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14-293MR Wellington Capital's High Court appeal dismissed
The High Court of Australia has dismissed an appeal by Wellington Capital Limited (Wellington) challenging a decision of the Full Court of the Federal Court of Australia that found Wellington acted improperly in distributing shares in Asset Resolution Limited (ARL) to unit holders in the Premium Income Fund (PIF), for which it acts as the responsible entity.
In a unanimous decision handed down on 5 November 2014, the High Court agreed with ASIC that pursuant to the fund’s constitution Wellington could only lawfully make distributions to the PIF unit holders in cash and not in shares.
On 5 September 2012, Wellington announced that ARL had acquired $90.75 million in assets of the PIF, representing approximately 41% of the assets of the PIF, in return for which the PIF acquired all issued shares in ARL. Wellington also announced that immediately after the issuing of shares to the PIF, Wellington took steps to have the ARL shares distributed to PIF unit holders. Wellington did not consult with nor obtain the consent of unit holders prior to undertaking these transactions.
ASIC was concerned that Wellington acted beyond the powers set out in the PIF constitution by distributing the ARL shares to PIF unit holders.
In October 2012, ASIC unsuccessfully challenged the distribution of ARL shares to PIF unit holders in the Federal Court of Australia.
ASIC appealed the decision to the Full Court of the Federal Court, which in May 2013 overturned the original decision and declared that Wellington had acted without power in distributing the ARL shares to PIF unit holders.
Wellington sought leave to appeal the Full Court’s decision to the High Court, and leave was granted in November 2013. Wellington’s appeal to the High Court was heard in September 2014.
In dismissing Wellington’s appeal, the High Court found that the distribution of the ARL shares to scheme members was beyond Wellington’s power and in contravention of the Corporations Act 2001.
ASIC Commissioner Greg Tanzer said, ‘This decision once again validates ASIC’s concerns with Wellington’s conduct.
‘The conclusion of this matter should also leave no doubt in the minds of responsible entities that ASIC expects them to exercise their powers in accordance with their constitution and the law.’
Wellington remains the responsible entity in respect of the balance of the assets of the PIF.
The action taken by ASIC, 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.
ASIC will not be taking any further action arising out of the transfer of assets from the PIF to ARL.