Introduction
This case study is based on Environinvest Limited (Receivers and Managers Appointed)(in liquidation) vs Roger Neil Pescott & Ors (2012) and Environinvest Limited (Receivers and Managers Appointed) (in liquidation) vs Blackburne Pty Ltd (in liquidation) (2012).
Environinvest Ltd was a corporation that manages investment schemes in the field of agriculture (Bloomberg Businessweek, 2014). The corporation was responsible in developing various agriculture investments under the care of agriculture specialist, such as eucalypt plantations and hydroponic tomatoes (Korda Mentha, 2014). Investors would invest in these schemes in order to receive tax deductions (Lonie, 2009). In 2008, the corporation was voted into liquidation.
The Court and the Judge
The court that handed down the decision of the case was the Supreme Court of Victoria in the commercial and equity division commercial court located in Melbourne.
The judge that decided the case was Judge Ferguson J and he made his judgment on 26th April 2012.
Facts of the Case
The main purpose of this case was an application to amend pleading or the proposed pleading of the plaintiffs towards the defendants upon the allegations that had been drawn up to them.
This case is between Environinvest Ltd versus their former directors, members of the Pescott family and associated companies that are owned by the Pescott members and associates. There are two types of proceedings in this case, the Properties Proceeding and the Options Proceedings.
Properties proceeding relates towards the lands formerly owned by Environinvest Ltd that had been allegedly sold or transferred to the defendants without receiving full purchase price of the land or receiving less than the purchase price. The specific parties in this proceeding are, Environinvest Ltd as the plaintiff whereas Blackburne Pty Ltd, STY (Holdings) Pty Ltd, former directors; Clive Randal Dossetor, Grant Anthony Robertson and Roger Neil Pescott as the defendants. The properties related to this case are Eurambeen, Beenak, Lillirie and Modesty Park.
Eurambeen in the beginning was owned by Blackburne Pty Ltd, a trustee of a Pescott family trust. In 2000, a sales agreement had been made between the two companies that cost roughly around $ 3.8 million. In order to receive the deed, Environinvest Ltd had issued Blackburne with 450,478 ordinary shares which was equivalent to $225,240 at the time and was signed off by Dossetor. He was also the director of the other company and the deal was executed solely by him. However, in 2007 the directors decided to transfer the property to Arnac Pty Ltd, a company that was owned by Pescott’s daughter and son-in-law. The transaction concluded with Blackburne transferring the land to Arnac however excluding giving Environinvest Ltd any consideration for it.
STY (Holdings) Pty Ltd was the owner of Beenak before they had decided to sell to Environinvest in 2004 for $ 1.38 million. Payment was made to them but transfer of the title was not complete which went undone till 2005. Subsequently, STY (Holdings) gave up Beenak to St.George Bank as a mortgage without consulting Environinvest.
In 2004, Environinvest had become the registered proprietor of Lillirie. Between 2007 and 2008, the company agreed to sell the land to Trawalla Holdings Pty Ltd, a company directed by Pescott and his wife, for $ 1.6 million which was the purchase price of the land. The sale agreement transcribed that a deposit of $1.12 million was to be paid in 2007 and the balance, $ 480,000 plus 8% interest, would be paid off before 2010. However, by 2008 Environinvest transferred all of the documentation of the property to Trawalla without receiving the rest of the balanced payment mention in the sale agreement.
Similar situation occurs to Modesty Park. Environinvest was the owner of Modesty Park by 2002, later on between 2007 and 2008 the company agreed to sell the land to Pescott for $ 1.33 million. The sale agreement transcribed the deposit of $ 730,000 should be paid and the balance of $ 600,000 plus *% interest would be paid off by 2010. In reality, the company did not receive a single payment from Pescott, as they have made the transaction in the books by cancelling a part of the company’s debt to Pescott.
Next are the Options proceedings. This proceeding relates more to the transactions made by the directors for their own benefits as well for the ones associated to them. The specific parties in this proceedings are; Environinvest Ltd, James Patrick Downey the liquidator of the company, and S.T.Y. (Afforestation) Pty Ltd as the plaintiffs. Roger Neil Pescott, Caroline Pescott, Euan Pescott, Blackburne Pty Ltd, Brabourne Pty Ltd, Mt Ross Pastoral Pty Ltd, Eurambeen Pty Ltd, Maridale (Victoria) Pty Ltd, Carnac Pty Ltd, Clive Randal Dossetor and Grant Anthony Robertson as the list of defendants.
One of the claims in this proceeding is the BEP Blue Gum Project which was formerly owned by Euan Pescott, brother to Roger Pescott. In 1999, Euan Pescott and BEP Management Pty Ltd entered into an agreement that requires BEP to establish and manage a eucalyptus plantation on the land provided by Euan Pescott. As a result, Euan Pescott had made a total payment of $ 1,076,253.46 to BEP throughout the years. In 2007, the directors of Environinvest decided to purchase the project by creating a document which is alleged to bear the false date of 1st July 1999. It acts as a false documentation of purchase, and with that Euan Pescott transferred the plantation to S.T.Y.A with the total amount as a credited loan account which is called Pescott related party debt.
Other related proceedings are: a. Blacburne Pty Ltd, which is a party to the proceeding b. Caroline Pescott in respect of a eucalyptus project c. Roger Pescott concerning of a eucalyptus project d. Mr Roger Pescott in respect of the Environinvest cropping project which was to an identical effect and is alleged to give rise to exactly the same liabilities in the directors e. The cropping project relating to Ms Pescott, also alleged to give rise to the same liabilities f. Blackburne concerning the cropping project g. The cropping project concerning Brabourne Pty Ltd (another company controlled by Mr Roger) h. Mount Ross Pty Ltd (another company controlled by Mr Roger) i. Eurambeen, again in relation to the Environinvest cropping project j. Maridale Pty Ltd and the cropping project k. Carnac Pty Ltd and the cropping project
Legal Nature of the Alleged Fraud and Misconduct
Properties Proceeding
Eurambeen and Beenak were transferred out from Environinvest Ltd assets into a Pescott related company without receiving any valuable consideration. Lillirie and Modesty Park has been sold to a Pescott related company with a consideration less than the original purchase price of the land.

As the director of a corporation, having at least the slightest knowledge of the assets own by the corporation is important. It would be incompetence for a director to not have the idea of what kind or where the corporation have their assets. Assets are one of the accomplishments of a corporation.
Judge Ferguson J (2011) said “a reasonable person who was the director of Environinvest, would had known the facts about these lands, and would have taken steps to ensure the properties were properly registered under the corporation’s name and would not have authorized the transfer of the properties for no consideration or consideration less than the original value of the property”.
It was clearly shown by the plaintiffs with statistics evidence that the directors performed those act based on their own judgment for their own benefits. With these facts, the directors had breach of Corporation Act 2001 (Cth) of care and diligence (section 180), of good faith (section 181) and of the use of a director’s position (section 182).
Options Proceedings
In this proceeding, the allegations are upon certain transactions that were made and recorded into the Environinvest Ltd accounting book which are alleged to be beneficial to Roger Pescott, his family or related Pescott trustee or associated companies
There are transactions that had been produced or created by the directors of Environinvest in order to acquire certain lands or plantations or investments from the list of defendants. The subsequent event would need certain financial adjustments towards Environinvest books. These allegations are under the Corporation Act 2001 (Cth) section 588FB of uncommercial transaction, section 588FC insolvent transactions and section 588FDA unreasonable director-related transactions.
The transactions made by the directors are seen to be favourable to them and their accomplices. In this proceeding too, the directors had breach of Corporation Act 2001 (Cth) of care and diligence (section 180), of good faith (section 181) and of the use of a director’s position (section 182).

Legal Issues
Throughout the whole case, there was no plea of guilty from the defendants however, t there were a lot of arguments and disagreeing on the allegations that were pointed to them.
Options Proceedings
One of the arguments brought up towards this issue was that the defendants claimed that the directors knew, or should have known, about the value of the trees at that period was “substantially less” than the original price of the land that was paid by Environinvest. This was why they paid less than they should have to Environinvest. Yet, on the previous trial, Judge Judd J rule out that argument since at the time, there were no precise method to know the true values of the tress.
Next argument was on the proposed pleading that to replace the sentence “was substantially less than the price paid” with ““were of uncertain, if any, value” since the plaintiffs have not deduce the actual value of the trees at the moment. The plaintiffs referenced from the report of Ferrier Hodgson as their evidence on the net present value of the project which stated a loss of $ 402,088. Judge Ferguson J was satisfied with the argument and in the end he permitted to the change on to the statement.
Subsequent, Robertson and Dossetor come up with their own argument on the proceeding. They argued that the claim on the breach of section 181 and section 182, was not upon the power exercised but towards the transactions, that were they beneficial or not for Environinvest Ltd. Besides that, they presented that the plaintiffs simply claimed that they had made the transactions towards the receiving party that they “likely to gain an advantage” and toward Environinvest Ltd it was “likely to cause a detriment”. Both of them claimed that the pleading was embarrassing. It is amusing that the defendant claimed the pleading to be embarrassing, when the plaintiffs had given more or less substantial evidence on the claim. This seems a way for the defendant to make the plaintiffs look incompetence which was a foolish move.
Caroline Pescott, Euan Pescott and Maridale, had also came up with their own critic towards the allegations on them. They focused on the issue of the voidable transactions under Part5.7B of the Corporation Act. They had stated that the claim on uncommercial transactions would only be successful if there was substantial evidence that the transactions were valued. Since there was no proper basis on knowing the true value at the moment, the allegation should be crossed off. The plaintiffs explained that the main issue was not about the value of the transactions but the cause of the transactions made to Environinvest whether it was beneficial or that it cause detriment. Judge Ferguson J was satisfied with the evidence given by the plaintiffs, and with that the claim was approved to go forward with the proposed pleading.
Final argument on this proceeding was from Robertson. At the beginning, he had opposed that any evidence from the liquidator’s examination of him was unacceptable as he had claimed the right against self-incrimination upon each answer he had gave during the examination. This should not have been allowed, since an examination or investigation is one of the sources of evidence in a case. But as a person, he have his rights to do so in protecting himself, but it is not right to bring it up on the first place. If a person does not want their words to be use in court, then the person should not have spoken from the beginning. Besides that, Robertson presented that the proceeding was set aside being voidable transaction, the effect will be that they will be reversed and there would be no cause of action against the directors.
From all the argument that the defendants had given and being proven back by the plaintiffs, the court had made a sensible decision in allowing for the proposed pleading of this proceeding to be made. It is rational that the defendants giving out arguments, because it is their reputation and life being sentence in the end, and they are only finding ways to protect themselves. Nonetheless, they should have not done what they had done from the beginning.
Properties Proceedings
Starting off with the Eurambeen claim, the defendant agreed that the decision of transferring the property to Arnac was true, but losses was between Blackburne and Arnac, which in their view, the directors are not relevant to the claim. However, the plaintiffs spoke up that the situation was not about the property being in the trust to Blackburne but upon the decisions that had been made, where it could have been settle in a better situation for Environinvest benefits.
Next is the Beenak claim, where the defendant argued that the liquidator was not being precise on what they were claiming for on this proceeding, whether is it about the knowledge on the balance sheet or on the fixed assets. The plaintiffs made a precise point on the argument that the claim is pursuing that the directors allegedly knowing that the property belongs to Environinvest, but did not make any proper attempt to register the property under Environinvest.
Onward to the claim on Lillirie and Modesty Park, Dossetor debate that at the time the transfer was performed, he was not the director of Environinvest anymore and that there should be no breach towards him. Plaintiffs debates back that knowing the situation of both properties that he allegedly failed to do anything before he left his position. This can also be a breach of use of information (section 183) of Corporation Act 2001 (Cth). Even though he did not use the information for this benefit but as the former director, he should have known about the property and had should have done something to prevent the transaction. While Robertson debated that the allegation on him towards Lillirie would not succeed as the purchase price was paid full to Environinvest with evidence on a statement of adjustment and the settlement statement.
At the end, Judge Ferguson did not think there was any problem with the proposed pleading, and that the claims were right to be pursued.
Commentary on Court’s Judgment of the Case
The final conclusion concluded by Judge Ferguson J was “the plaintiffs in each proceeding ought to be granted leave to file and serve amended statements of claim in the form provided to the Court on 1 December 2011. In the Properties proceeding, particulars of the allegation in paragraph 28 that the director authorized the transfer of Eurambeen to Arnac, should be provided”.
I agree with the judge’s judgment of the current case. There should be a need of much more structure and concrete statements or evidence of claims to ensure the plaintiff get what they are asking for from the defendants, and that the defendants will get their punishment.
However, everything that the plaintiffs had provided is good enough for them to claim compensation from the defendants. The plaintiffs had submitted that they would want to receive compensation orders on corporation or scheme civil penalty provision, section 1317H under the Corporation Act 2001 (Cth) upon the allegation that they had made.
This penalty is good enough of a punishment for the defendants upon the alleged activities they had done towards abusing their power as former directors of Environinvest Limited.

Referencing
Environinvest Ltd v Pescott & Ors (No.2); Environinvest Ltd v Blackburne Pty Ltd & Ors (No.2) [2012] VSC 151 (Supreme Court of Victoria).
Lonie, J 2009, The Interesting Curse of Environinvest, Financial Services Newsletter, viewed 28 May 2014,<http://www.hdy.com.au/Media/docs/The%20interesting%20curse%20of%20Environinvest%20-%20Financial%20Services%20Newsletter%20July%202009-116b55cf-91c0-49ce-b264-ffde2d5712c6-0.PDF>.
Company Overview of Environinvest Ltd 2014, Bloomberg Businessweek, viewed 2 June 2014,<http://investing.businessweek.com/research/stocks/private/snapshot.asp?privcapId=28749304>.
Environinvest Ltd 2014, Korda Mentha, viewed 25 May 2014,<http://www.kordamentha.com/creditor-information/australia/43>.