ASIC wins court victory but opts out of further action against manager
The Australian Securities and Investments Commission (ASIC) has won a legal battle with an investment manager that has dragged on for two years but will not take any further action to penalise the initial behaviour of the manager.
The case centred around whether Wellington Capital Limited was able to distribute share in Asset Resolution Limited (ARL) to unit holders in the Premium Income Fund (PIF), for which it acted as the responsible entity.
ASIC claimed Wellington did not consult with nor obtain the consent of unit holders prior to undertaking these transactions and acted beyond the powers set out in the PIF constitution by distributing the ARL shares to PIF unit holders.
Earlier this week the High Court of Australia handed down a unanimous decision agreeing with ASIC that that the distribution of the ARL shares to scheme members was beyond Wellington's power and in contravention of the Corporations Act 2001 and Wellington could only lawfully make distributions to the PIF unit holders in cash and not in shares.
The High Court decision is the culmination of two years of legal wrangling which began in September 2012 when Wellington stated that ARL had acquired around 41 per cent of the assets of the PIF for $90.75 million.
At the same time Wellington stat that PIF had acquired all the issued shares in ARL. After the issuing of shares to the PIF, Wellington then proceeded to have the ARL shares distributed to PIF unit holders.
ASIC unsuccessfully challenged the distribution of ARL shares to PIF unit holders in the Federal Court of Australia in October 2012 and then appealed the decision to the Full Court of the Federal Court in May 2013, which overturned the initial decision and agreed with ASIC. In November 2013 Wellington appealed the Full Court's decision to the High Court leading to this week's judgement.
Despite the protracted legal battle ASIC said it would not take any further action against Wellington, which remains the responsible entity in respect of the balance of the assets of the PIF, and would leave any court action over the matter to the fund shareholders.
ASIC stated its action "which has been the subject of consideration by the Federal Court, the Full Court of the Federal Court and the High Court, did not seek any remedy in relation to the original transfer of assets from PIF to ARL in exchange for shares".
"It was and remains for each unit holder, and anyone who may have purchased the shares from a unit holder in good faith, to determine whether to take any action in relation to the transfer to it of ARL shares."
AUTHOR
Jason Spits
Recommended for you
The FSCP has announced its latest verdict, suspending an adviser’s registration for failing to comply with his obligations when providing advice to three clients.
Having sold Madison to Infocus earlier this year, Clime has now set up a new financial advice licensee with eight advisers.
With licensees such as Insignia looking to AI for advice efficiencies, they are being urged to write clear AI policies as soon as possible to prevent a “Wild West” of providers being used by their practices.
Iress has revealed the number of clients per adviser that top advice firms serve, as well as how many client meetings they conduct each week.
