Australia: Insolvency Update, September 2006

Last Updated: 11 October 2006


  • Westpoint - The Saga Continues
  • Caveats - Use by Liquidators
  • Nigerian Loan Scams - Some Interesting Trivia


2006 may be remembered by the insolvency profession for the collapse of the Westpoint Group, which engaged in property development across Australia with use of investors’ funds in mezzanine style finance arrangements.

The Westpoint Loan Structure

The Westpoint property development model worked by the incorporation of project development companies, and special purpose "mezzanine" companies which raised funds from investors. The mezzanine companies would lend investors’ funds to the development company’s corporate trustee, in exchange for receiving a second ranking security. The first ranking security was usually given to an external bank. The mezzanine companies received a guarantee from other designated companies in the Westpoint group to give investors further reassurance, although these guarantees ultimately proved worthless. The mezzanine companies also issued promissory notes to investors in support of their obligations to give further comfort to investors. Whilst having an air of sophistication, the promissory notes gave investors no greater assurance than unsecured debt obligations.

In 2004, ASIC applied to wind up and effectively shut down two of Westpoint’s development projects at the Emu Brewery site in Western Australia and another site in Port Melbourne.1

In those proceedings, ASIC argued that the issuing of the promissory notes constituted a "debenture" under the Corporations Act, and therefore required a prospectus. Alternatively, ASIC claimed that the promissory notes were issued as part of unregistered managed investment schemes, which would require the issuing of a product disclosure statement. The Supreme Court of Western Australia at first instance and in its appellate jurisdiction rejected ASIC’s primary argument that the promissory notes were debentures, but accepted the alternative argument that the notes were issued as part of unregistered managed investment schemes. The two schemes were consequently wound up.

Liquidators have now been appointed to all of the Westpoint schemes, and to the corporate scheme operators.

ASIC’s Further Action

ASIC has recently obtained freezing and property preservation orders against the controllers of the Westpoint group, Mr Norman Carey, and his associated entities. The court has also appointed receivers to the personal assets of Mr Carey and other associated entities to preserve these assets for the benefit of aggrieved parties.2 Mr Carey was also ordered to detail in affidavit the destination of funds obtained from the Westpoint group, and passed to him or his associated entities, to the detriment of investors. ASIC's investigations continue.

The Future

ASIC’s actions have been taken with a view to protecting investors. The next saga in the Westpoint chapter will be the investors’ actions against financial advisers who recommended the Westpoint products.

Westpoint offered high returns and may have seemed like a good investment at the time. Of course, each action by investors will be determined on its own merits, as a financial adviser must take into account the personal needs and circumstances of each client, some of whom may have willingly and freely sought high return investments such as Westpoint.


In corporate insolvencies, liquidators may challenge transfers of real property at an undervalue as uncommercial transactions3 under the Corporations Act where:

  1. the transfer occurs within two years prior to a liquidation4; and
  2. the company’s insolvency may be established at the relevant time.5

A problem often encountered by liquidators faced with this situation is ensuring that any property is held intact for the benefit of creditors, pending a court determination against the recipient avoiding the transfer. The recipient may dispose of the subject property prior to any court order in favour of a liquidator setting aside the transaction, leaving a liquidator with only a personal claim against a recipient which may ultimately prove worthless, especially if the recipient is a phoenix company. The rare exception is where the liquidator can prove that the recipient still holds funds or other substitute property acquired by use of the subject property. In practice, this "tracing" exercise is very difficult to establish.

Caveatable Interest

Where a liquidator has grounds to set aside a transfer of real property for sale at an undervalue as an uncommercial transaction, the liquidator may register a caveat to preserve a claim against the property. Not only will this prevent disposal of the real property, it may also prevent third party interests, such as mortgages, being registered over the property. A recent decision of the Supreme Court of Western Australia in Jones v Rustic Haven Sdn Bhd [2006] WASC 3 upheld the validity of a liquidator’s caveat lodged to preserve a claim for transfer at an undervalue. In that case, the court endorsed a previous decision which upheld the ability of a liquidator to lodge a caveat where sufficient evidence of an uncommercial transaction had been adduced.6

Although the court has a discretion under the Corporations Act to make numerous orders when avoiding an uncommercial transaction, such as payment of damages, the ability of the court to order the re-transfer of property gives a liquidator a legal interest to substantiate a caveat. The benefit to liquidators is significant.


ASIC’s fido website gives some interesting trivia concerning Nigerian loan scams. Apparently, about 1,000,000,000 Nigerian loan scam offers are sent to people worldwide each year. Over US$5 billion has been swindled from gullible investors over the years in such scams.

The scam usually works by a letter/facsimile/email offering a business "venture" exclusively available to the mail recipient. The offeror is supposedly a government official, lawyer or astute business person, who seeks assistance in gaining access to funds, or even hidden treasures, in a once in a lifetime offer. The offeror will usually seek advance payments in order to facilitate the transfer of the funds or assets.

Although the term "Nigerian" is the name ascribed to these particular scams, the unsolicited correspondence may pretend to derive from other countries such as Sierra Leone, Togo, Ghana, The Congo, Ivory Coast, Senegal, South Africa, Mauritius or Azerbaijan.

Nigerian loan letters often make for an interesting read; far fetched stories which one wonders how anyone could believe. Complete strangers seek the trust of would be investors with fanciful stories, some of which are downright dishonest even on a plain reading (one scam seeks to avoid paying taxes, and others involve African lawyers breaching their clients’ confidentiality).

Nigerian loan letter emails should be deleted from your in-box immediately. Never respond!


1. ASIC v Emu Brewery Mezzanine Ltd (2004) 187 FLR 270 per Simmonds J (first instance), upheld in Emu Brewery Mezzanine Ltd (In Liq) v ASIC (2006) WASCA 105.

2. ASIC; in the matter ofRichstar Enterprises Pty Ltd v Carey (No 3) (2006) 57 ACSR 307; ASIC; in the matter of Richstar Enterprises Pty Ltd v Carey (No 5) (2006) 58 ACSR 6.

3. Section 588FB of the Corporations Act provides that an uncommercial transaction is one which a reasonable person in the company’s circumstances would not enter into, having regard to the benefits and detriments of entering into the transaction, the respective benefits to other parties to the transaction and any other relevant matter.

4. Where the transfer is to a related entity, the avoidance period is four years before a liquidation. The avoidance period is reconciled from what is technically known as the "relation back day".

5. The transaction must also be an "insolvent transaction" which is one occurring when the company was insolvent or became insolvent, wholly or partly, as a result of the transaction.

6. Kitay v Strathfield Holdings Pty Ltd (1998) 27 ACSR 716.



Dan Pennicott

t (07) 3114 0102


Matthew Broderick

t (07) 3114 0106




Martin Hirst

t (02) 9931 4871


Justin Bates

t (02) 9931 4763


The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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