In Australian Securities and Investments Commission v A One Multi Services Pty Ltd  FCA 1297, the Federal Court of Australia considered an application brought by the Australian Securities and Investments Commission (ASIC) seeking, among other things, the appointment of receivers and asset preservation orders pursuant to section 1323 of the Corporations Act 2001 (Cth) (Act), including in relation to digital currency.
The evidence before the Court demonstrated that the defendants were involved in a business in which they induced individuals to loan monies from their superannuation funds to the first defendant, A One Multi Services Pty Ltd (A One), as a result of misleading and deceptive conduct.
The defendants arranged for various individuals to establish Self-Managed Super Funds (SMSF) and to rollover their superannuation savings from managed or institutional funds to their SMSFs so they could then loan monies to A One.
The second defendant, Mr Hala, was the sole director and secretary, as well as a shareholder, of A One. The third defendant, Ms Walters, was a shareholder and the former sole director and secretary of A One. Mr Hala and Ms Walters were the sole signatories of A One’s bank accounts.
The defendants did not hold or ever held an Australian Financial Services Licence (AFSL) or were or had been authorised representatives of an AFSL holder. They were not authorised to provide financial services or deal in financial products.
ASIC subsequently commenced an investigation relating to allegations that the defendants had engaged in making false or misleading statements, had engaged in misleading or deceptive conduct, and had engaged in dishonest conduct. Those investigations centred on representations made by Mr Hala that he could earn investors a return of between 10% and 26% on their investments. ASIC’s investigations found that in the period 1 January 2019 to 22 June 2021 at least $25 million was deposited into A One’s bank account from 92 individual investors and 60 SMSFs.
ASIC alleged that $5.7 million of those funds was then used for the personal benefit of Mr Hala and Ms Walters, which included the purchase of real estate, the transfer of cash to personal bank accounts held in the Philippines and the purchase of luxury cars in their own names. The largest disbursement of funds related to transactions totalling approximately $2.4 million in cryptocurrency by Mr Hala. ASIC estimated that Mr Hala may have had approximately $7 million to $22 million in Bitcoin in his possession at commencement of the proceeding. Approximately $330,000 of the funds deposited into A One’s bank accounts remained at the time of commencement of the proceeding.
Relevant legal principles
We have discussed in previous publications the operation of section 1323 of the Act and how that section operates to protect the interest of the aggrieved person to whom the relevant person (i.e. the person against whom proceedings are commenced) is liable.
The section provides the Court with wide powers to, among other things, appoint receivers over the property of a person (either natural or corporate), prohibit a person from paying or discharging a debt on behalf of someone else, prohibit someone from sending out of the jurisdiction of Australia money, and preventing someone from leaving the jurisdiction of Australia.
In essence, section 1323 provides the Court with powers to preserve the status quo pending the conclusion (in so far as the application is brought by ASIC) of the investigation and prior to the evidence required to establish liability is collected or liability is in fact established (see In the Matter of Trio Capital Limited (in liq)  NSWSC 1595 at ).
The Court found that the scheme conducted by the defendants appeared to have involved the following contraventions of the Act:
- Making representations to persons about the appropriateness of investing in the A One.
- Advising those potential investors to establish SMSFs for the purpose of facilitating the use of their superannuation savings as an investment in A One.
- Engaging in the above without holding the required license or authority under of the Act.
- Misappropriating funds for personal use from A One and failing to make any returns on investments.
The Court was satisfied that the defendants may have been liable to pay money to the investors, however no final conclusions were made due to the early stage of the proceeding, being the ex parte application for orders under section 1323 of the Act.
In making orders for the appointment of receivers the Court recognised that, although it was a dramatic step, the circumstances of the case warranted such an appointment where the majority of the investors’ funds had been dissipated for the personal benefit of Mr Hala and / or Ms Waters.
The Court also determined that it was appropriate to make orders preventing Mr Hala and Ms Waters from leaving Australia. The Court considered the following factors warranted imposing such restrictions on the defendants:
- Given that the majority of assets identified were in the form of cryptocurrency, the defendants would be required to provide codes and other information to enable the receivers to take possession of the cryptocurrency. Only those in possession of such codes have access to such an asset (in this case Mr Hana and Ms Waters) and an order of the Court to any third party would be of little, if any, utility. Had orders not been made restricting Mr Hala and Ms Waters from leaving the jurisdiction, foreseeably they could abscond and access the cryptocurrency without any issue.
- Mr Hanna and Ms Water had a history of overseas travel, in particular to the Philippines were a significant amount of investor funds were distributed.
The case highlights the inherent difficulties which now face parties litigating against a defendant whose assets include, or may be limited to, cryptocurrency. Given it is those who own the cryptocurrency who have the requisite codes to access and control such an asset, there are many practical difficulties when seeking orders to preserve that asset pending the outcome of an investigation or civil claim. Section 1323 of the Act a very useful tool to overcome such difficulties, provided the requisite ancillary relief is sought to ensure the appointment of a receiver to take control of such assets is not frustrated.