Wellington Capital Limited v ASIC [2014] HCA 43

In this case Wellington Capital, the Responsible Entity of a defunct mortgage scheme, sold 41 per cent of the fund’s assets to a shelf company and then arranged for the shares in the shelf company to be distributed in specie to the unitholders in the scheme on a pro ratabasis. 

ASIC argued that Wellington had no power under the fund’s constitution to make the in specie distribution.  Wellington argued that it had the power by virtue of the plenary power granted in its constitution of:

‘all the powers in respect of the Scheme that is legally possible for a natural person or corporation to have and as though it were the absolute owner of the Scheme Property and acting in its personal capacity’.

When the dispute reached the High Court a majority of French CJ, Crennan J, Kiefel J and Bell J held:

A reading of plenary power clause, in the context of the Scheme Constitution as a whole, leads to the conclusion that [it] had nothing to do with the circumstances in which assets or capital forming part of the Scheme Property could be returned to unit holders. They were facultative. They equipped Wellington to deal with the Scheme Property, in accordance with its duties, in the interests of the Scheme members. As ASIC submitted, [it] allowed third parties to have confidence that things done by the responsible entity with respect to the Scheme Property were within power and authorised by the Scheme Constitution. The conferral upon the responsible entity of power to act “as though” it was the absolute owner of the property facilitated extramural dealings, which might have been by way of sale, purchase of property or investment of Scheme Funds. It did not authorise the responsible entity to undertake intramural dealings involving non-consensual transfers of Scheme Property to unit holders.

Thus the court made a clear distinction between extramural (dealing with third parties) and intramural (dealing with unitholders). It confined plenary power to the undertaking of actions that are intramural.

Click here to read full judgment.

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