In the matter of PrimeSpace Property Investment Limited (in liquidation)

[2018] NSWSC 2001

Supreme Court

New South Wales

Medium Neutral Citation:	In the matter of PrimeSpace Property Investment Limited (in liquidation) [2018] NSWSC 2001
Hearing dates:	16 October 2018 (last submissions 23 November 2018)
Decision date:	24 December 2018
Jurisdiction:	Equity - Corporations List
Before:	Black J
Decision:	Judicial advice given that the Liquidators are justified in paying their remuneration for the period 25 June 2016 to 30 June 2018 from funds held by PPIL on trust. Judicial advice given that the Liquidators are justified in distributing funds held by PPIL in its personal capacity to reimburse it, as trustee for PSNT, for amounts that were paid by PPIL as trustee for PSNT, on behalf of PPIL as trustee for PAPF and PSPT3 to the extent that PPIL does not hold sufficient funds on trust for PAPF or PSPT3 to reimburse itself as trustee for PSNT.
Catchwords:	CORPORATIONS – external administration – application for direction that liquidators of company are justified in acting in accordance with remuneration approvals given by committee of inspection – where remuneration claimed amounts to a large proportion of amounts recovered due to complexity of liquidation – whether liquidators are justified in acting in accordance with remuneration approvals – where company is trustee of a trading trust and has no other activities – whether liquidators should be permitted to recover remuneration from trust assets.
Legislation Cited:	- Corporations Act 2001 (Cth) ss 479, 511 - Trustee Act 1925 (NSW) s 63
Cases Cited:	- Re AAA Financial Intelligence Ltd (in liq) [2014] NSWSC 1004 - Re Banksia Securities Ltd (in liq) (rec and mgr apptd) [2017] NSWSC 540 - Re EMA Consulting Engineers Pty Ltd (in liq) [2018] NSWSC 1993 - Re Killarnee Civil & Concrete Contractors Pty Ltd (in liq) [2018] FCAFC 40 - Re Primespace Property Investment Ltd (in liq) [2016] NSWSC 1821 - Re Primespace Property Investment (in liq) [2016] NSWSC 1113 - Sakr Nominees Pty Ltd (in liq) v Sakr [2017] NSWCA 38
Category:	Procedural and other rulings
Parties:	Shaun Robert Fraser (First Plaintiff) Anthony Gregory McGrath (Second Plaintiff) PrimeSpace Property Investment Limited (Third Plaintiff) IQIT Nominees Pty Ltd as trustee for the IQ Investment Trust (Defendant)
Representation:	Counsel: V Whittaker SC/J Anderson (Plaintiffs)   Solicitors: Johnson Winter & Slattery (Plaintiffs)
File Number(s):	2016/107316

Judgment

1. By Amended Interlocutory Process filed, by leave, on 16 October 2018, the Plaintiffs, Messrs Fraser and McGrath (“Liquidators”) as joint and several liquidators of PrimeSpace Property Investment Limited (“PPIL”) and PPIL, sought a range of orders. PPIL is the trustee for the PrimeSpace Northbourne Trust (“PSNT”) and the PrimeSpace Property Trust No 3 (“PSPT3”) and responsible entity for the Prime Access Property Fund (“PAPF”) and is the former trustee for the IQ Investment Trust (“IQIT”). The Defendant in the proceedings, IQIT Nominees Pty Ltd (“IQIT Nominees”), is the current trustee for IQIT, although it did not seek to be heard in the application.

2. The application was heard on 16 October 2018. The Plaintiffs relied on affidavits of Mr Fraser, one of the Liquidators, dated 31 August 2018 and 10 October 2018. They also relied on an affidavit dated 10 October 2018 of their solicitor, Mr Wicks, and on an affidavit dated 15 October 2018 of Mr Johnson, who was assisting the Liquidators with the winding up of PPIL. The Plaintiffs subsequently filed a Further Amended Interlocutory Process and made supplementary submissions, and relied on a further affidavit of Mr Johnson affirmed 14 November 2018, which refers to further searches which have been undertaken, which have identified contact details for an additional 107 unitholders in PAPF.

Payment of Liquidators’ remuneration

3. First, the Plaintiffs seek directions under ss 479(3) and 511 of the Corporations Act 2001 (Cth) and s 63 of the Trustee Act 1925 (NSW) that the Liquidators are justified in distributing funds held by PPIL to pay their remuneration for the period 25 June 2016 to 30 June 2018 as attributed in specified amounts to funds held by it as trustee for PSNT, responsible entity for PAPF, trustee for PSPT3 and funds held on trust for IQIT. In supplementary submissions, the Plaintiffs point out that the committee of inspection of PPIL has approved their proposed approach for that period. All creditors and unitholders for whom the Liquidators have contact details have been given notice of the application and none have objected to it, and IQIT Nominees supports the application. The Plaintiffs also seek a direction that the Liquidators are justified in distributing funds held by PPIL in its personal capacity to pay that remuneration, to the extent that it does not hold sufficient funds on trust to pay those amounts.

4. Ms Whittaker refers to the circumstances in which the liquidator of the trustee of a trading trust may be paid costs and expenses from the assets of a trust, as summarised by Brereton J in Re AAA Financial Intelligence Ltd (in liq) [2014] NSWSC 1004 at [13]. It is well-established, as Brereton J there noted, that liquidators are generally entitled to be paid their costs and expenses, both for administering trust assets and for general liquidation work, out of trust assets where a company is trustee of a trading trust and has no other activities. Ms Whittaker also refers to my summary of the relevant principles in Re Primespace Property Investment Ltd (in liq) [2016] NSWSC 1821 at [9]ff and to the consideration of these matters in Re Killarnee Civil & Concrete Contractors Pty Ltd (in liq) [2018] FCAFC 40. Ms Whittaker also referred to the principles applicable to determining the remuneration of an insolvency practitioner, as addressed by the Court of Appeal in Sanderson as liquidator ofSakr Nominees Pty Ltd (in liq) v Sakr [2017] NSWCA 38 and summarised by Gleeson JA in Re Banksia Securities Ltd (in liq) (recs and mgrs apptd) [2017] NSWSC 540 at [39].

5. Ms Whittaker refers to Mr Fraser’s evidence as to the conduct of the liquidation and the manner in which remuneration and costs have been charged, and as to the work which has been undertaken in the liquidation, which I accept was a particularly complex liquidation. Ms Whittaker recognises that the remuneration bears a different proportion to the amounts recovered in the particular trusts, amounting to a smaller proportion in those trusts where more substantial recoveries were made, and amounting to 6% of asset realisations in PSNT, but the substantially larger amount of 42% of realisations in PSPT3. The higher percentage that the remuneration bears to recoveries in PSPT3 reflects the position that complex issues arose, in respect of a fund which had more limited scope for recoveries.

6. I will, with some hesitation, make the directions sought in respect of the period to 30 June 2018, on the basis that the Liquidators may properly seek a direction that they are entitled to rely on the approval of their remuneration by the committee of inspection, in seeking reimbursement of that remuneration from trust assets: Re EMA Consulting Engineers Pty Ltd (in liq) [2018] NSWSC 1993. The directions sought are supported by that approval, Mr Fraser’s evidence as to the work done and the earlier judgment so far as it allocated remuneration as between the several trusts.

7. A corresponding direction was sought, but not pressed at the hearing before me, in respect of payment of their remuneration from 1 July 2018 to the completion of the liquidation. I do not make that direction where the application for it was not pressed.

Application for release from undertakings

8. The Plaintiffs also seek an order that the Liquidators and IQIT Nominees be released from undertakings recorded in order 9 of my orders of 7 February 2017. Such an order may ultimately be appropriate, but it should not be made until all issues as to remuneration have been determined, including the position as to the Liquidators’ remuneration for the period from 1 July 2018, which has presently been deferred.

Application for direction as to distribution of funds held by PPIL in its personal capacity

9. The Plaintiffs seek a direction that they are justified in distributing funds held by PPIL in its personal capacity to reimburse it, as trustee for PSNT, for amounts that were paid by PPIL as trustee for PSNT, on behalf of PPIL as trustee for PAPF and PSPT3, pursuant to orders that I made on 7 February 2017, to the extent that PPIL does not hold sufficient funds on trust for PAPF or PSPT3 to reimburse itself as trustee for PSNT. By their Further Amended Interlocutory Process, filed after the hearing, the Plaintiffs amended the third direction they sought, so as to seek a direction as to the distribution of funds held by PPIL in its personal capacity by way of a payment of $43,568.83 on behalf of PAPF in respect of order 1 and $33,303 on behalf of PAPF in respect of order 2.

10. By way of background to this application, the Court has previously given judgment in respect of an earlier application for approval of the Liquidators’ remuneration in Re Primespace Property Investment Ltd (in liq) [2016] NSWSC 1821 (“Remuneration Judgment”). On 7 February 2017, by consent of the parties to the proceedings, the Court made orders that allocated liability for the Liquidators’ remuneration, both in their earlier capacity as voluntary administrators and as liquidators, between the several trusts and funds for which PPIL was trustee or responsible entity. The first of those orders fixed the total of the Liquidators’ remuneration for the voluntary administration and for the liquidation to 24 June 2016, consistent with the Remuneration Judgment. Orders 2 and 3 of those orders apportioned the total amount of that remuneration between PSNT, PAPF, IQIT and PSPT3 for the voluntary administration and liquidation to 24 June 2016.

11. Order 4 was addressed to the difficulty that PPIL did not then hold sufficient funds on trust to pay the amount of remuneration allocated to the trusts by those orders. By order 4(a), the Court directed that, in the event of a shortfall, the Liquidators would be justified in making up that shortfall by drawing funds held on trust for PSNT to pay the remuneration allocated to another trust or fund. Order 4(b) provided that, if that occurred, the Plaintiffs were justified in setting off any amounts so drawn from funds held on trust for PSNT against any distribution later payable by PSNT to that other trust or fund. Similar orders were made, by orders 5 – 8, in respect of the costs of the application, which were treated as costs in the winding up of PPIL.

12. Order 9 was addressed to the position if the funds advanced by PSNT, under order 4(a), or corresponding provisions relating to the costs of the application, exceeded the amounts as to which a set-off could be made under order 4(b). The Plaintiffs submit, in their supplementary submissions, that:

“Although there is perhaps some infelicity of drafting, order 9 is not directed to the question of which entity would bear the burden of the Liquidators’ remuneration and costs, but rather which entity would bear the burden of in effect repaying PSNT if the entity ordered to bear the burden in the first instance by orders, 4, 6 or 8 was without funds. As PPIL was at the time without funds, the parties agreed that the “plaintiffs” and the defendant (IQIT Nominees) would share the burden on a basis proportionate to the amount of funds received from PSNT, which PSNT had paid on behalf of the entity from which PSNT was seeking reimbursement.”

13. The Plaintiffs also note that order 9(a) provided that any shortfall would be allocated on a pro rata basis between the “Plaintiffs” and IQIT Nominees, and orders 9(b) and (c) provided that the “Plaintiffs” and IQIT Nominees respectively undertook to repay their pro rata allocation of the shortfall to PPIL as trustee for PSNT, with interest. It seems to me that, notwithstanding the “infelicity of drafting” to which the Plaintiffs refer, order 9 was directed to a sharing of the relevant burden between PPIL and IQIT Nominees, and did not contemplate that the Liquidators would personally share that burden. That result is clear, not least, because the Liquidators personally did not receive funds from PSNT in the relevant sense, which would be necessary to support a calculation of the relevant proportions.

14. The Plaintiffs submit, and I accept, that the effect of those orders was broadly that the burden of the Liquidators’ remuneration and costs would fall in accordance with orders 2, 3, 5 and 7 and, if an entity received no returns, against which the amount of remuneration or costs could be set-off, each of the Plaintiffs and Defendant were to bear the agreed share of that burden to the extent of any insufficiency, subject to any further application for directions under order 10.

15. Order 10 in turn reserved liberty to apply to the Court for further directions as to the amount which was the subject of those undertakings, including directions in respect of payment by PPIL, either in its own capacity or in its capacity as trustee for a responsible entity, or by some other entity or on some other basis. The Plaintiffs characterise their present application as an application to vary the regime established by these orders, which they seek to do under order 10 of the orders. I accept that order 10 of those orders reserved that possibility, where there were then uncertainties as to the level of recoveries that would be achieved by PPIL in its own right and in its capacity as trustee of the several trusts. The Plaintiffs also submit, and I accept, that the Court has an inherent jurisdiction to alter interlocutory consent orders where an appropriate case to do so is established.

16. The Plaintiffs submit that there exist difficulties with the regime provided by the consent orders, so far as the contingency of PAPF not receiving a distribution was not raised during the earlier hearing. The Plaintiffs submit, first, that order 9 should be amended because, under the present order, the Liquidators may be potentially personally liable to repay PSNT. For the reasons noted above, I do not think that possibility arises, on the proper construction of the orders, and I therefore do not accept that submission.

17. Second, the Plaintiffs submit that, had PPIL had funds at the time of the hearing underlying the Remuneration Judgment, PPIL would have borne the liability for the relevant remuneration, in the first instance, and then looked to the trust funds for any appropriate indemnity and, if the trusts were impecunious, as PAPF had proved to be, then PPIL would have been “out of pocket” for that remuneration. I accept that that was the likely position, although I recognise that the parties then agreed a different approach in different circumstances, as reflected in the consent orders. The Plaintiffs also submit that the orders sought do not prejudice PPIL’s creditors. I accept that submission, so far as it compares the position that would have been adopted if PPIL then had funds and the position now proposed, but not so far as it concerns a comparison of the position as the orders stand and as it would be if they were varied. The proposed variation is adverse to PPIL’s unsecured creditors. I recognise, however, the Plaintiffs’ submission that the effect of the proposed variation of the orders is “nominal”, or at least not substantial, reducing the estimated return to creditors of PPIL from 26 cents in the dollar to 25.6 cents in the dollar.

18. Third, the Plaintiffs submit that IQIT Nominees has a “potential exposure” under order 9, and submit that it is not equitable that the creditors of PPIL be prioritised over the interests of IQIT Nominees. I do not accept that submission, where there is nothing inequitable about IQIT Nominees assuming the liability which it agreed to assume under the consent orders. That is not, however, to say that the orders may not now properly be varied as the Plaintiffs propose.

19. I recognise that the variation which is sought would be disadvantageous to unsecured creditors of PPIL, so far as it contemplates that PPIL would assume a liability that would otherwise be shared between PPIL and IQIT Nominees under order 9, advantaging IQIT Nominees at the expense of the unsecured creditors of PPIL. As I noted above, the amount involved is not substantial. I also have regard to the fact that the treatment of this matter in the orders reflected steps that were then necessary to allow the funding of actions that have achieved significant recoveries, where PPIL did not then have but now does have funds to hand, and the variation that the Plaintiffs now propose is supported by the committee of inspection of PPIL. For these reasons, I will make the direction sought in respect of that variation.

20. For completeness, the Plaintiffs raised the possibility that the question how costs should be borne by the various trusts, as noted in the earlier judgment, could now be revisited as a whole, and not only in the limited respects noted above. The Plaintiffs submit that that is not a necessary exercise of the Court’s discretion. It seems to me that the evidence does not support that course, which would undermine the utility of having made consent orders at the time.

Direction as to reimbursement of PSNT

21. By a further order 5A sought by their Further Amended Interlocutory Process, the Plaintiffs sought a direction under s 479(3) and 511 of the Corporations Act and s 63 of the Trustee Act that the Liquidators are justified in causing PPIL in its capacity as trustee for PSPT3 to reimburse PPIL in its capacity as trustee for PSNT the sum of $158,155 advanced pursuant to orders 4, 6 and 8 of the orders made by the Court on 7 February 2017. The repayment of that amount is consistent with the intent of orders 2 and 3 of those orders, which contemplated a sharing of the total amount of remuneration and costs between the relevant trusts in the specified proportions. It could not be made at that time, where PSPT3 could not then bear that liability, but is now in a position to do so. I am satisfied that the directions sought in paragraph 5A of the Further Amended Interlocutory Process should be given.

Application for direction as to manner of winding up of PAPF

22. The Plaintiffs seek a direction that the Liquidators are justified in winding up PAPF according to its constitution, relying upon a register of unitholders dated 10 November 2014 as exhibited to Mr Fraser’s affidavit sworn 31 August 2018 and relying upon contact details for the unitholders appearing on the register that the Liquidators have obtained from PPIL’s books and records. By their Further Amended Interlocutory Process, the Liquidators extended the range of searches on which they would rely to identify the unitholders in PAPF to include searches of databases maintained by the Australian Securities and Investments Commission, Super Fund Lookup, Infotrack and Dunn & Bradstreet.

23. In their initial submissions, Ms Whittaker and Mr Anderson referred to the Liquidators’ proposal to wind up PAPF in accordance with clauses 21 and 22 of its constitution, by a special resolution of its unitholders, passed at a meeting of unitholders. The Plaintiffs propose to proceed on the basis that an earlier purported cancellation of units in PAPF was invalid and of no effect, consistent with the direction that I had earlier given in Re Primespace Property Investment (in liq) [2016] NSWSC 1113. The Plaintiffs submit that this order seeks to wind up PAPF in the most cost-effective manner where PPIL holds no assets on trust for PAPF and there is no prospect of it meeting its allocation of the Liquidators’ remuneration or of any return to unitholders of PAPF. The evidence indicates that the Liquidators now have contact details for about half of the unitholders of PAPF, having undertaken searches of various registers, and will give notice of a meeting of unitholders to wind up PAPF in a daily newspaper. It seems to me that the approach proposed by the Plaintiffs is reasonable and proportionate in the relevant circumstances and the direction sought should be made.

Costs of this application

24. The Plaintiffs seek an order that their costs of and incidental to this application be costs in the winding up of PPIL, to be paid from funds held on trust by PPIL as trustee for the relevant entities, pro rata by reference to the orders made in respect of their remuneration and, if PPIL does not hold sufficient funds on trust, out of funds held in its personal capacity. I am satisfied that order should be made, where this application was properly brought to advance the winding up of PPIL in its several capacities.

Orders

25. The Plaintiffs should bring in Short Minutes of Order to give effect to this judgment within 28 days, given the time of year.

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Decision last updated: 21 January 2019