In the matter of Car Parking Solutions Pty Ltd (in liq) - [2023] VSC 362

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL COURT

S ECI 2023 00127

GLEN KANEVSKY IN HIS CAPACITY AS LIQUIDATOR OF CAR PARKING SOLUTIONS PTY LTD (IN LIQUIDATION) (ACN 122 992 474) IN ITS OWN CAPACITY AND AS TRUSTEE FOR CPS (VIC) UNIT TRUST, THE CPS (NSW) UNIT TRUST AND THE CPS (WA) UNIT TRUST, CPS (AUSTRALASIA) PTY LTD (IN LIQUIDATION) (ACN 129 556 092) IN ITS OWN CAPACITY AND AS TRUSTEE FOR CPS (AUSTRALASIA) UNIT TRUST AND CAR PARKING SOLUTIONS MAINTENANCE PTY LTD (IN LIQUIDATION) (ACN 162 887 710)	First Plaintiff
CAR PARKING SOLUTIONS PTY LTD (IN LIQUIDATION) (ACN 122 992 474) IN ITS OWN CAPACITY AND AS TRUSTEE FOR CPS (VIC) UNIT TRUST, THE CPS (NSW) UNIT TRUST AND THE CPS (WA) UNIT TRUST	Second Plaintiff
CPS (AUSTRALASIA) PTY LTD (IN LIQUIDATION) (ACN 129 556 092) IN ITS OWN CAPACITY AND AS TRUSTEE FOR CPS (AUSTRALASIA) UNIT TRUST	Third Plaintiff
CAR PARKING SOLUTIONS MAINTENANCE PTY LTD (IN LIQUIDATION) (ACN 162 887 710)	Fourth Plaintiff

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JUDGE:	Delany J
WHERE HELD:	Melbourne
DATE OF HEARING:	8 June 2023
DATE OF JUDGMENT:	27 June 2023
CASE MAY BE CITED AS:	In the matter of Car Parking Solutions Pty Ltd (in liq)
MEDIUM NEUTRAL CITATION:	[2023] VSC 362

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CORPORATIONS — Application by liquidator of group of companies and trusts — ss 90‑15 and 60‑10 of the Insolvency Practice Schedule (Corporations), Schedule 2 of the Corporations Act 2001 (Cth), s 63 of the Trustee Act 1958 (Vic) and s 447A of the Corporations Act 2001 (Cth) — Application allowed.

CORPORATIONS — Liquidator’s investigations indicated that companies acted solely as trustees of their respective trusts — Order that the liquidator was justified and acting reasonably in proceeding on that basis — s 90‑15 of the Insolvency Practice Schedule (Corporations), Schedule 2 of the Corporations Act 2001 (Cth) — Re Amerind Pty Ltd (receivers and managers appointed) (in liq) (2017) 320 FLR 118, applied.

TRUSTS — Trust deeds disqualified a corporate trustee upon the trustee being placed into liquidation — Upon liquidation the Corporate trustees became bare trustees — Liquidator sold assets of the trusts in the bona fide belief that unitholder resolutions to retain the corporate trustees were valid — Orders pro nunc tunc to enable liquidator to deal with the assets of the trusts — s 63 of the Trustee Act 1958 (Vic) — Caterpillar Financial Australia Ltd v Ovens Nominees Pty Ltd [2011] FCA 677; Re Total Truss Systems Pty Ltd (in liq) [2021] VSC 205, referred to.

CORPORATIONS — Pooling orders — Books and records do not delineate between assets held by companies either in their own right or in their capacity as trustees of individual trusts — Uncertainty over which companies employed the employees and in which capacity - Employee entitlements paid by the Fair Entitlements Guarantee scheme such that the Commonwealth is a subjugated priority creditor — Pooling orders appropriate — s 90‑15 of the Insolvency Practice Schedule (Corporations), Schedule 2 of the Corporations Act 2001 (Cth), s 556 of the Corporations Act 2001 (Cth) — Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth (2019) 268 CLR 524; Re BBY Ltd (receivers and managers appointed) (in liq) (No 2) (2018) 363 ALR 492, applied.

CORPORATIONS — Corporate group — Inter‑company loans — Books and records showed discrepancy between general ledger and bank accounts — Liquidator justified in admitting and paying dividends on the inter‑company loan accounts — s 90‑15 of the Insolvency Practice Schedule (Corporations), Schedule 2 of the Corporations Act 2001 (Cth) — Re Bell Group (In Liq) [2020] WASC 259, referred to.

CORPORATIONS — Liquidator’s remuneration exceeded cap approved in creditors meetings — Remuneration sought reasonable — ss 90‑15 and 60‑10 of the Insolvency Practice Schedule (Corporations), Schedule 2 of the Corporations Act 2001 (Cth) — s 447A of the Corporations Act 2001 (Cth) — In the matter of AAA Financial Intelligence Ltd (in liq) [2014] NSWSC 1004, applied.

CORPORATIONS — Liquidator’s costs of application proposed to be paid pursuant to s 556(1)(dd) of the Corporations Act 2001 (Cth) — Whether s 561 of the Corporations Act 2001 (Cth) applies — Appropriate to grant liquidator’s costs of application — ss 555, 556(1)(dd), 556(1)(e), 556(1)(g), 556(1)(h), 561 of the Corporations Act 2001 (Cth) — In the matter of BCA National Training Group Pty Ltd (in liq) [2023] NSWSC 366, referred to.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	D Preston	Mills Oakley

TABLE OF CONTENTS

Overview.............................................................................................................................................. 1

Affidavit evidence............................................................................................................................. 3

Conduct of liquidation...................................................................................................................... 3

First meeting of creditors.................................................................................................................. 5

Asset realisations............................................................................................................................... 5

Second meeting of creditors............................................................................................................. 6

Retirement of Mr Algeri as Liquidator.......................................................................................... 6

Further report to creditors................................................................................................................ 6

Unfair preference claims................................................................................................................... 7

Operation of CPS and CPSA solely in the capacity as trustee of the respective trusts........ 7

Debtor collections.............................................................................................................................. 8

Employees of CPS.............................................................................................................................. 9

Employees of CPSM........................................................................................................................ 11

Inability to allocate costs and expenses between the CPS Trusts.......................................... 11

Admitting Proofs of Debt and inter‑company loans................................................................ 12

Anticipated distribution to creditors........................................................................................... 14

Key statutory provisions relied upon.......................................................................................... 15

Section 447A of the Act.............................................................................................................. 15
Section 1318 of the Act................................................................................................................ 15
Section 90‑15 of the IPSC............................................................................................................ 16
Sections 63 and 67 of the Trustee Act........................................................................................ 17

Did CPS and CPSA act as trustee?................................................................................................ 18

Liquidator’s power to deal with the assets of the CPS Trusts or the CPSA UT.................. 19

Pooling: employee claims, CPS Trust property and further pooling with CPSM’s assets 25

Is the Liquidator justified in accepting Proofs of Debt and in his proposed treatment of intercompany loans?.................................................................................................................. 29

Liquidator’s remuneration in relation to CPSA......................................................................... 31

Liquidator’s costs of the application............................................................................................ 33

Disposition........................................................................................................................................ 35

ANNEXURE A.................................................................................................................................. 36

HIS HONOUR:

Overview

These reasons concern an application by Glen Kanevsky, a registered liquidator for substantive orders in relation to the conduct by Mr Kanevsky of the liquidation of the Car Parking Solutions or CPS group of companies (‘CPS Group’) and of the trusts of which some of those companies were trustee, pursuant to s 90‑15 of the Insolvency Practice Schedule (Corporations) (being Schedule 2 to the Corporations Act 2001 (Cth) (‘the Act’) (‘IPSC’), and s 63 of the Trustee Act 1958 (Vic) (‘Trustee Act’). In the alternative, Mr Kanevsky seeks relief pursuant to s 1318 of the Act and s 67 of the Trustee Act. In addition, Mr Kanevsky seeks an order determining and approving his remuneration as liquidator under s 447A of the Act and ss 90‑15 and 60‑10 of the IPSC.

The application by Mr Kanevsky is made because the CPS Group of companies to which he and Salvatore Algeri were appointed as liquidators on 8 September 2016 operated prior to liquidation as a group in which one company, Car Parking Solutions Pty Ltd (ACN 122 992 474) (‘CPS’), was the trustee of three separate unit trusts and another company, CPS (Australasia) Pty Ltd (ACN 129 556 092) (‘CPSA’), was trustee of another trust. There were in addition other companies in the group, some of which traded and others of which did not.

The CPS Group operated two main areas of business:

(a) the install business, which provided services for the installation, user induction and training of car parking lift systems. This area of business was owned and operated by CPS in its capacity as trustee of the CPS (VIC) Unit Trust, CPS (NSW) Unit Trust and CPS (WA) Unit Trust (the ‘CPS Trusts’); and

(b) the maintenance business, which provided maintenance services for the car parking lift systems. This area of business was owned and operated by one of the trading companies in the group, Car Parking Solutions Maintenance Pty Ltd (ACN 162 887 710) (‘CPSM’).

CPSA was responsible for managing the major supplier, Otto Wöhr GmbH Auto‑Parksysteme (‘Wöhr’), of their car park lifting systems.

The primary relief sought by Mr Kanevsky involves orders:

(a) recognising that CPS and CPSA only acted as trustees and that the liquidators were justified and otherwise acting reasonably in conducting the liquidation on that basis; and

(b) allowing the liquidator to pool the assets of the group and all of the claims of or relating to employees of the group, as has been the manner in which the liquidation of the group has been conducted.

The sale of the major assets of the business of the group by the liquidators shortly after their appointment was a single sale by all of the companies and all of the trusts in the group as the vendor for a single undissected sum. One of the reasons there was a global sale of the business assets was that the CPS Group carried on its business in a manner that did not involve delineation between the assets and undertaking of individual companies and entities making up the group. While some assets that were sold separately by the liquidators were able to be identified as assets of a particular corporation or trust, that was not always the case, and it was not the case in relation to the major assets.

The trust deeds of the respective trusts operated to render CPS and CPSA as a bare trustee upon the liquidation of those companies. Although at the time of the sale of the key business assets that issue was thought to be satisfactorily dealt with by unitholder resolutions, on further consideration, that is not the case. That issue casts a shadow over whether the liquidators, acting bona fide, and in the context of the unitholder resolutions, had the power to deal with and to sell the assets of the group.

The blurring of the lines in relation to which company or entity owned which assets also applied to the question of which company and in which capacity that company employed the over 50 employees of the group.

The liquidators assisted the Commonwealth through the Fair Entitlements Guarantee scheme (‘FEGs’) to distribute outstanding employee entitlements with the result that FEGs is a priority creditor of CPS and CPSM. However, the employment records of the employees and records of payment of wages and superannuation made it very difficult, if not impossible, to ascertain, particularly in the case of the CPS employees, by which trust each employee was in fact employed.

Given the facts and circumstances mentioned above and for the reasons that follow, it is appropriate make orders in the terms sought pursuant to ss 90‑15 and 60‑10 of the IPSC, s 63 of the Trustee Act and s 447A of the Act. A copy of the orders to be made is Annexure A to these reasons. It is unnecessary to make any orders under s 67 of the Trustee Act or s 1318 of the Act. I will order that Mr Kanevsky’s costs of this application be paid out of the assets of CPS, CPSM and CPSA.

Affidavit evidence

Mr Kanevsky relied on the following evidence in support of the application:

(a) Affidavit of Mr Kanevsky affirmed on 2 December 2022 (‘First Kanevsky Affidavit’);

(b) Affidavit of Mr Kanevsky affirmed on 23 December 2022;

(c) Affidavit of Jordan Ragona‑Nevrous affirmed on 16 January 2023;

(d) Second Affidavit of Jordan Ragona‑Nevrous affirmed on 25 May 2023; and

(e) Affidavit of Nikita Angelakis affirmed on 5 June 2023.

Conduct of liquidation

On 8 September 2016 (the ‘appointment date’), Mr Kanevsky and Mr Algeri were appointed liquidators of the following entities:

(a) CPS;

(b) CPSA;

(c) CPSM;

(CPS, CPSA and CPSM are together, the ‘Companies’);

(d) Car Parking Solutions (Qld) Pty Ltd (ACN 159 947 770) (‘CPSQ’); and

(e) CPS Doors Pty Ltd (ACN 603 854 173) (‘CPS Doors’).

(the Companies, CPSQ and CPS Doors are together, the CPS Group or ‘CPS Group Companies’).

CPS acted as a trustee of the CPS Trusts. CPSA acted as a trustee of the CPS (Australasia) Unit Trust (‘CPSA UT’).

The First Kanevsky Affidavit sets out the following organisational summary of the CPS Group Companies and Trusts:

Following the appointment of the liquidators, the CPS Group traded for a brief time until it was wound down on an orderly basis, ceasing business operations on 14 September 2016.

The major secured creditor of the CPS Group was the National Australia Bank Limited (‘NAB’). The NAB and CPS (both in its own capacity and as trustee of each of the CPS Trusts) entered into a General Security Agreement over all of the circulating and non‑circulating assets of CPS (whether held in its own right or as trustee for one of the CPS Trusts). Pursuant to the General Security Agreement, the NAB was paid out from the non‑circulating assets of CPS as trustee for the CPS Trusts. The First Kanevsky Affidavit indicates that the NAB remains an unsecured creditor of CPS but has not lodged a proof of debt (‘POD’).

The Commonwealth is the major priority creditor pursuant to s 556(1)(e) of the Act. Subject to receiving a POD, the Commonwealth will receive distributions for amounts owing to it in relation to payments to employees under the FEGs. The Commonwealth is the only creditor likely to receive a distribution from the liquidators of CPS and CPSM.

The Commonwealth was on notice of the application, was provided with the primary affidavit relied on and elected not to appear. The same is the case in relation to the unitholders in the trusts.

First meeting of creditors

On 26 September 2016, the first meeting of creditors was held. At this meeting, the creditors approved the remuneration of the liquidators for the period from 8 September 2016 to 14 September 2016, subject to caps for each entity in the CPS Group, and from 15 September 2016 until the finalisation of the liquidation, also subject to caps for each entity in the CPS Group.

Asset realisations

Shortly after their appointment, the liquidators sold the maintenance business’ supply contract and customer lists and the install business’ supply and customer lists, along with further contracts, records and customer lists to Wöhr pursuant to an assignment deed for $1,000,000. Each of the companies in the CPS Group, including where applicable in their capacity as trustees of the various trusts, was a party to the assignment deed.

On 31 January 2017, the liquidators sold materials to Wöhr relating to one of the contracts previously sold to Wöhr, along with its right to a reimbursement of a GST overpayment and a reimbursement received in advance for legal fees all for $154,750 (plus GST).

The liquidators engaged in negotiations with customers for the sale of inventory components on a project by project basis. The total inventory realisation of CPS was $212,759.

Plant and equipment of CPS and CPSM was sold for the following amounts:

(a) $150,000 (excluding GST) worth of service equipment (CPSM $7,500) and decanters (CPS $142,500); and

(b) $11,200 worth of miscellaneous plant and equipment sold by CPS.

Motor vehicles belonging to CPS were sold for $58,882.

Second meeting of creditors

On 16 May 2017, the liquidators convened a second meeting of creditors and circulated their report to creditors (‘Report’).

The Report states that the liquidators assisted FEGs with the verification of 48 former employees of the CPS Group. The liquidators also assisted in the distribution of $563,250.64 in outstanding employee entitlements in respect of 37 former employee claims determined by the Commonwealth to be payable in accordance with the government scheme.

The Report noted that the book values shown in the directors’ reports as to the affairs (‘RATA’) of each entity within the CPS Group, as at 8 September 2016, did not reflect actual returns to creditors.

The second meeting of creditors approved the liquidators’ remuneration from that date to the completion of the liquidation, again subject to a cap.

Retirement of Mr Algeri as Liquidator

On 29 August 2017, Mr Algeri retired as a liquidator of the CPS Group Companies.

Further report to creditors

On 7 December 2017, Mr Kanevsky circulated a further report to creditors.

This report stated that Mr Kanevsky assisted the Commonwealth in relation to the FEGs with the verification of 48 former employees of the CPS Group and in the distribution of outstanding employee entitlements in respect of 41 former employees with the total amount of claims increasing to $619,779.

Unfair preference claims

In the course of the liquidation, two unfair preference claims pursuant to s 588FF of the Act were pursued and later settled; one on behalf of CPSA against Wöhr in the amount of $775,000 and one on behalf of CPSM against the Commissioner of Taxation in the amount of $50,000.

Operation of CPS and CPSA solely in the capacity as trustee of the respective trusts

Following an extensive review of the business records of the CPS Group, Mr Kanevsky concluded that prior to the liquidation of CPS and CPSA each of those companies only operated in their capacity as trustee of the CPS Trusts and CSPA UT, respectively. Neither company independently operated any business or held any assets in their own right.

Mr Kanevsky’s reasons for his conclusion include the following:

(a) The existence of trust deeds (in identical terms) for the following trusts:

(i) CPS (Vic) Unit Trust;

(ii) CPS (NSW) Unit Trust;

(iii) CPS (WA) Unit Trust; and

(iv) CPS (Australasia) Unit Trust.

(b) The tax returns for each of the CPS Trusts from 2013–2014. No tax return for CPS in its own capacity was identified.

(c) Four out of the five bank statements located are held by a CPS Trust. Only one account is held by CPS.

(d) CPSA operated two bank accounts: one as trustee of the CPSA UT and a business cheque bank account in its own capacity.

(e) The books and records suggest that while CPS appears to have employed employees in its own capacity, it does not appear that CPS was engaged in any trading activities in its own right, or paying the wages of the employees from monies that CPS held in its own right.

(f) Mr Kanevsky located copies of the financial reports for FY2015 for CPSA UT but was not aware of any financial reports or statements produced or existing for CPSA acting in any capacity other than as trustee of the CPSA UT.

(g) Mr Kanevsky located one financial statement for CPS in its own capacity, for FY11 but not for any other period. The FY11 financial statement indicated that CPS, for FY11 and FY10 had operating profit of $58, total assets of $500 and total liabilities of $42.

Relying on those matters, in support of the orders sought, Mr Kanevsky submitted that the weight of the evidence supports the conclusion that CPS and CPSA acted solely in their capacity as trustees of the relevant trusts. He submitted that the existence of some anomalous records is not inconsistent with the Court reaching the same conclusion.

Debtor collections

The evidence discloses that as at the appointment date, the CPS Group Companies had outstanding debtors with a book value of $1,835,076, broken down as follows:

Mr Kanevsky has given evidence that he has not undertaken the reconciliation exercise required to allocate each debtor of CPS to the CPS Trusts. That is because he considers that, given the deficiencies in the books and records, such an exercise would be time consuming and costly; it would involve reviewing over 1,000 invoices and may equate to a cost of approximately $30,000.

Employees of CPS

A significant issue in the liquidation and one of the driving considerations behind the application was the uncertainty over which companies in the CPS Group employed the employees, and also, in what capacity they did so.

By virtue of FEGs’ payment of outstanding employee entitlements, the Commonwealth stands in the shoes of the employees and is a priority creditor of CPS and CPSM. Mr Kanevsky submitted that given the difficulty in determining which entity employed which employee for the purpose of FEG receiving its distribution in the liquidation of the CPS Group, the interests of efficiency require pooling orders being made such that the trust property is pooled and employee entitlements are pooled. Upon the pooling orders contended for being made it is intended that the pooled trust property would be used for the purpose of distribution to the Commonwealth, arising from its payments to employees pursuant to the FEGs and in accordance with s 556(1)(e) of the Act.

Mr Kanevsky has given evidence that an extensive investigation was conducted to determine whether employees were hired by CPS in its own capacity or in its capacity as trustee of one or more of the CPS Trusts. Mr Kanevsky concluded that the capacity in which CPS hired employees was not clear for reasons including:

(a) while 77 employee files were reviewed, many of the employee files did not contain any employment contracts. Of those that did, seven contracts listed CPS VIC UT as the employer; one listed CPS NSW UT as the employer; and the remaining employment contracts listed the employer as CPS (without any reference to any particular CPS Trust).

(b) Mr Kanevsky was not able to discern any pattern associated with employment under one of the trusts versus another trust or CPS in its own capacity.

(c) A number of the employment contracts provided by employees to FEGs in support of their application for payment of entitlements listed the ACN for a separate deregistered entity in the header of the agreement, and the ABN of a CPS Trust at the footer of the document.

(d) The payslips of CPS employees all include the CPS VIC UT ABN.

(e) CPS employees appear to have been paid from bank accounts associated with different CPS Trusts.

(f) Sample Fringe Benefit Tax returns and business portal statements showing GST and PAYG Income Tax Withholding between 2014 and 2016 indicate that CPS VIC UT and CPS NSW UT remitted and lodged PAYG amounts with the ATO. A number of PAYG payment summaries note the payer’s name to be the CPS VIC UT.

(g) Tax returns for the CPS Trusts for 2013 indicate that superannuation expenses were incurred by CPS VIC UT and CPS NSW UT.

(h) The sample of superannuation contribution transfers reviewed show that superannuation contributions were paid out from the CPS VIC UT and CPS NSW UT.

(i) The bank payment reports for a WorkCover claim identify that the funds were paid from a CPS VIC UT bank account.

(j) The bank payment reports for the payment of the excess for a specific insurance claim was paid from the CPS NSW UT bank account.

(k) The payroll tax monthly return for July 2016 indicates that wages and salaries were paid from the CPS VIC UT bank account.

(l) Salary and or wages were included in the FY10 – FY14 financial statements for the CPS Trusts. The financial statements for CPS in its own capacity did not include a profit and loss statement.

Employees of CPSM

Upon initially reviewing CPSM’s records, Mr Kanevsky informed the FEG administrators that seven employees were employees of CPSM. However, upon further review of CPSM’s books and records, Mr Kanevsky concluded that it was not possible to determine whether any of those employees were either employed by CPSM or by CPS (in its capacity as trustee for one or other of the CPS Trusts).

The books and records available in the liquidation also suggested that employees were transferred from CPSM to CPS VIC UT and vice versa, but there was insufficient documentation to assess which employees were transferred or when.

Inability to allocate costs and expenses between the CPS Trusts

The First Kanevsky Affidavit states that, in accordance with the general practice at the time of his and Mr Algeri’s appointment, the costs and expenses of the liquidation were not allocated between the three separate trusts of which CPS is the trustee.

In his first affidavit Mr Kanevsky acknowledged that he is aware of the High Court’s decision in Carter Holt Harvey Woodproducts Australia Pty Ltd v The Commonwealth [2019] HCA 20, where the Court held that all liabilities must be specifically attributed to each individual trading trust, noting that this decision was handed down approximately three years after his and Mr Algeri’s appointment as liquidator of the CPS Group of companies.

Mr Kanevsky has given evidence that he has given consideration as to whether it would be possible to conduct a retrospective allocation of the costs expenses of the liquidation. He concluded that while some of the costs and expenses of the administration could be allocated to specific trusts, he does not consider that he and his staff would be able to allocate the majority of the costs and expenses. Mr Kanevsky expressed concern that while it may be possible to allocate costs and expenses on a pro‑rata basis between the trusts, such an exercise may be inaccurate and would result in further costs being incurred without delivering any benefit, as the only priority creditor expected to receive a distribution from CPS is the Commonwealth as a result of the FEGs.

Admitting Proofs of Debt and inter‑company loans

Mr Kanevsky’s review of the CPS Group’s books and records revealed the existence of several inter‑company loan accounts, however, he was not able to locate any formal loan agreements or loan terms governing those intercompany loans. As part of this application, Mr Kanevsky seeks directions from the Court that he is justified in admitting and paying dividends on the inter‑company accounts.

It is worth noting the following from Mr Kanevsky’s investigations in relation to the inter‑company accounts:

(a) In reviewing the financial statements, general ledgers, balance sheets and bank statements to ascertain the balance of the inter‑company loans, Mr Kanevsky was concerned that the net bank statement transactions (which were identified as ‘intercompany’) did not match the general ledger accounts used in the financial reporting for the entities.

(b) Some general ledger accounts had ‘large and unusual’ adjustments made through the relevant period, causing Mr Kanevsky to question the accuracy of the general ledgers and financial statements. In addition to reviewing the books and records, Mr Kanevsky made several enquiries but was not able to obtain information to explain these adjustments.

(c) The unreliability of the general ledgers and financial statements necessitated a detailed analysis of CPS Group’s bank statements, which comprised a review of over 20,000 transactions. Mr Kanevsky found that a significant number of transactions in the general ledgers could not be matched to the bank statements or otherwise explained by the books and records. This reinforced his conclusion that an analysis of the bank statements remained the most accurate way to determine the inter‑company loan balance position of the CPS Group.

Mr Kanevsky relied on the bank statements to determine the inter‑company loan balances. The difference between the inter‑company loans as records in the balance sheets (as at 30 September 2016) compared to the bank statements is set out in the following table:

A summary of the PODs on behalf of CPS and CPSM is set out in the following table:

Anticipated distribution to creditors

The First Kanevsky Affidavit states that if the Court makes the orders sought, Mr Kanevsky anticipates that the distribution to creditors from the CPS Group of Companies will involve:

(a) a payment to priority creditors in:

(v) CPS and CPSM of 41.9 cents in the dollar;

(vi) CPSA of 100 cents in the dollar; and

(b) an estimated distribution to unsecured creditors of CPSA of approximately 0.8 cents in the dollar.

Mr Kanevsky does not expect there to be a distribution to the unsecured creditors of CPS or CPSM.

A summary of the proposed distribution to creditors is set out in the table below:

Key statutory provisions relied upon

The key statutory provisions relied upon and relevant to the application are set out below.

Section 447A of the Act

Section 447A of the Act is titled ‘General power to make orders’ and is in the following terms:

(1)The Court may make such order as it thinks appropriate about how this Part is to operate in relation to a particular company.
(2)For example, if the Court is satisfied that the administration of a company should end:
(a)because the company is solvent; or
(b)because provisions of this Part are being abused; or
(c)for some other reason;

the Court may order under subsection (1) that the administration is to end.
(3)An order may be made subject to conditions.
(4)An order may be made on the application of:
(a)the company; or
…
(f)any other interested person.

Section 1318 of the Act

Section 1318(1) of the Act is in the following terms:

If, in any civil proceeding against a person to whom this section applies for negligence, default, breach of trust or breach of duty in a capacity as such a person, it appears to the court before which the proceedings are taken that the person is or may be liable in respect of the negligence, default or breach but that the person has acted honestly and that, having regard to all the circumstances of the case, including those connected with the person’s appointment, the person ought fairly to be excused for the negligence, default or breach, the court may relieve the person either wholly or partly from liability on such terms as the court thinks fit.

Section 90‑15 of the IPSC

Section 90‑15 of the IPSC is relevantly in the following terms:

Court may make orders
(1)The Court may make such orders as it thinks fit in relation to the external administration of a company.

Orders on own initiative or on application
(2)The Court may exercise the power under subsection (1):
(a)on its own initiative, during proceedings before the Court; or
(b)on application under section 90‑20.

Examples of orders that may be made
(3)Without limiting subsection (1), those orders may include any one or more of the following:
(a)an order determining any question arising in the external administration of the company;
…
(f)an order in relation to remuneration, including an order requiring a person to repay to a company, or the creditors of a company, remuneration paid to the person as external administrator of the company.

Matters that may be taken into account
(4)Without limiting the matters which the Court may take into account when making orders, the Court may take into account:
(a)whether the liquidator has faithfully performed, or is faithfully performing, the liquidator’s duties; and
(b)whether an action or failure to act by the liquidator is in compliance with this Act and the Insolvency Practice Rules; and
(c)whether an action or failure to act by the liquidator is in compliance with an order of the Court; and
(d)whether the company or any other person has suffered, or is likely to suffer, loss or damage because of an action or failure to act by the liquidator; and
(e)the seriousness of the consequences of any action or failure to act by the liquidator, including the effect of that action or failure to act on public confidence in registered liquidators as a group.

Costs orders
(5)Without limiting subsection (1), an order mentioned in paragraph (3)(d) in relation to the costs of an action may include an order that:
…
(b)the external administrator or another person is not entitled to be reimbursed by the company or its creditors in relation to some or all of those costs.

…
Section does not limit Court’s powers
(7)This section does not limit the Court’s powers under any other provision of this Act, or under any other law.

Sections 63 and 67 of the Trustee Act

Section 63(1) of the Trustee Act is in the following terms:

Where in the management or administration of any property vested in trustees, any sale, lease, mortgage, surrender, release or other disposition, or any purchase, investment, acquisition, expenditure or other transaction, is in the opinion of the Court expedient, but the same cannot be effected by reason of the absence of any power for that purpose vested in the trustees by the trust instrument (if any) or by law, the Court may by order confer upon the trustees, either generally or in any particular instance, the necessary power for the purpose on such terms and subject to such provisions and conditions (if any) as the Court thinks fit and may direct in what manner any money authorized to be expended, and the costs of any transaction are to be paid or borne as between capital and income.

Section 67 of the Trustee Act provides that:

If it appears to the Court that a trustee, whether appointed by the Court or otherwise, is or may be personally liable for any breach of trust, whether the transaction alleged to be a breach of trust occurred before or after the commencement of this Act, but has acted honestly and reasonably, and ought fairly to be excused for the breach of trust and for omitting to obtain the directions of the Court in the matter in which he committed such breach, then the Court may relieve him either wholly or partly from personal liability for the same.

Did CPS and CPSA act as trustee?

In Re Amerind Pty Ltd (receivers and managers apptd) (in liq),[1] Robson J held that the determination of ‘whether a company trades in its own right or as trustee of a trust largely depends on factors which are specific to the circumstances at hand’ and that there is ‘no one determinative factor or set criteria’.[2] Robson J went on to identify the matters that have been taken into account by Courts in determining that question:[3]
[1](2017) 320 FLR 118; [2017] VSC 127 (‘Re Amerind’). Note the decision was overturned on appeal in Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth (2019) 268, 524 at [4] (Kiefel CJ, Keane and Edelman JJ), at [61] (Bell, Gageler and Nettle JJ) and [100] (Gordon J), but Robson J’s finding about the capacity in which the company acted was accepted.
[2]Ibid [46].
[3]Ibid (citations omitted).

(a)the existence of constituent trust documents which establish a trust, including any draft trust documents which cross‑reference one another;
(b)whether accounts were maintained separately to the company’s operational expenditure accounts and/or the company’s own property;
(c)whether the company’s name in its capacity as trustee was noted on key employment documents, such as letters of employment and tax file declarations;
(d)whether invoices rendered by the company in question were issued by the company in its capacity as trustee of the trust;
(e)whether company meeting minutes disclosed the existence of a trust, or disclosed that the company was operating as a trust;
(f)whether expenses were accounted as receipts of the company as trustee; and
(g)whether records, contained in the general ledger of the company, recorded activity consistent with the operation of a trust, such as the issue of units.

Having regard to the matters set out in Re Amerind, and having regard to Mr Kanevsky’s thorough investigations of the CPS Group, which included:

(a) locating the trust deeds for the CPS Trust and CPSA UT;

(b) identifying bank accounts held by the trusts and financial reports for CPSA UT; and

(c) determining that CPS did not have any moneys held in its own right and was not engaged in any trading activities in its own right,

I am satisfied that Mr Kanevsky acted reasonably and is justified in concluding that CPS and CPSA carried on business in their capacity as trustee of their respective trusts. In the case of CPS, as trustee of one or other of the CPS (Vic) Unit Trust, the CPS (NSW) Unit Trust and the CPS (WA) Unit Trust. In the case of CPSA, as trustee of the CPS (Australasia) Unit Trust. I am satisfied that neither CPS nor CPSA carried on business in their own right, notwithstanding isolated documents such as the FY11 financial statement of CPS that indicate to the contrary.[4]

[4]For a similar approach in like circumstances, see Re Amerind per Robson J at [47].

Section 90‑20 of the IPSC permits Mr Kanevsky as the liquidator to apply for orders under s 90‑15 in relation to the external administration of a company.

I consider that it is appropriate to make orders 1 and 2 of Annexure A. The liquidator is justified and acting reasonably in proceeding on the basis that he and Mr Algeri incurred liabilities as trustee for one or more of the CPS Trusts and the CPSA UT. I also consider that the liquidators were justified and acted reasonably in characterising the assets of CPS and CPSA as property held by them in their capacity as trustees of the trusts to which I have referred.

Liquidator’s power to deal with the assets of the CPS Trusts or the CPSA UT

Because of the terms of the trust deeds there is a real question as to whether Mr Kanevsky, as liquidator of the trustee of the CPS and CPSA trusts, had the power to deal with the trust assets as he and Mr Algeri have done in the course of their administration of the companies in liquidation.

CPS, as trustee of the CPS Trusts, and CPSA as trustee of the CPSA UT, have broad powers under the trust deeds of the respective trusts to deal with the property of the trusts. This includes the power to sell, transfer, convey or otherwise deal with any real or personal property.

However, clause 26 of the trust deeds of the respective trusts provides that CPS (or CPSA) is disqualified from holding office if it suffers an Event of Default:

26. Appointment and Removal of Trustee
26.1The Trustee is disqualified from holding office if it suffers an Event of Default.
26.2The Trustee may retire upon giving 30 days notice in writing to the Unitholders of its desire to do so but such retirement does not take effect until a General Meeting of Unitholders called to consider the appointment of a trustee in place of the retiring Trustee has appointed a new trustee and that trustee has executed a deed of the type referred to and approved in the manner specified in clause 26.5.
26.3The Unitholders may:
(1)by unanimous resolution remove the Trustee or appoint an additional trustee;
(2)by unanimous resolution appoint a trustee in place of a Trustee who retires or is disqualified or removed from office.

…

An Event of Default, under clause 17.1, includes:

…
(6)an application or order is made to or by a court or a resolution is passed for the winding up of a Party or notice of intention to propose such a resolution is given.
…

On 21 September 2016, after the liquidators were appointed and before the major assets of the CPS Group were sold, the unit holders of each of the CPS Trusts executed separate resolutions (‘CPS Resolutions’) that:

1.Car Parking Solutions Pty Ltd (in Liquidation) ACN 122 992 474 remain appointed as trustee of the Trust, despite the occurrence of the Event of Default;
2.the Unitholders refrain from exercising their power under clause 26.3 of the Trust Deed to remove the Trustee as trustee of the Trust as a consequence of that Event of Default;
3.if the effect of clause 26.1 of the Trust Deed is that the Trustee was automatically removed as trustee of the Trust, that the Trustee be immediately re‑appointed as trustee of the Trust, with effect the instant after that removal and to the extent necessary ratify any actions undertaken or powers exercised or purportedly exercised by the Trustee between the Event of Default and the date of this resolution; and
4.the Unitholders waive any “Event of Default” as that term is defined in clause 17.1 of the Trust Deed, that is caused by, results from or is in any other way connected with the liquidation or external administration of the Trustee, and agree that clause 26.1 of the Trust Deed does operate in relation to, and that they will refrain from exercising their power under clause 26.3 of the Trust Deed to remove the Trustee as trustee of the Trust as a consequence of, any such Event of Default.

The First Kanevsky Affidavit states that the CPS Resolutions were passed to enable, among other things, the sale of the assets of the CPS Group.

A resolution was passed with respect to the CPSA UT in substantially the same form as the CPS Resolutions (‘CPSA Resolution’).

Mr Kanevsky has given evidence that upon reviewing the trust deeds, notwithstanding the breadth of the powers afforded to CPS as trustee, he became concerned as to whether or not the CPS Resolutions operated to overcome the trustee’s disqualification under the CPS trust deeds. In particular, because cl 26 of the trust deed continued to operate with the arguable effect that any re‑appointment of the trustee, as was the substantive effect of the CPS resolutions, would trigger a fresh event of default. The same issues arise in relation to the CPSA resolution.

Mr Kanevsky submitted:

(a) Notwithstanding the purported effect of the CPS and CPSA Resolutions, nothing in those resolution purported to amend the terms of cl 26.1 of the trust deeds and that clause continued to operate.

(b) In circumstances where an Events of Default (as defined in cl 17.1 of the trust deeds) continued to persist, it would appear that any re‑appointment of the trustee would again trigger cl 26.1, in a circular fashion. That is so notwithstanding the fact that the unitholders purported to waive such default under the resolutions.

(c) In any case, the purported waiver of any future Event of Default under cl 26.1 (or the commitment to refrain from exercising their powers under cl 26.3) in the CPS Resolutions appears to be beside the point. Clause 26.1 does not depend on the exercise by the unitholders of any right — it operates to disqualify a trustee that has suffered an Event of Default. An Event of Default was satisfied in the case of each of CPS and CPSA on their respective winding up.

(d) The CPS Resolutions may have been inconsistent with the intent of the trust deeds with respect to the ability of CPS and CPSA to remain as trustees, particularly having regard to the terms of cl 26.3(2).

(e) It therefore appears that, at the date of appointment of Mr Kanevsky and Mr Algeri, each of CPS and CPSA held the relevant assets as bare trustees with the consequence that the liquidators were constrained in their ability to deal with the trust assets. It follows that all dealings with the assets of the CPS Trusts and CPSA UT by the liquidators of CPS and CPSA, since their appointment, may have been ultra vires.

(f) It was submitted that the liquidators, in good faith, relied upon the resolutions:

(vii) in circumstances where the resolutions were passed by the unitholders of the CPS Trusts and CPSA UT; and

(viii) to conclude that they were charged with all of the powers held by each trustee under the relevant trust deeds.

(g) If the resolutions were ineffective, the Court should still be satisfied that the resolutions were made for a purpose consistent with underlying scope of the trust deeds, were entered into in good faith and that there was therefore no fraud on the power.

In relation to the conferral of power under s 63 of the Trustee Act, Mr Kanevsky submitted that if each of CPS and CPSA held the relevant trust assets as bare trustees, the Court can and should grant Mr Kanevsky the power under s 63 nunc pro tunc to deal with the relevant trust assets. Mr Kanevsky submitted that such an order is appropriate in circumstances where:

(a) CPS and CPSA only ever acted as trustee of their respective trusts and in no other capacity; and

(b) all assets owned by them and liabilities incurred were in their capacities as trustees of the trusts.

In the alternative to making an order under s 63 of the Trustee Act, it was submitted that the Court can be satisfied that, insofar as any breaches of trust may have occurred as a result of the liquidators dealing with assets that they only held as bare trustees, the liquidators did so in circumstances which would warrant relief being granted under s 67 of the Trustee Act or s 1318 of the Corporations Act.

The effect of clause 26.1 of the trust deeds is that each of CPS and CPSA held the relevant trust assets as bare trustees.

As Gordon J observed in Caterpillar Financial Australia Ltd v Ovens Nominees Pty Ltd,[5] when sitting as a judge of the Federal Court, a bare trustee retains its rights of indemnity or exoneration and its lien over the assets of the trust but its powers as bare trustee do not include a power of sale, necessitating an application for relief under s 63 of the Trustee Act.
[5][2011] FCA 677.

In Re Mandeville Group Pty Ltd (In Liq),[6] Sloss J noted that the Court’s power under ss 63 and 67 of the Trustee Act to give directions to trustees is of ‘broad compass’.[7] In Re Brimson Pty Ltd (in liq),[8] Moshinsky J observed that:[9]

50.The courts are generally willing, upon an appropriate application, to make orders permitting the liquidator of a (former) corporate trustee to sell trust assets. In situations where the property of the trust will be exhausted following its sale and subsequent distribution to creditors, it may be appropriate merely to give the liquidator a power of sale: see Jones & Matrix at [91].

[6][2020] VSC 293.

[7]Ibid [141].

[8][2019] FCA 1023; (2019) 136 ACSR 649.

[9]Ibid [50].

In Re Total Truss Systems Pty Ltd (in liq),[10] Gardiner AsJ made Orders under s 63 of the Trustee Act nunc pro tunc to regularise the liquidator’s position in circumstances where the operation of an ipso facto clause rendered the corporate trustee a bare trustee of the of the trust in question.
[10][2021] VSC 205 (‘Total Truss Systems’).

In Total Truss Systems Gardiner AsJ formed the view that had the liquidators made a timely application shortly after their appointment, an order permitting the corporate trustee to act notwithstanding its liquidation would very probably have been made. Gardiner AsJ also had regard to the observations of Allsop CJ and Siopsis J in Jones (Liquidator) v Matrix Partners Pty Ltd Re Killarnee Civil and Concrete Contractors Pty Ltd (In Liq),[11] who indicated that nunc pro tunc orders could, as a general proposition, be made.[12]
[11][2018] FCAFC 40; (2018) 260 FCR 310.
[12]Total Truss Systems, [89].

Counsel for Mr Kanevsky submitted that it is appropriate to make orders nunc pro tunc pursuant to s 63 of the Trustee Act having regard to the CPS and CPSA Resolutions and the fact that Mr Kanevsky acted in good faith on the basis of those resolutions.

Notwithstanding the absence of power, relying on the CPS Resolutions, the liquidators dealt with the trust assets, including by selling them. I am satisfied that the liquidators relied on the CPS and CPSA Resolutions in good faith and proceeded to deal with the assets of the trusts for the benefit of creditors as a whole. In all the circumstances I consider that it is appropriate to make an order under s 63 of the Trustee Act that CPS, in its capacity as trustee for each of the CPS Trusts, and CPSA in its capacity as trustee for the CPSA UT, has and had pro nunc tunc the power to deal with the assets of those trusts.

I consider it appropriate to make an order under s 63 of the Trustee Act nunc pro tunc to avoid the need for any associated order under s 67 of the Trustee Act and s 1318 of the Act. In ReWaratah Group Pty Ltd (in liq),[13] referring to Re Mandeville Group Pty Ltd (in liq),[14] I held that it was appropriate to make an order under s 63 of the Trustee Act nunc pro tunc, to avoid any requirement for the Court to make any associated ‘relieving’ order under s 1318 of the Act.[15] The same is the position in this case. I will make orders 6 and 7 in Annexure A. I echo the observations of Gardiner AsJ in Total Truss Systems that the absence of orders under s 67 of the Trustee Act and s 1318 of the Act does not preclude the liquidator from relying on those provisions in the future. There is no need to make the alternative orders sought in paragraph 8 of the draft order.
[13][2020] VSC 523.
[14][2020] VSC 293.
[15][2020] VSC 523, [60].

Pooling: employee claims, CPS Trust property and further pooling with CPSM’s assets

In Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth,[16] the decision of the High Court following the trial before Robson J in Re Amerind and then the appeal, Gordon J held that:[17]

…where the trustee is a trustee of multiple trusts, the attributes of the trustee’s proprietary interests require that s 433 [of the Corporations Act] be applied separately to each fund because s 433 does not alter the nature of the assets such that the funds can be mixed and applied to meet the claims of non‑trust creditors.
Of course, it must be accepted that that approach may lead to practical difficulties and expense. In such a case, equity may need to fill the vacuum left by the failure of the statute to deal expressly with multiple trust funds. An available mechanism is for a receiver to apply under s 424 of the Corporations Act, or a liquidator to apply under s 90‑15 of Sch 2 to the Corporations Act (“the Insolvency Practice Schedule”), for directions from the Court to seek to resolve any issues in relation to allocation between multiple trusts. What will be appropriate will vary from case to case. Hotchpot (like marshalling) is one possibility; an illustration of the maxim that equity is equality.

[16][2019] HCA 20; (2019) 268 CLR 524 (‘Amerind’).

[17]Ibid [162]–[163] (citations omitted).

In the earlier case of Re Suco Gold Pty Ltd (in liq),[18] the company was trustee of two unit trusts. In that case, King CJ, with whom Jacobs and Mathewson JJ agreed, held that the liquidator might apply the money from the sale of the assets held by the company as trustee of the two trusts in such proportions as should be just and reasonable:[19]

…the liquidator is entitled to have recourse to the property of each trust for the purpose of meeting the costs and expenses of winding up, the petitioner’s costs and the liquidator’s remuneration, so far as they are incurred in relation to each trust. As there are no non‑trust assets or liabilities, all the expenses are attributable to one or other of the trusts and must be apportioned between them. The liquidator will be able to make an estimate of the work and expense involved in the liquidator so far as it relates to each trust. Where no apportionment is possible, the maxim that equality is equity should provide the solution to the problem of apportionment.

[18](1983) 33 SASR 99 (‘Re Suco Gold’).

[19]Ibid 110.

In Sonray Capital Markets Pty Ltd v Seabom International (as trustee Seabom Family Trust),[20] Gordon J agreed with the liquidators who sought a direction they would be justified in pooling the balance of segregated accounts into which clients deposited funds into a single account and where the dealings were such that the accounts could not practically or economically be the subject of a cash tracing exercise.[21]
[20][2012] FCA 75; (2012) 288 ALR 240 (‘Sonray’).
[21]Ibid [91]–[92].

In Re BBY Ltd (receivers and managers appointed) (in liq) (No 2),[22] Brereton J summarised the principles relevant to the issue of pooling in the context of a liquidator’s application for directions and advice, including:[23]
[22][2018] NSWSC 346; (2018) 363 ALR 492 (‘Re BBY (No 2)’).
[23]Ibid [83].

83.The relevant principles applicable in the context of a liquidator’s application for directions and advice may therefore be summarised as follows:
1.While a liquidator must distribute funds under his or her control through the company being trustee of trusts in accordance with the legal entitlements to those funds, findings about what legal entitlements exist depend upon the evidence, and where a liquidator knows no more than that the fund is held on trust and that there are a number of potential claimants, it may be appropriate for the Court to direct distribution of the fund amongst the claimants proportionately to their claims. That is because it is the best that can reasonably be done on the available evidence.
2.Regulation 7.8.03(6) applies individually to each s 981B account maintained by an insolvent licensee, and does not authorise the pooling of accounts for the purposes of distribution. To have a right to payment under reg 7.8.03(6)(c) out of a particular CSA, a claimant must demonstrate an “entitlement” to money in that account. In this respect, general principles of trust law relevant to determining entitlement apply, insofar as they are not displaced or modified by the statutory regime.
3.While the Court’s powers to give directions under s 479(3) and s 511 do not generally permit orders that depart from proprietary rights, this principle yields in cases where it is not pragmatic to ascertain the proprietary rights with precision;
4.The theoretical basis for pooling is the principle that all contributors to a deficient mixed fund hold an equitable charge over the entire fund and its traceable proceeds to the value of their contributions, subject to any dealings and costs or are equitable tenants in common of the mixed fund as a whole, including its traceable proceeds, and subject to such deductions, so that each contributor has an “entitlement” in each fund. In this context, a “mixed fund” is one that contains funds from more than one source; and while the typical case involves mixing “across accounts”, there is also “mixing” where funds of one trust are applied to meet obligations of another.
5.The pragmatic nature of the jurisdiction means that neither strict proof of mixing such as would entitle a beneficiary to an equitable proprietary remedy, nor absolute impossibility of tracing, is required; pooling may be directed where the identification and tracing of the interests of individual clients is not in the circumstances of the particular case reasonably and economically practical, on the basis that it is reasonable in the circumstances that the funds be regarded as irreversibly deficient and mixed.
6.However, relatively clear property interests are not to be altered by reference to some notion of common misfortune, nor should one fund unduly benefit at the expense of another. Because the effect of pooling two or more accounts is to treat each client’s entitlement to one as identical to its entitlement to the other(s), and so to treat each client as having a rateably equal interest in each fund, it will be warranted when the funds have become so intertwined that each client’s entitlement to one account may reasonably be regarded as identical to its entitlement to the other(s), and this will be so when it is reasonable to regard each as having a rateably equal interest in the mixed fund.
7.The combination of mixing and impracticability of tracing does not of itself mean that it will necessarily be reasonable to treat each client’s entitlement to one account as identical to its entitlement to the other(s), and to regard each as having a rateably equal interest in the mixed fund. Whether that will be so is influenced by the scale of the mixing, and the relative sizes of the funds and the deficiencies, and above all the extent of the interest of the contributing fund (which I have called fund B) in the mixed fund (which I have called fund A). That requires the Court to form a view, if it can – albeit an imprecise and impressionistic one – as to what is likely to be the extent of the interest of the beneficiaries of each fund in the other(s). In doing so, the Court is informed, but not controlled, by equitable tracing principles.

Mr Kanevsky submits that it is appropriate and reasonable for the Court to make the orders sought in relation to the pooling of the employee claims, the pooling of CPS Trust property and the further pooling of that trust property with CPSM’s assets. He makes that submission relying on the following circumstances:

(a) the financial systems and books and records of the CPS Group were deficient and/or improperly maintained leading up to the winding up;

(b) the cost of exploring the issue any further will require the liquidator to:

(ix)attempt to reconcile and allocate each of the debtors of CPS (totalling approximately $1.5M) to the CPS Trusts, at a cost of approximately $30,000; and

(x) retrospectively allocate the liquidators’ costs and expenses between the CPS Trusts since the commencement of the liquidation of CPS;

(c) the liquidator considers that the costs of exploring this issue would be unlikely to clarify matters further and are likely to diminish the pool of funds available for distribution to FEGs, which on a pooled basis, is likely to receive a dividend of approximately 41.9 cents in the dollar;

(d) the only creditor expected to receive any distribution from CPS or CPSM is FEGs, with the effect that the proposed pooling orders do not prejudice any creditor who might otherwise have a claim against the assets of either CPS or CPSM;

(e) FEGs has informed the liquidator, having been served with the application, that it does not intend to appear at the hearing of the application; and

(f) the liquidator has given notice of this application to the unitholders of the CPS Trusts and has not received any response from those unitholders.

Applying the principles set out by Brereton J in Re BBY (No 2), and noting the pragmatic nature of the jurisdiction to which his honour referred, and having regard to the observations made and the approach adopted by Gordon J in Sonray, I am satisfied that this is an appropriate case to order:

(a) the pooling of employee entitlement claims against CPS as trustee of the CPS Trusts (‘CPS Employee Claims’);

(b) the further pooling of the CPS Employee Claims with the employee entitlement claims against CPSM;

(c) the pooling of the CPS Trust property; and

(d) the pooling of the CPS Trust property with CPSM’s trust property.

Having regard to the liquidator’s difficulties in identifying which CPS Group entity owned which of the assets that were sold, in particular the assets that were assigned by all companies and entities for $1,000,000, the inability to identify which entity employed each employee, the deficiencies in the books and records, and the inability to allocate each of CPS’s debtors to the CPS Trusts, I am satisfied that the liquidator is justified and acting reasonably in proceeding on the basis of the pooling set out above.

The orders sought by Mr Kanevsky are appropriate and in the bests interests of the Commonwealth, being the only priority creditor expected to receive a distribution from CPS as a result of the FEGs payments and who has not sought to be heard in opposition to the course proposed. It is appropriate to make orders 4 and 5 in Annexure A.

Is the Liquidator justified in accepting Proofs of Debt and in his proposed treatment of intercompany loans?

Mr Kanevsky submitted that his analysis of the general ledgers, financial statements and bank statements (set out above) supports the Court making the directions sought in relation to his treatment of the inter‑company loans and the payment of a dividend in the liquidation of the CPS Group in accordance with the PODs.

In Re Bell Group (In Liq),[24] Hill J summarised the principles relevant to whether a liquidator would be acting properly and is justified in accepting certain PODs in respect of companies of which they are also a liquidator and in not taking action in relation to the apportionment of costs:[25]
[24][2020] WASC 259.
[25]Ibid [44]–[48] (citations omitted).

[44]As was noted by Vaughan J in Re GGA Lifestyle Pty Ltd (Administrators Appointed); ex parte Woodhouse:
A direction that an external administrator may properly and justifiably carry out a proposed course of conduct is used to signify that it is appropriate that he or she do so. It is a conventional form of direction in common use. It is implicit in such an order that the court is approving the proposed conduct. Often a proposed direction in this form will raise an issue of propriety or reasonableness. Directions are available and appropriate on that basis. (citations omitted)
[45]In general, a liquidator of one company must not exercise his or her powers for the benefit or gain of another company of which they are liquidator. A liquidator has a conflict of duties in exercising any power to adjudicate upon and admit a proof of debt in the liquidation of a company which is submitted by another company of which they are also the liquidator. Where this occurs, an issue of propriety or reasonableness will tend to exist.
[46]As was noted by Black J in Re Go Energy Group Ltd (in liq), the court has an inherent power to authorise a liquidator to perform an act that would otherwise involve conflict, although that power will only be exercised rarely. In seeking to be excused from their fiduciary responsibility, the liquidator has an ‘onerous and exacting’ task.
[47]Section 90‑15 of Sch 2 of the Corporations Act may be used to provide advice that a liquidator is justified in accepting a proof of debt.
[48]In considering an application for directions in the context of the adjudication of proofs of debt where the liquidator is in a situation of conflict, the court may be assisted by an independent expert report, although this is not an essential requirement. Given the quasi‑judicial nature of the function performed by liquidators in adjudicating upon proofs of debt, the court will often be well‑equipped to form a view about whether a proposed adjudication is appropriate without the need for expert assistance.

I am satisfied that, in conducting a detailed review of the CPS Group’s books and records, and given the irreconcilable inconsistencies between the bank statements and the general ledgers, the liquidator has discharged the ‘onerous and exacting task’ to which Hill J referred in Re Bell Group such that it is appropriate to order that the liquidator was justified and acting reasonably in admitting and paying dividends on the inter‑company accounts. It is appropriate to make order 3 in Annexure A.

Liquidator’s remuneration in relation to CPSA

On 28 August 2019, Mr Kanevsky reached the cap on his remuneration approved by creditors at the first meeting for the period 31 May 2017 to completion of the liquidation.

Mr Kanevsky seeks further approval for his remuneration over the period 28 August 2019 to 14 April 2021 in the sum of $103,508.60. In support of his application, Mr Kanevsky relies on a report setting out the work undertaken by him and his staff in relation to CPSA (‘Remuneration Report’). The Remuneration Report states that the total costs have increased due to:

(a)greater than expected time incurred on the settlement of one of the preference claims; and
(b)further investigation into the CPS Group which identified the existence of the inter‑company loans.

The Remuneration Report also notes that Mr Kanevsky and his team incurred additional remuneration in the amount of $15,088 which he intends to write‑off. Any fees incurred past 15 April 2021 will also not be claimed in the liquidation.

The Remuneration Report, along with a covering letter from Mr Kanevsky, a Form 16 (Notice of Intention to Apply for Remuneration dated 2 December 2022) and the First Kanevsky Affidavit, were served on the creditors and an affidavit in accordance with r 9.2(4) of the Supreme Court (Corporations) Rules 2013 (Vic) was affirmed by Jordan Ragona‑Nevrous on 16 January 2023.

Section 60‑5 of the ISPC provides that:

An external administrator of a company is entitled to receive remuneration for necessary work properly performed by the external administrator in relation to the external administration, in accordance with the remuneration determinations (if any) for the external administrator…

Section 60‑10 of the ISPC states that a determination as to the external administrator’s remuneration for work properly performed by the external administrator may be made by resolution of creditors, a committee of inspection or by the Court.

In In the matter of AAA Financial Intelligence Ltd (in liq),[26] Brereton J set out the following principles in relation to the ability of a liquidator to recover their remuneration and expenses from trust assets:[27]

(1)Where the company is trustee of a trading trust and has no other activities, the liquidators are entitled to be paid their costs and expenses, whether for administering the trust assets or for “general liquidation work”, out of the trust assets.
(2)Where the company does not act solely as trustee, costs and expenses referable to work done in relation to trust assets which may nonetheless be considered as having been done for the purpose of winding up the company ought ordinarily be borne primarily by the (non‑trust) property of the company, to the extent that the assets permit.
(3)At least where the non‑trust assets do not permit that course, and perhaps even when they do, a liquidator is entitled to be indemnified out of trust assets for his costs and expenses, but only to the extent that they are referrable to administering the trust assets…[t]his is pursuant to the court’s equitable jurisdiction to allow a trustee remuneration costs and expenses out of trust assets, which extends to a person such as a liquidator who is, for practical purposes, controlling a trustee.
(4)In principle, where the liquidator does work which would entitle him both to remuneration as liquidator by the company, and recovery from the trust assets, there are two funds liable and there should be contribution between them. However, where there are no assets of the company available, it is unnecessary to consider the question of contribution. If a liquidator has done work which is attributable equally to the winding up of the company and the administration of trust assets, and there are no assets of the company at all to meet his expenses in doing so, the expenses are payable solely from the trust assets.
(5)Where the liquidator is administering, through the company of which he/she is a liquidator, more than one trust, the liquidator is not entitled to charge the beneficiaries of one trust with the costs and expenses incurred in relation to the other, although where allocation is not possible a pari passu allocation may be permitted.

[26][2014] NSWSC 1004 (‘AAA Financial Intelligence’).

[27]Ibid [13] (citations omitted). Cited with approval by Robson J in Re Mamounia Pty Ltd (in liq) [2017] VSC 230, [155].

Mr Kanevsky submitted that while his remuneration could have been put to a meeting of creditors for approval, it is more efficient and cost effective to seek approval of those costs from the Court as part of this application.

I consider that the remuneration sought for the period 28 August 2019 to 14 April 2021 to be reasonable in circumstances where the liquidator was managing an unfair preference claim and the discrepancies in the books and records of the CPS Group led to the discovery of the inter‑company loans. I have also taken into consideration the fact that the liquidator intends to write off additional remuneration.

As I have determined that CPS and CPSA acted as trustee of their respective trusts, consistent with the observations by Brereton J in AAA Financial Intelligence, I consider that it is appropriate for the liquidator to be paid his remuneration out of the trust assets in accordance with s 447A of the Act and ss 90‑15 and 60‑16 of the IPSC. It is appropriate to make order 8 in Annexure A.

Liquidator’s costs of the application

Mr Kanevsky seeks an order authorising payment of his salvage costs, being the costs that he has incurred, or expects to incur, in connection with this application. He has applied those costs against the liquidations of CPS (as to 70%), CPSM (as to 20%) and CPSA (as to 10%) by reference to the relationship between each liquidation, the issues raised by this application and the complexity of those issues.

Mr Kanevsky proposes to pay the salvage costs before making a distribution to priority creditors in accordance with s 561 of the Act.

The liquidator submits that the salvage costs and expenses will be payable pursuant to s 556(1)(dd), in priority to any payments under ss 556(1)(e), (g) or (h) such that no further consideration of the decision in In the matter of BCA National Training Group Pty Ltd (in Liq),[28] is required as the proposed approach is not impacted by the operation of s 561.
[28][2023] NSWSC 366 (‘BCA’).

Section 555 of the Act provides that:

Except as otherwise provided by this Act, all debts and claims proved in a winding up rank equally and, if the property of the company is insufficient to meet them in full, they must be paid proportionately.

Section 556(1) of the Act ‘otherwise provides’ that:

Subject to this Division, in the winding up of a company the following debts and claims must be paid in priority to all other unsecured debts and claims:
…
(dd)next, any other expenses (except deferred expenses) properly incurred by a relevant authority;

…
(e)subject to subsection (1A)—next:
(i) wages, superannuation contributions and superannuation guarantee charge payable by the company in respect of services rendered to the company by employees before the relevant date; or
(ii) liabilities to pay the amounts of estimates under Division 268 in Schedule 1 to the Taxation Administration Act 1953 of superannuation guarantee charge mentioned in subparagraph (i);

…
(g)subject to subsection (1B)—next, all amounts due:
(i) on or before the relevant date; and
(ii) because of an industrial instrument; and
(iii) to, or in respect of, employees of the company; and
(iv) in respect of leave of absence;

(h)subject to subsection (1C)—next, retrenchment payments payable to employees of the company.

The priority list in s 556(1) is further modified by s 561 which relevantly provides as follows:

So far as the property of a company available for payment of creditors other than secured creditors is insufficient to meet payment of:
(a)any debt referred to in paragraph 556(1)(e), (g) or (h); and

…
payment of that debt or amount must be made in priority over the claims of a secured party in relation to a circulating security interest created by the company and may be made accordingly out of any property comprised in or subject to the circulating security interest.

Mr Kanevsky’s salvage costs, being the legal costs of this application, are expenses properly incurred by the liquidator falling under s 556(1)(dd) of the Act. The expenses in question are expenses incurred by the liquidator who is not a creditor of the company — see the observations in this regard by Black J in BCA.[29] If the liquidator was correctly regarded as a creditor, then because there is a shortfall in this case in the property of the CPS Group available for the payment of employees under s 556(1)(e) (to whose claim the Commonwealth is subrogated as a result of the FEG), then s 561 would impact upon the payment of those salvage costs in the priority otherwise provided in s 556(1). However, because Mr Kanevsky is not a creditor of the CPS Group, s 561 has no application.
[29]At [22].

I consider that it is appropriate to make order 9 in Annexure A.

Disposition

For the reasons stated above I will make the orders in Annexure A, such orders being substantially in accordance with the form of order provided on behalf of Mr Kanevsky.

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ANNEXURE A

IN THE SUPREME COURT OF VICTORIA
AT MELBOURNE

COMMERCIAL COURT
CORPORATIONS LIST

S ECI 2023 00127

IN THE MATTER OF CAR PARKING SOLUTIONS PTY LTD (IN LIQUIDATION) (ACN 122 992 474) IN ITS OWN CAPACITY AND AS TRUSTEE FOR CPS (VIC) UNIT TRIST, THE CPS (NSW) UNIT TRUST AND THE CPS (WA) UNIT TRUST, CPS (AUSTRALASIA) PTY LTD (IN LIQUIDATION) (ACN 129 556 092) IN ITS OWN CAPACITY AND AS TRUSTEE FOR CPS (AUSTRALASIA) UNIT TRUST AND CAR PARKING SOLUTIONS MAINTENANCE PTY LTD (IN LIQUIDATION) (ACN 162 887 710)

GLEN KANEVSKY IN HIS CAPACITY AS LIQUIDATOR OF CAR PARKING SOLUTIONS PTY LTD (IN LIQUIDATION) (ACN 122 992 474) IN ITS OWN CAPACITY AND AS TRUSTEE FOR CPS (VIC) UNIT TRIST, THE CPS (NSW) UNIT TRUST AND THE CPS (WA) UNIT TRUST, CPS (AUSTRALASIA) PTY LTD (IN LIQUIDATION) (ACN 129 556 092) IN ITS OWN CAPACITY AND AS TRUSTEE FOR CPS (AUSTRALASIA) UNIT TRUST AND CAR PARKING SOLUTIONS MAINTENANCE PTY LTD (IN LIQUIDATION) (ACN 162 887 710) (and others as set out in the Schedule of Parties)

First Plaintiff

ORDER

JUDGE: The Honourable Justice Delany

DATE MADE: 27 June 2023

ORIGINATING PROCESS: Originating process filed 16 January 2023

TYPE OF ORDER: At the hearing of the originating process.

ATTENDANCE: D Preston, Counsel for the Plaintiffs.

OTHER MATTERS: N/A

THE COURT ORDERS THAT:

Pursuant to section 90‑15 of the Insolvency Practice Schedule (Corporations) (being Schedule 2 to the Corporations Act 2001 (Cth) (Act)) (IPSC), the first plaintiff (Liquidator) is justified and acting reasonably in proceeding on the basis that:
(a)the second plaintiff (CPS) solely carried on business in its capacity as trustee for each of the CPS (Vic) Unit Trust (CPS (Vic) UT), CPS (NSW) Unit Trust (CPS (NSW) UT), and CPS (WA) Unit Trust (CPS (WA) UT) (together, the CPS Trusts);
(b)the Liquidator incurred liabilities as trustee for one or more of the CPS Trusts; and
(c)all assets of CPS are properly characterised as property held separately by CPS in its capacity as trustee for one or more of the CPS Trusts (CPS Trust Property).
Pursuant to section 90‑15 of the IPSC, the Liquidator is justified and acting reasonably in proceeding on the basis that:
(a)the third plaintiff (CPSA) solely carried on business in its capacity as trustee for the CPS (Australasia) Unit Trust (CPSA UT);
(b)the Liquidator incurred liabilities as trustee for the CPSA UT; and
(c)all assets of CPSA are properly characterised as property held by CPSA in its capacity as trustee for the CPSA UT (CPSA UT Trust Property).
Pursuant to section 90‑15 of the IPSC, the Liquidator is justified and acting reasonably in:
(a)admitting debts or claims the subject of formal proofs of debt prepared by the Liquidator in the respective liquidations in their respective amounts:
(i)in the liquidation of CPSA as trustee for the CPSA UT, on behalf of CPSM, for the sum of $1,078,640;
(ii)in the liquidation of CPSA as trustee for the CPSA UT, on behalf of CPS as trustee for the CPS (NSW) UT, for the sum of $1,134,024.70;
(iii)in the liquidation of CPSA as trustee for the CPSA UT, on behalf of CPS as trustee for the CPS (Vic) UT, for the sum of $11,592,884.20;
(iv)in the liquidation of CPSA as trustee for the CPSA UT, on behalf of CPS as trustee for the CPS (WA) UT, for the sum of $1,607,546.33; and
(b)paying a dividend in the liquidation of CPSA to CPS and the fourth plaintiff (CPSM) in accordance with the quantum of the Proofs of Debt admitted under order 3(a) above.
Pursuant to section 90‑15 of the IPSC, the Liquidator is justified and acting reasonably in:
(a)pooling the employee entitlement claims against CPS in its capacity as trustee of each of the CPS Trusts (CPS Employee Claims); and
(b)further pooling the employee entitlement claims against CPSM with the CPS Employee Claims (together, the Employee Claims)
Pursuant to section 90‑15 of the IPSC, the Liquidator is justified and acting reasonably in:
(a)pooling the CPS Trust Property; and
(b)pooling the CPS Trust Property together with CPSM’s assets.
Pursuant to section 63 of the Trustee Act 1958 (Vic) (Trustee Act), CPS in its capacity as trustee for each of the CPS Trusts, has and had nunc pro tunc the following powers at its absolute discretion:
(a)to sell the CPS Trust Property or any part of the CPS Trust Property;
(b)to bring any claim of the CPS Trusts against any party on behalf of the CPS Trusts;
(c)to compromise any claim made against CPS in its capacity as trustee for any of the CPS Trusts or the CPS Trust Property on any terms CPS saw fit; and
(d)to protect, preserve and realise any remaining CPS Trust Property.
Pursuant to section 63 of the Trustee Act, CPSA in its capacity as trustee for the CPSA UT, has and had nunc pro tunc the following powers at its absolute discretion:
(a)to sell the CPSA UT Trust Property or any part of the CPSA UT Trust Property;
(b)to bring any claim of the CPSA UT against any party on behalf of the CPSA UT;
(c)to compromise any claim made against CPSA in its capacity as trustee for the CPSA UT or the CPSA UT Trust Property on any terms CPSA saw fit; and
(d)to protect, preserve and realise any remaining CPSA UT Trust Property.
Pursuant to section 447A of the Act and sections 90‑15 and 60‑10 of the IPSC, the Liquidator’s remuneration in respect of CPSA as trustee for the CPSA UT for the period from 28 August 2019 to 14 April 2021 shall be in the amount of $103,508.60.

The Liquidator’s legal costs of this application be paid out of the assets of CPS, CPSM, and CPSA on an indemnity basis in proportions of 70% as to CPS, 20% as to CPSM, and 10% as to CPSA.
Liberty to apply to any person who can demonstrate sufficient interest to modify any directions or orders made on not less than 48 hours’ notice to the Liquidator.

SCHEDULE OF PARTIES

GLEN KANEVSKY IN HIS CAPACITY AS LIQUIDATOR OF CAR PARKING SOLUTIONS PTY LTD (IN LIQUIDATION) (ACN 122 992 474) IN ITS OWN CAPACITY AND AS TRUSTEE FOR CPS (VIC) UNIT TRUST, THE CPS (NSW) UNIT TRUST AND THE CPS (WA) UNIT TRUST, CPS (AUSTRALASIA) PTY LTD (IN LIQUIDATION) (ACN 129 556 092) IN ITS OWN CAPACITY AND AS TRUSTEE FOR CPS (AUSTRALASIA) UNIT TRUST AND CAR PARKING SOLUTIONS MAINTENANCE PTY LTD (IN LIQUIDATION) (ACN 162 887 710)

First Plaintiff

CAR PARKING SOLUTIONS PTY LTD (IN LIQUIDATION) (ACN 122 992 474) IN ITS OWN CAPACITY AND AS TRUSTEE FOR CPS (VIC) UNIT TRUST, THE CPS (NSW) UNIT TRUST AND THE CPS (WA) UNIT TRUST

Second Plaintiff

CPS (AUSTRALASIA) PTY LTD (IN LIQUIDATION) (ACN 129 556 092) IN ITS OWN CAPACITY AND AS TRUSTEE FOR CPS (AUSTRALASIA) UNIT TRUST

Third Plaintiff

CAR PARKING SOLUTIONS MAINTENANCE PTY LTD (IN LIQUIDATION) (ACN 162 887 710)

Fourth Plaintiff

JUDGE:	The Honourable Justice Delany
DATE MADE:	27 June 2023
ORIGINATING PROCESS:	Originating process filed 16 January 2023
TYPE OF ORDER:	At the hearing of the originating process.
ATTENDANCE:	D Preston, Counsel for the Plaintiffs.
OTHER MATTERS:	N/A