Case: Mier v F N Management Pty Ltd (2005) 56 ACSR 93
Outcome: discussed
the investors may wish to preserve the status quo of the sale contract to see whether they may have some cause of action which might be brought by the liquidator in their name, it was not suggested that the sale contract is illegal as a result of having been entered into by participants in an unregistered managed investment scheme. There is clear authority to the contrary. In Karl Suleman Enterprizes Pty Ltd (In Liq) v Babanour (2004) 49 ACSR 612, the New South Wales Court of Appeal said at [51]: "The registration requirement for the operation of a managed investment scheme is for the protection of investors. The legislation does not expressly make an unregistered scheme unlawful. Rather it impugns the conduct of the entity responsible for registration by imposing a penal sanction for a contravention of the registration provisions. The members of an unregistered scheme are protected by the provisions whereby the scheme may be compulsorily wound up. There is nothing, therefore, in the scheme of the legislation whereby an implication of an illegality would arise, nor is there anything that points to a legislative intention that contracts entered into as part of an unregistered scheme are illegal." See also Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd [1978] HCA 42 ; (1978) 139 CLR 410; Mier v F N Management Pty Ltd (2005) 56 ACSR 93 at 96. It is then necessary to consider whether the general terms of s 601EE(2) of the Act would extend to the granting of an injunction abrogating or suspending for a period of time McKinnon Road's right to rescind the sale contract. Although it is cast in general terms, s 601EE(2) must be read within the context of a provision for the winding up of a managed investment scheme. In Re Crust'N'Crumb Bakers (Wholesale) Pty Ltd [1992] 2 Qd R 76 at 78 McPherson SPJ described the concept of "winding up" as: "a process that consists of collecting the assets, realising and reducing them to money, dealing with proofs of creditors by admitting or rejecting them, and distributing the net proceeds, after providing for costs and expenses, to the persons entitled". In Mier v F N Management Pty Ltd (supra) Keane JA, with whom McMurdo P and Douglas J agreed, said at 98: "...where a statute makes reference, without more, to the 'winding up' of an entity, it is referring to the application of a procedure containing these essential characteristics [those described by McPherson SPJ] . It follows that s 601EE(2) must be read as empowering a court to make such orders as it considers appropriate in order to apply such a procedure to an unregistered managed investment scheme. It may also be accepted that the terms of the section allow for further orders to be made as needed so long as they are required for the 'due conduct and completion of the winding up'. The necessary corollary is that an order that could not reasonably be seen as advancing this procedure would not be authorised by s 601EE(2)." (Footnotes omitted) In Australian Securities and Investments Commission v Commercial Nominees of Australia Ltd (2002) 42 ACSR 240, Barrett J said at 243: "In relation to s 601EE(2) of the Corporations Act , I accept that the powers conferred upon the court are very broad. The concept of winding up, as it is applied by s 601EE to an unregistered managed investment scheme, is not the subject of any explanation or elaboration in the statute. It seems to me, as a matter of general principle, however, that what is contemplated is the realisation of assets of the scheme, discharge of liabilities and distribution of any surplus among beneficiaries or members in an appropriate way. So much is clearly implied by the expression 'winding up', the general meaning of which may be gathered from approaches taken to that general subject under statutes dealing not only with companies but also with partnerships. Those statutory approaches were built on foundations which pre-dated legislation in either area. Given that s 601EE(2) enables the court to make 'any orders it considers appropriate for the winding up of the scheme' (emphasis added), it must be accepted that the court has jurisdiction to settle or prescribe any aspect or element of the basis for winding up or the winding up process which it is necessary to supply because that element cannot be obtained from any other source. In this respect, it is noteworthy that the statute itself does not attempt to lay down the basis for or method of winding up. That is, to my mind, an indicator of intention that the court should be able to act in the comprehensive way I have outlined."