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19-347MR ASIC takes court action against Sterling Income Trust Responsible Entity and its Managing Director
ASIC has commenced action in the Federal Court in Western Australia focussed on the promotion and management of the Sterling Income Trust.
The action is against:
- Theta Asset Management Ltd (Theta), an Australian financial services licensee and responsible entity of Sterling Income Trust, and
- Robert Patrick Marie, a director of Theta.
ASIC alleges that Theta and Mr Marie were responsible for authorising the issue of five Product Disclosure Statements for the Sterling Income Trust, failing to ensure that each of them was not defective, in particular, that they did not contain:
- misleading or deceptive statements, and
- omissions in respect to statements and information required to be disclosed.
ASIC also alleges that contrary to the compliance plan that Theta issued for the Sterling Income Trust, Theta:
- issued five defective Product Disclosure Statements for the Sterling Income Trust
- failed to take all steps necessary to effectively monitor the performance of Sterling Corporate Services Pty Ltd (SCS) as the investment manager of the Sterling Income Trust and satisfy itself that SCS had carried out its contractual obligations adequately;
- failed to identify, document, assess, evaluate and effectively manage and control all conflicts of interest, and
- failed to ensure all financial statements of the Sterling Income Trust were completed and available for audit within two months of the relevant period and were lodged with ASIC on or before the lodgement date.
ASIC is seeking declarations of breach against Theta and Mr Marie for various alleged breaches of the responsible entity and director’s duties provisions of the Corporations Act 2001, including that they failed to exercise appropriate care and diligence when issuing each of the relevant Product Disclosure Statements. ASIC is also seeking civil penalties against Theta and Mr Marie, and an order banning Mr Marie from managing corporations for such period as the Court deems fit.
The alleged breaches of section 601FC of Act by Theta and breaches of 601FD by Marie each carry a maximum possible pecuniary penalty of $200,000.
In total, between 20 May 2016 to 30 April 2018, $16,749,974 was raised from retail investors pursuant to the alleged defective Product Disclosure Statements.
ASIC’s investigation is ongoing into other conduct by entities and officers within the Sterling Group of companies.
Of the 101 consumers who entered into Sterling New Life Leases, 63 of those Lessees invested in the Sterling Income Trust to generate funds to cover their rental expenses under such Leases. The remaining 38 Lessees did not invest in that Trust, rather they invested in Preference Shares offered by companies within the Sterling Group of Companies.
ASIC provides updates on its ongoing Sterling Group investigation on the ASIC website.
The first mention for this matter, previously set down for 5 February 2020 in the Perth Federal Court, was re-set to 25 February 2020.
Editor's note 2:
A hearing was held in the Federal Court in Perth on 25 February, at which ASIC was granted leave to continue its application against Theta despite it having gone into administration.
The matter is due to return to the Court on 6 May 2020 for a case management hearing.
Editor's note 3:
Due to COVID-19, the Federal Court has advised the parties that the Case Management Hearing listed for 6 May 2020 will now be determined ‘on the papers’. This means that the Case Management Hearing will be determined by the Judge having regard to the written submissions and documents filed by the parties, and will not hear oral submissions.
The current orders of the Court are that:
- By 31 March 2020, the Plaintiff is to file and serve a statement of claim; (NB: ASIC lodged this with the Federal Court 31 March 2020 as required)
- By 28 April 2020, the Defendants are to file and serve their Defence or any submitting appearance;
- By 12 May 2020, the Plaintiff is to file and serve any Reply; and
- By 5 May 2020, the parties are to provide consent orders or a minute of proposed orders.
Editor's note 4:
As previously advised (above), with the advent of COVID-19 the next case management hearing will be conducted by the Judge considering written submissions of the parties. The Court has granted additional time to the parties to lodge their submissions with the Court, with the amended timetable as follows:
- By 12 May 2020, the defendants are to file and serve their Defences or any submitting appearance;
- By 26 May 2020, the plaintiff is to file and serve any Reply; and
- By 2 June 2020, the parties are to provide consent orders or a minute of proposed orders.
ASIC will provide a further update when the Court has determined the next steps.
Editor's note 5:
The next Case Management Hearing is listed for 18 June 2020 and is to proceed by way of video link.
ASIC will provide a further update following the outcome of the Case Management Hearing on 18 June 2020.
Editor's note 6:
The Court ordered by consent that the parties participate in a mediation by 13 August 2020. The case management hearing listed on 18 June 2020 has been adjourned to 10am on 20 August 2020. This date is subject to the release of the Full Court listings for August 2020 and the Parties have liberty to apply on three days’ notice.
A further update will be provided following the outcome of the Case Management Hearing provisionally set for 20 August 2020.
Editor's note 7:
The Court has ordered by consent that the parties participate in a mediation by 25 September 2020. The case management hearing has been adjourned to 10am on 1 October 2020 and the Parties have liberty to apply on three days’ notice.
Editor's note 8:
By consent the Court has vacated the case management hearing scheduled for 1 October 2020, the matter is tentatively listed for a hearing on penalty on 19 November 2020. Prior to the hearing and before 9 October 2020, the parties are to file an agreed statement of facts, joint submissions on penalty and an agreed short minute of orders as to penalty. The Parties have liberty to apply on two days’ notice.