Guilty as sin, page-8

So here is some of the highlights of the 21/4/16 court ruling.

http://www.judgments.fedcourt.gov.au/judgments/Judgments/fca/single/2016/2016fca0416

(2) The defendant appears to have breached sections of the Corporations Act regulating how funds are raised from the public by

(a) failing, contrary to s 722 of the Corporations Act, to hold all application money received from people applying for securities under the supplementary prospectus dated 27 November 2014 in trust until the securities were issued or the money returned to applicants; and

(b) offering, contrary to s 728 of the Corporations Act, securities under a disclosure document, namely the supplementary prospectus dated 27 November 2014, and omitting from the prospectus information reasonably required to make an informed assessment of the prospects of the defendant, being the appointment of the Business Rescue Practitioners to the operating subsidiaries, thereby ending the defendant’s management and control of those subsidiaries, and the assets of those subsidiaries

17.16. On 20 November 2014 Business Rescue Practitioners (BRP) appointed by ABSA and EDF took control of the major mining assets owned by CCC through CCLSA and its subsidiaries.

17.17. On 27 November 2014 the Defendant released on MAP a supplementary prospectus dated 26 November 2014 (the Supplementary Prospectus). The Supplementary Prospectus reported on a number of matters, including:

17.19. On 27 November 2014 the Defendant released on MAP the results of its Annual General Meeting. That announcement did not mention the appointment of the BRP to CCC’s core assets, nor the consequent loss of control over those assets.

The January 2015 Announcement did not mention the appointment of the BRP to CCLSA or the loss of control over the assets held by CCLSA.

17.21. On 2 February 2015 the Defendant released on MAP its Report for the Quarter ended 31 December 2014 which was dated 31 January 2015 (the Quarterly Report). In the Quarterly Report, the Defendant announced for the first time the appointment of the BRP by ABSA and EDF without mentioning the date that they were appointed. It was noted:


(3) The defendant appears to be in breach of a number of regulatory or governance obligations under the Corporations Act, namely:

(a) the failure to maintain two Australian resident directors (contrary to s 201A of the Corporations Act);
(b) the failure to have audited financial reports for the:
(i) financial year ended 30 June 2015 (contrary to s 301 of the Corporations Act); and
(ii) half-year to 31 December 2015 (contrary to s 302 of the Corporations Act).
(c) the failure to hold an annual general meeting within five months of the end of its financial year on 30 June 2015 (contrary to s 250N of the Corporations Act).

(4) It is just and equitable (within the meaning of s 461(1)(k) of the Corporations Act) to wind up the defendant because
(a) the company is unable to carry on its business as contrary to the statements of intended action by the Australian director the actions are not implemented; and
(b) the management are operating fraudulently, misleadingly or in breach of the law as management has failed to observe the Corporations Act when raising funds from the public and failed to observe regulatory or governance provisions.

(5) The defendant appears to be insolvent because of:
(e) the inference from the letter from the auditor BDO to ASIC dated 19 November 2015 indicating the defendant may be trading whilst insolvent and the failure to pay the auditor’s fees;

(g) the inference from the failure to pursue a subscriber for securities who was issued securities, Ivory Mint, when payment was due; and

(h) the inference from the admissions in Mr Landau’s examination that without funds, an administrator would be appointed and the failure to appoint an administrator on the failure of the funds to be deposited to the defendant’s accounts.

17.9.3. between 18 September 2014 and 31 October 2014, $932,000 of the Application Monies (the $932,000 Transfer) was transferred from CCC’s Trust Account to a bank account held by OKAP. Annexed hereto and marked ‘RMH-14’ is a copy of a bank statement for OKAP’s bank account (OKAP Account), indicating receipt of funds totalling the $932,000;

17.9.4. subsequently, various amounts have been transferred from the OKAP Account to accounts held in the following names:

17.9.4.1. P & S Landau, in the amount of $20,000;
17.9.4.2. OKAP Ventures Pty Ltd (Account no 036-406 13-8733), in the amount of $90,000;
17.9.4.3. Mr Peter Neil Landau & Doctor Susan Jane Cann (Account no 736-000 64-1547), in the amount of $90,000;
17.9.4.4. OKAP Ventures Pty Ltd (Account no 036-406 22-2898), in the amount of $51,000
17.9.4.5. The Secretary of OKAP Ventures Pty Ltd (Account no 4293 1831 1044 2359), in the amount of $40,000;
17.9.4.6. Doull Holdings (Account no 036-406 12 7217), in the amount of $31,000;
17.9.4.7. Ms Flegg, OKAP Ventures Pty Ltd (credit card no 4293 1831 1015 0838) in the amount of $30,000;
17.9.4.8. Jane R Flegg (Account no 066-164 1011-6095), in the amount of $18,500;

17.10. In the examinations conducted by ASIC under s19 of the ASIC Act of Mr Landau, he provided the following explanations in relation to the unauthorised withdrawal of the Application Monies

A The company was under pressure in terms of wanting to keep a process going and obviously keep me delivering on that process. A judgment call by me was made. As I said, at that point in time, whilst subsequent to that the board knew about it, it was made by me on the basis that, in terms of from a business judgment perspective, either we’d have confidence in the process being completed or, through my ability – which I’ve done in the past – I’d always been able to replenish the money. I think the best thing to call it is a serious error of judgement at the time resulting from multiple pressures. It was done in my opinion for the right reasons – to keep the company alive, which to date we still have. Privilege. I’m not trying to justify it, but from a business judgement perspective, it was done to ensure that the company could get where it needed to be. I know that’s no legal excuse potentially, but that’s why it was done. I backed myself to be able to, in the worst case scenario, replenish the money, even though it was used for Continental. Again, we all know the answer if you asked me if I had my time again. But, at the same time, if I had my time again, that would have been the end of the company. It would have stopped there. Privilege. Maybe that should have been where we took it. But, as I said, I was backing myself to complete at that point in time a rights issue process and then a sale process… The problem I’ve got when I look at it is a gross error of judgment, absolutely. But this is this grey area where it would have just stopped there – wind it up, all finished – as opposed to me backing myself to get this company…

Q Yeah. But at the point in time at which it was taken, it wasn’t the company’s money to take, that’s the issue, it was money held in a subscription account?

A So – privilege – I think I have answered that questions, I don’t – as I said, that’s that – as I said, when people are under pressure, if legally it wasn’t the company’s money to take but there wouldn’t be a company if were just left it there and allowed a process to basically – as I said, that is potentially no legal justification but that’s – when I’m referring to business judgment is if we’d just left that money there for three months, with the pressures of running a listed company, trying to actually get it through a process, the company would have been called in and, as I said, on that basis, at zero cents in the dollar to creditors and shareholders.

Q Yeah, okay.

A And privilege again Ray, but again, I’m not disputing the issue that it was trust account subscription monies…

Q …you mentioned about the reasons behind the money being paid of the trust account and the judgment behind it. I wanted to ask did you have a discussion with the other board members of Continental Coal regarding that?

A … No, I did not.

17.25. Between 5 February 2015 and 20 May 2015, the Plaintiff (ASIC) received 14 complaints from shareholders of CCC who had exercised their withdrawal rights under the Supplementary Prospectus and claimed that CCC had failed to refund the Application Monies.

17.27. On 23 March 2015 the Defendant replied to the Plaintiff’s letter of 16 March 2015 advising that:

17.27.1.737 applicants subscribed to the initial offer, via the Prospectus, totalling $3,275,843;
17.27.2.36 applicants subscribed to the supplementary offer, via the Supplementary Prospectus, totalling $2,686,290;
17.27.3.there were 773 applicants in total, representing subscriptions totalling $5,962,133;
17.27.4.82 withdrawal requests, totalling $1,962,133, had been received;
17.27.5.$1,150,088.01 of the $1,962,132.74, the subject of the withdrawal requests had thus far been returned to applicants;
17.27.6.all withdrawal requests had been processed, but CCC had experienced issues with the funds going through a UK-based USD denominated bank account; and
17.27.7.all remaining refunds, in respect of withdrawal requests, should be received by‘refundees’ by week ending 27 March 2015.

18.1. The bank statements for the Defendant’s accounts dated 7 March 2016 indicate that there is:
18.1.1. $1,896.33cr in the Defendant’s operating account; and
8.1.2. $35.89cr in the Defendant’s shareholder account.

18.2.2.1. in mid-December 2014 Fanchel wrote to the Defendant seeking to withdraw its application and requesting a refund of the Applications Monies
18.2.2.2. in mid-July 2015 Fanchel was issued a cheque by the Defendant for $342,000. The cheque was not honoured on presentation due to insufficient funds;

You have to read ASIC grilling him over this. It's to funny.

Q So has that debt reduced from $340,000?
A No, I paid that. Privilege. No, I paid that just as an interest component.
Q It was transferred from your personal account to him?
A Privilege. I can’t remember where it came from