Case: Australian Securities and Investments Commission v Pegasus Leveraged Options Group Pty Ltd (2002) 41 ACSR 561
Outcome: considered
In Australian Securities and Investments Commission v Pegasus Leveraged Options Group Pty Ltd (2002) 41 ACSR 561 at 574 (" Pegasus "), Davies AJ addressed the question whether the sole director of the company which promoted and operated a managed investment scheme should also be considered to be a person operating the scheme. His Honour said at [55]-[57]: "The word 'operate' is an ordinary word of the English language and, in the context, should be given its meaning in ordinary parlance. The term is not used to refer to ownership or proprietorship but rather to the acts which constitute the management of or the carrying out of the activities which constitute the managed investment scheme. The Oxford English Dictionary gives these relevant meanings: 5. To effect or produce by action or the exertion of force or influence; to bring about, accomplish, work. 6. To cause or actuate the working of; to work (a machine, etc). Chiefly U.S. 7. To direct the working of; to manage, conduct, work (a railway, business, etc); to carry out or through, direct to an end (a principle, an undertaking, etc) orig. U.S. I have concluded that Mr McKim operated the managed investment scheme. He was the living person who formulated and directed the scheme and he was actively involved in its day to day operations. He supervised others in their performance. I have also concluded that Mr McKim is not exempted by s601ED(6). He did not 'merely' act as agent or employee of Pegasus. He was the directing mind and will of Pegasus and of the scheme." 35 Mansfield J reached a similar conclusion in Australian Securities and Investments Commission v McNamara (2002) 42 ACSR 488. In that case, the individual in question was one of the directors of the company managing the scheme. His Honour found that the person in question formulated and directed the scheme, and was actively involved in its day to day operations as the directing mind and will of the company managing the scheme. Accordingly, he was operating the scheme in contravention of s 601EB(5). In making these findings, Mansfield J approved the passage in Pegasus to which I have referred. 55 Since Australian Softwood Forest Pty Ltd v Attorney-General (NSW ) [1981] HCA 49 ; (1981) 148 CLR 121, esp at 125, the courts have recognised that the grant of declaratory relief on the application of a statutory body such as ASIC may serve important law enforcement purposes: see Corporate Affairs Commission (NSW) v Transphere Pty Ltd (1988) NSWLR 596 at 603; Australian Securities and Investments Commission v Sweeney [2001] NSWSC 114 at [30] - [31] ; and Pegasus at 571. ASIC is charged with the administration and enforcement of the Act , and there will be many cases where it is in the public interest for the courts to make a declaration on ASIC's application that the Act has been contravened in specified respects. The making of such a declaration does not simply record the outcome of enforcement proceedings; it may also be an appropriate way of marking the court's disapproval of the contravening conduct: see Tobacco Institute of Australia Ltd v Australian Federation of Consumer Organisations Inc (No 2) (1993) 41 FCR 80 at 97-99, 106 and 110. 77 ASIC does not seek an order that BTS be wound up, even though there is some evidence that it might be insolvent. In many cases, it may be appropriate, and it may further investor protection, to make winding up orders in respect of both the unregistered managed investment scheme and the company which administered the scheme: see Pegasus at 579-580, at [95] [98]. Indeed, in Australian Securities and Investment Commission v Chase Capital Management Pty Ltd (2001) 36 ACSR 778 at 796, Owen J said at [93] that if an unregistered scheme is to be wound up, the case for a liquidation of the company that conducted it is compelling.