulty arising in the implementation of the foregoing orders”. It was therefore unnecessary for Brereton J to deal with the allegations made against the Wielands.


The defendants failed to comply with the orders for specific performance, and as Grintara was now in liquidation, it appeared that the specific performance could not be completed. 


The issue before Brereton J was whether it was open to the court to further consider the plaintiffs’ claim for relief against the first and second defendants.




Brereton J identified the following principles: 

  • Liberty to apply does not authorise the grant of different relief against different parties: [23].
  • When a decree of specific performance is made and the defendant fails or refuses to complete the contract, the court may grant further relief by rescinding the order and substituting alternative relief: [25].
  • Once an order for specific performance is made the future exercise of the contractual rights of the parties, including the working out of the order for specific performance, is under the control of the court: [25].
  • A court may engage in further consideration, unless the proceedings have been disposed of by final order, which may depend on the circumstances of the case: [26].

Brereton J held that there was an implied reservation of further consideration in this case, at least so long as the decree of specific performance remained unimplemented, on the basis that: 

  • There was a specific performance order with the implicit notion that the order would remain under the control of the court;
  • There was a manifestly strong case against the Wielands personally in relation to which no orders were made, expressly because of the decree of specific performance;
  • No defence of impossibility or hardship was raised in the substantive proceedings in relation to the claim for specific performance;
  • The relief now sought in substitution for the decree of specific performance was sought in the statement of claim: [33].

Therefore since the order for specific performance remained unperformed, there had not been a final disposal of the personal claims against the Wielands such as to attract the doctrine of res judicata. It was therefore open to the court to rescind the decree and substitute other orders, including orders in relation to the personal claims against the Wielands: [34].


Brereton J held that the Wielands breached their duties as directors under 181(1) and 182(1) of the Corporations Act 2001 (Cth), as well as their fiduciary duties as directors, by exercising their powers as directors other than in good faith for the best interests of the company and improperly to gain advantage for themselves and the other defendants, to the detriment of the PPT, by: 

  • Executing a fixed and floating charge over the assets of PPT in favour of the defendant companies;
  • Procuring the transfer of the business of PPT to a new company owned by the Wielands; and
  • Physically relocating the business of PPT and causing it to default under its licence and incur a contingent liability to the first plaintiff: [37], [51].

Grintara and PRWI were held to have been “involved” in the contraventions of ss 181(1) and 182(2) within the meaning of s 79 of the Act, as they were participants in and beneficiaries of the contraventions: [38], [52].


Relevant paragraphs of Ford:

[8.010], [8.015], [8.020], [8.063], [8.065], [8.070], [8.080], [8.090], [8.095], [11.460], [16.080].


Ford's Principles of Corporations Law

Entech-Renewable Energy Solutions Pty Ltd v Polytek-Wearnes Engineering SDN BHD [2010] WASC 354

by Martha.Ware 9. February 2011 08:51


The plaintiff (Entech) made an application under s 459G of the Corporations Act 2001 (Cth) to set aside a statutory demand issued by the defendant (Polytek) on the basis that there was a genuine dispute as to the debt the subject of the demand.


That debt was a judgment debt arising from a default judgment against Entech in the High Court of Malaya at Kuala Lumpur in proceedings brought by Polytek.


The director of Entech gave evidence by affidavit that Entech had never been served with any documents relating to the Malaysian proceedings and that he had not been aware of the Malaysian proceedings until served with the statutory demand: [4].


The director of Entech gave no evidence about what Entech intended to do in relation to the default judgment, nor any evidence about the procedure of having a default judgment set aside in Malaysia: [9].


The general manager of Polytek gave evidence by affidavit that Entech had made no application to have the default judgment set aside: [10].


Entech’s solicitor gave evidence by affidavit, filed after the affidavit of the general manager of Polytek, of steps taken by Entech to have the default judgment set aside: [11].


Polytek’s defence ‘really rest[ed] on [Entech’s] failure in [its director’s] affidavit to say that Entech intend[ed] to apply in Malaysia to have the judgment set aside’: [20].


An affidavit made under s 459G(3)(a) of the Corporations Act 2001 (Cth) must do more than merely assert that there is a genuine dispute as to the debt the subject of a statutory demand, and a supplementary affidavit sworn or affirmed outside the 21 day period provided in s 459G(3) of the Corporations Act 2001 (Cth) cannot raise any new grounds of objection: [21]-[24].



In the present case, the affidavit sworn by Entech’s director provided evidence as to the lack of service of documents in relation to the Malaysian proceedings and as to the dispute which would arise in contested proceedings. Master Sanderson found that these matters were sufficient to ground a finding that there was a genuine dispute as to the debt: [26].


The statutory demand was set aside.


Relevant paragraphs of Ford

[27.062], [27.063], [27.066]


Ford's Principles of Corporations Law

International Greetings UK Ltd v Stansfield [2010] NSWSC 1357

by Martha.Ware 9. February 2011 08:50



International Greetings UK Ltd, a creditor, sued the directors of the company Oz Wrap under s 588M(2) of the Corporations Act 2001 (Cth) to recover loss or damage occasioned by insolvent trading. Proceedings were commenced by the plaintiff after the s 509(4) lodgment by the liquidator, but prior to deregistration of the company by ASIC. Oz Wrap was deregistered by ASIC before the proceedings came to trial.


The question before the court was whether the plaintiff’s right of recover under s 588M(3) of the Act was precluded by the fact that Oz Wrap was no longer “being wound up”. Section 588M(1)(d) of the Act states that “this section applies where the company is being wound up.” The plaintiff argued that this wording only imposes a condition that the company be “being wound up” when proceedings are commenced: [12]. Stansfield argued that the relevant time is when the order or award is being made by the court: [13].




It was not open to the court to award the plaintiff any remedy under s 588M(3): ‘The message the words convey is that the creditor “may recover from the director” only where, among other things, the company “is being wound up”, so that the creditor may not “recover from the director” unless at the time of recovery the company “is being wound up,”’ (at [17]).


Relevant paragraphs of Ford:



Ford's Principles of Corporations Law

Kennards Hire Pty Ltd v RMGA Pty Ltd [2010] NSWSC 1387

by Emma.Gleeson 8. February 2011 10:08



The applicant applied by interlocutory process for:

·         a review of the remuneration of Mr Clout as liquidator of the defendant determined by resolutions of creditors under s 473(6) of the Corporations Act 2001 (Cth) (the Act); and

·         an inquiry by the court into the conduct of Mr Clout as liquidator of the defendant, under s 536(1)(b) of the Act: [2]-[6].


An applicant for an inquiry under s 536 must show that such an inquiry is warranted by establishing that there is a sufficient basis for making such an order. A sufficient basis is in the nature of a well-based suspicion indicating a need for further investigation: [35]-[36]. However, even if such a basis is shown, the court has discretion whether or not to order an inquiry: [36].




The conduct of the liquidator in neither opposing nor consenting to an application to stay a winding up order under s 482 did not warrant an inquiry, on the basis that:

o        The power of the court under s 482 is discretionary, and the interests of creditors, the liquidator, contributories and the public will be considered by the court: [50].

o        The court will expect to have before it some account by the liquidator of the administration: [52]-[53].

o        Given that the liquidator had reservations about the completeness of the material provided to him and the company’s solvency, it would have been “irresponsible in the extreme” for the liquidator to have consented to a stay of the winding up order: [53].

o        The proper course was therefore to do as the liquidator did and put material before the court recording the liquidator’s reservations: [53].


Section 542 of the Act expressly recognises a distinction between books of the company and books of the liquidator pertaining to the administration of the company. Whether legal advice obtained by the liquidator was owned by the liquidator or the company did not warrant an inquiry under s 536: [60], [65].


Where a claim for review is made under s 473(6), the threshold question is whether the court should carry out a review, and this question is to be approached with s 473(10) in mind: [75]-[76].


The applicant took issue with the liquidator’s remuneration on the basis that the amounts claimed were excessive, involved duplication of work, and work which was unnecessary given the circumstances of this case.


Barratt J held that some of the items claimed did raise possible issues under s 473(1)(k)(i), in relation to time “properly taken” and “likely to be properly taken” and these potential queries formed a proper basis for the court to undertake a review of the remuneration under s 473(6).


Given that there was to be a review of remuneration under s 473(6) and no other basis for an inquiry under s 536 had been established, there was no order made for an inquiry.


Relevant paragraphs of Ford:

[27.129], [27.183], [27.184]


Ford's Principles of Corporations Law

Lollback v Brakepower Pty Ltd [2010] NSWSC 1457

by Emma.Gleeson 7. February 2011 16:32


The plaintiff was the sole director and contributory of Brakepower Pty Ltd (Brakepower). He sought two orders against the liquidator of Brakepower: for a review of a registrar's decision concerning the costs of a remuneration application; and for an inquiry, pursuant to s 536 of the Corporations Act 2001 (Cth), into the liquidator's conduct as liquidator of Brakepower.


A review "involves discretionary intervention": [13] (referring to Tomko v Palasty (No 2) [2007] NSWCA 368; (2007) 71 NSWLR 61). The starting point for a review is the decision sought to be reviewed, the basis on which it was made and the material placed before the court.


Where review is sought of a decision "relates wholly to a matter of discretion", such as a decision as to costs, "the court will be very slow to intervene and should not do so except on grounds of the kind identified in House v R [(1936) 55 CLR 499] at 504–505": [15].


In the case at hand, the tapes of the hearing before the registrar had been "lost", so there was no record of the reasons for the registrar's decision. In such a situation, the relevant question" is whether, on the facts, the decision is unreasonable or plainly unjust": [16].



The registrar's decision in relation to remuneration resulted in the liquidator being awarded approximately 55% of one part of his claim and 50% of another part of his claim. This must be considered in light of the procedure. The liquidator had a right to remuneration. He "resorted to a procedure provided to him by statute and made submissions to the court as to what it should allow him": [19]. The fact that it allowed him less was not an "event" for the purposes of the decision as to costs, even in the light of submissions made on the plaintiff's behalf: [19]. There was therefore no basis for discretionary intervention in the registrar's decision as to costs: [20].


In relation to the claim pursuant to s 536 of the Corporations Act, Barrett J referred to his Honour's decision in Kennards Hire Pty Ltd v RMGA Pty Ltd [2010] NSWSC 1387 at [35] to [37]: [22].


Relevantly, the first stage of proceedings under s 536 is for the court, upon application, to establish whether an inquiry is warranted. For this question to be answered positively, the applicant must establish that there is a sufficient basis, on the grounds of "something about the liquidator's conduct": [22].


The court has a discretion whether or not to order an inquiry, and the purpose of such an inquiry should be borne in mind: that purpose is related to regulation, supervision, discipline and correction of liquidators in the interests of honest and efficient administration of the estates of companies subject to winding up. The interest to be served is a public interest. The section is not concerned in any direct way with vindication of private rights: [22] (citing [37] of Kennards Hire, above).


His Honour held that the task of a judge considering whether an inquiry under s 536 of the Corporations Act is warranted "is to decide whether there is a well-based suspicion indicating a need for further investigation of these matters (or any of them), with “suspicion” connoting a positive feeling of actual apprehension or mistrust, as distinct from mere wondering": [23].


The conduct said by the plaintiff to warrant an inquiry was the liquidator's resistance to the termination of the winding up of Brakepower; the convening of a meeting to fix the liquidator's remuneration; and the amount of remuneration claimed by the liquidator: [24]–[26].


In relation to the liquidator's resistance to the termination of the winding up of Brakepower, it cannot be said that such resistance at a particular date was unreasonable in circumstances where a report which may have supported the termination of the winding up had been provided to the liquidator at close of business on the previous business day: [57].


In any case, the report supported the termination of the winding up on the basis of a proposal that the debt owed to a related party, Vamona Pty Ltd (Vamona), would be capitalised and converted into share capital: [57]. That proposal entailed potential disadvantage for Vamona: [59]. Among other issues, the plaintiff was the sole director of Vamona, which raised questions as to how he would compromise his fiduciary obligations to both Brakepower and Vamona: [59].


In the circumstances, the liquidator "was entitled to have reservations as to whether [capitalisation] would occur" unless and until it did: [60]. (See also Re SNL Group Pty Ltd [2010] NSWSC 797 as to the absence of a well-founded assumption that the court would see an undertaking by the plaintiff regarding capitalisation as a sound basis on which to terminate a winding up: [61].)


Had the plaintiff sought the liquidator's approval under s 471(1A) of the Corporations Act in relation to the issue of shares, attended to the capitalisation and then provided evidence of solvency, the liquidator may have taken a different attitude to the termination application: [62].


However, in the circumstances, the liquidator was not bound to consent to the application: [65].


In any case, a liquidator's consent to a termination application does not mandate that termination. The court's power under s 482 of the Corporations Act is discretionary (at [63]), although the liquidator's position is "an important consideration" (at [64]).


In relation to the convening of the meeting of creditors, the liquidator gave notice of the meeting on 25 February 2010, on which date, the plaintiff's "termination application had been before the court on two occasions but had not been progressed in any substantive way": [71]. That remained true at the time of the meeting on 12 March 2010.


The position under s 473(3) of the Corporations Act is that "the fixing of remuneration is normally or principally a task for a meeting of creditors": [69]. While it may be dealt with in a summary manner when the court deals with an application for the termination of winding up, in the case at hand, the circumstances were such that there was no "sound basis for an expectation" that the court would so deal with the question of remuneration: [71].


The meeting of creditors declined to grant the remuneration sought by the liquidator: [72]. Importantly, it also refrained from making a determination that some lesser amount could have been granted, as it had the power to do under s 473(3)(b)(i) of the Corporations Act: [72].


In those circumstances, it was not unreasonable for the liquidator to make an application to the court under s 473(3)(b)(ii) of the Corporations Act: [73].


The conduct of the liquidator in convening a meeting of creditors for the purpose of considering the question of remuneration did not warrant an investigation under s 536 of the Corporations Act: [75].


Nor did the liquidator's inadvertent failure to provide a remuneration report with the notice of the meeting of creditors warrant an investigation under s 536 of the Corporations Act, especially as the meeting made no decision (so no decision was made on the basis of inadequate or incomplete information): [79]–[80].


In relation to the quantum of remuneration sought by the liquidator, the fact that the court awarded "a sum appreciably lower than that sought", but that of itself is not sufficient to warrant an inquiry pursuant to s 536 of the Corporations Act: [86].


Finally, his Honour held that a claim for an inquiry pursuant to s 536 of the Corporations Act does not envisage "an inquiry 'whether any other conduct of the Liquidator was unreasonable, improper or in breach of the Act'": [90]. The court's power under s 536(1)(a) and (b) is confined; it is not "free to range at will over the whole of the liquidator’s conduct": [90].



Relevant paragraphs of Ford

[27.180], [27.183], [27.184]



Ford's Principles of Corporations Law

Waco Kwikform Limited v Jabbour [2010] NSWSC 1379

by Emma.Gleeson 7. February 2011 11:37



The plaintiff made an application under s 74K of the Real Property Act 1900 (NSW) to extend the operation of a caveat. The plaintiff lodged the caveat on or about 26 July 2010. It related to two parcels of land of which the defendant was the registered proprietor (alone or in common with others).


The interest claimed by the plaintiff in the caveat was an equitable interest as chargee. That interest was said to arise out of a guarantee and indemnity which the defendant entered into with the plaintiff on 14 October 2008.


The guarantee and indemnity related to goods and services provided by the defendant to a business conducted by Jabbcorp Pty Ltd (Jabbcorp). Voluntary administrators were appointed to Jabbcorp on 5 October 2010. On 26 October 2010, the plaintiff received a lapsing notice in respect of the caveat.




The questions arising for consideration on the application were set out by White J at [9]. Those questions, and the answers his Honour gave, are as follows:


1. ‘Did the plaintiff require leave under s 440J of the Corporations Act 2001 (Cth) to bring this proceeding?’

·         The application to extend the operation of the caveat was not a step by way of enforcement of the guarantee (s 440J(1)(a)) but rather a step to preserve the status quo: [11]. Nevertheless leave was required under s 440J(1)(b) because the application was a proceeding ‘in relation to’ the guarantee: [12].


2. ‘If so, can leave be given retrospectively?’

·         Yes: [14].


3. ‘If so, should retrospective leave be given to the plaintiff to bring the proceeding?’

·         The critical matters were (at [20]ff):

·         (1) if leave were refused, the plaintiff may suffer material damage: [21];

·         (2) the grant of retrospective leave would not be counter to the policy underlying s 440J of the Corporations Act 2001 (Cth): [22];

·         (3) the extension of the caveat was not a step in the enforcement of the guarantee: [23]; and

·         (4) the grant of retrospective leave would not interfere with the administration of Jabbcorp or the implementation of a deed of company arrangement: [25]-[28].

·         White J concluded that leave should be granted: [29].

4. ‘Is any debt secured by the guarantee and indemnity?’

·         It was at least seriously arguable that the guarantee and indemnity applied to a debt owing by Jabbcorp under a subcontract of 2 February 2010 and was not confined to debts entered into at the date of the guarantee: [36]-[37].

·         The lack of a judgment in relation to any or all of the amount claimed against Jabbcorp was not relevant: [39].

·         Although the defendant claimed that invoices giving rise to the debt did not comply with the subcontract, it did not necessarily follow that the money was not due: [41]-[42].

·         Thus there was ‘at least a serious question to be tried that [Jabbcorp] owes a debt to the plaintiff which is subject to the guarantee and indemnity and secured by the charge’: [43].

5. ‘Does the charge in the guarantee and indemnity create an interest in the land or only in the proceeds of sale of land?’

·         The charge was of the defendant’s beneficial interest in land: [45].


6. ‘Is it a reason not to extend the caveat that the plaintiff has not requested the defendant to execute a mortgage or other instrument of charge and has not sought the defendant's permission to lodge a caveat?’

·         No: [46]-[48].


7. ‘Does the balance of convenience favour extending the caveat?’

·         The plaintiff made the usual undertaking as to damages.

·         A second caveat had been lodged by another person.

·         The defendant’s proffered undertaking to not lodge any instrument for registration without first giving the plaintiff seven days’ clear notice would not provide sufficient protection: [54]-[55].

·         Registration of a plan of subdivision ‘would not materially reduce the plaintiff’s security’ and ‘should be capable of being implemented’ even if the caveat was extended: [58].

·         The balance of convenience favoured an extension of the caveat: [59].


It is generally necessary for a summons seeking the extension of the operation of a caveat to also seek final relief: [60]-[62]. This had not been sought in the present case. White J accepted the plaintiff’s undertaking to file a further amended summons seeking final relief: [63].


An order was made extending the caveat.



Relevant paragraphs of Ford:


[26.070], [26.072]



Ford's Principles of Corporations Law


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