Winding up managed investment schemes on the just and equitable ground

The managed investment scheme Blue Diamond Deposits Trust Number 1 derived its income from interest payments on loans made out of the unit holders’ investments. Unit holders were to receive quarterly income distributions and above market returns, and they had the right to redeem their units with 60 days notice. The Liquidator of the responsible entity sought an order that the scheme be wound up on the just and equitable ground.

Justice Davies in Re Traditional Values Management Ltd (in Liq) [2010] VSC 339 considered that it was just and equitable to wind up the scheme and made an order under s 601ND(1), giving weight to the following:

• the scheme was not viable and the purpose of the scheme could not be accomplished;
• the scheme had suffered heavy losses;
• the scheme had insufficient income generating assets to pay income distributions;
• the scheme had insufficient realisable assets to repay unit holders their investments;
• winding up the scheme would protect existing unit holders and maximise their recovery; and
• the responsible entity was insolvent and had not put forward an alternative proposal.

This judgment cited with approval the discussion of winding up on the just and equitable ground in Capelli v Shepard and Others (2010) 264 ALR 167 at [102] to [104].

The court’s reliance on the absence of an alternative proposal highlights the importance for practitioners defending distressed managed investment schemes of having a replacement responsible entity available.

The application was unopposed.

Sam Hopper and Bec Mouy