Jahani, in the matter of Ralan Group Pty Ltd (in liquidation)
[2022] FCA 107
•16 February 2022
FEDERAL COURT OF AUSTRALIA
Jahani, in the matter of Ralan Group Pty Ltd (in liquidation) [2022] FCA 107
File number(s): NSD 1333 of 2019 Judgment of: FARRELL J Date of judgment: 16 February 2022 Catchwords: CORPORATIONS – application by liquidators for orders under s 90-15 of the Insolvency Practice Schedule (Corporations) in relation to dispersal of moneys held by the Company in a trust account regulated under the Agents Financial Administration Act 2014 (Qld) (Administration Act) and their entitlement to remuneration and expenses – where the Company was a licensed real estate agent under the Property Occupations Act 2014 (Qld) – where the Company had no assets available for payment of liquidators’ remuneration and expenses – where the Company was one of 58 companies in the Ralan Group – where the trust account holds deposit moneys for “off the plan” purchasers of residential units on the Gold Coast in Queensland (depositors) developed by other companies in the Ralan Group – where creditors of the Company did not approve the liquidators’ proposal to return deposit money only to depositors who had $500 or more in the trust account owing to the cost of determining entitlement to those moneys – where 939 of 1,078 depositors had only $100 in the trust account due to release of funds to companies in the Ralan Group under side agreements with some of the depositors – where some depositors granted leave to be heard in opposition to the liquidators’ application – where the chief executive of the Office of Fair Trading (Qld) was granted leave to appear as amicus curiae – where, subsequent to the first day of hearing of the liquidators’ application, the chief executive appointed two of the applicant liquidators as receivers of the trust account under s 47(2) of the Administration Act – where s 21 of the Administration Act prohibited payment of moneys out of the trust account except in ways authorised by that Act – where there is no provision in the Administration Act for the payment of remuneration of external administrators but there is provision under s 79 of the Administration Act for payment of remuneration of a receiver appointed by the chief executive out of the claim fund established under s 78 of the Administration Act – where liquidators then seek a declaration that they had an equitable lien over the trust account for reasonable remuneration and expenses – where depositors and chief executive oppose the implication of an equitable lien having regard to the terms of ss 20-22 of Administration Act – where the application of ss 53(6) and 149 of Administration Act considered – where liquidators and chief executive accept that if the liquidators are entitled to an equitable lien for their reasonable remuneration and expenses, the trust account will not be sufficient to pay depositors in full with the result that the funds in the trust account will be transferred to the chief executive under s 62 of the Administration Act and the depositors will be paid in full out of the claim fund – where reasonableness of claimed remuneration and expenses considered
EQUITY – whether liquidators entitled to be paid their reasonable remuneration and expenses incurred in administering trust property for the benefit of the depositors from trust account in priority to depositors
HELD implication of equitable lien not precluded by statutory regime in Administration Act and declaration should be made accordingly
Legislation: Agents Financial Administration Act 2014 (Qld) ss 15, 16, 17, 20, 21, 22, 34, 47, 48, 53, 61, 62, 63, 78, 79, 149
Corporations Act 2001 (Cth) ss 440B, 545, 568, Sch 2, ss 60-12, 90-15, 90-20
Corporations Regulations 2001 (Cth) reg 7.8.03
Federal Court of Australia Act 1976 (Cth) s 29
Insurance (Agents and Brokers) Act 1984 (Cth) (repealed) s 28(4)
Property Agents and Motor Dealers Act 2000 (Qld) (repealed) ss 383, 384, 595
Property Occupations Act 2014 (Qld) ss 6, 76, 77, 88, 89, 90, 91
Trusts Act 1973 (Qld) s 96
Cases cited: 13 Coromandel Place Pty Ltd v C L Custodians Pty Ltd (in liq) [1999] FCA 144; (1999) 30 ACSR 377
Australian Sawmilling Company Pty Ltd (in liq) v Environment Protection Authority [2021] VSCA 294
Australian Securities and Investments Commission, in the matter of GDK Financial Solutions Pty Ltd (in liq) v GDK Financial Solutions Pty Ltd (in liq) (No 3) [2008] FCA 448; (2008) 246 ALR 580
Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth [2019] HCA 20; (2019) 268 CLR 524
Chief Executive of the Department of Justice and Attorney-General v Hambleton [2013] QSC 356
Coad v Wellness Pursuit Pty Ltd (in liq) [2009] WASCA 68; (2009) 40 WAR 53
Conlan v Adams [2008] WASCA 61; (2008) 65 ACSR 521
Georges v Seaborn International (Trustee), in the matter of Sonray Capital Markets Pty Ltd (in liq) [2012] FCA 75; (2012) ACSR 442
Heenan, in the matter of Ruby Apartments Pty Ltd (in liq) v Ralan Paradise No. 1 Pty Ltd (in liq) (No 2) [2021] FCA 1314
Hutchins, in the matter of Ardenberg Pty Ltd (in liq) (Administrators Appointed) (No 2) [2020] FCA 1424
In the matter of AAA Financial Intelligence Ltd (in liquidation)ACN 093 616 445 [2014] NSWSC 1004
In the matter of All Class Insurance Brokers Pty Ltd (in liq); Vardy v Westpac Banking Corporation [2014] NSWSC 475
In the matter of Courtenay House Capital Trading Group Pty Ltd (in liq) [2019] NSWSC 495
In the matter of Go Energy Group Ltd [2019] NSWSC 558
In the matter of Hawden Property Group Pty Ltd (in liq) (ACN 003 528 345) [2018] NSWSC 481; (2018) 125 ACSR 355
In the matter of Independent Contractor Services (Aust) Pty Limited ACN 119 186 971 (in liquidation) (No 2) [2016] NSWSC 106
In the matter of RCR Tomlinson Ltd (administrators appointed) and Ors [2020] NSWSC 735
In the matter of Say Enterprises Pty Ltd [2018] NSWSC 396
In the matter of Stephen Parbery, Nicholas Martin and Mark Robinson as liquidators of Trio Capital Limited (in liquidation) [2012] NSWSC 597; (2012) 88 ACSR 700
In re MF Global Australia Ltd (in liq) [2012] NSWSC 994
In re MF Global Australia Ltd (in liq) (No. 2) [2012] NSWSC 1426
In re Universal Distributing Company Ltd (in liquidation) [1933] HCA 2; (1933) 48 CLR 171
Jenkins v Jonkay Pty Ltd [2007] FCA 858
Kelly, in the matter of Halifax Investment Services Pty Ltd (in liquidation) (No 6) [2019] FCA 2111
Primary Securities Ltd v Willmott Forests Limited (recvs and mngrs apptd) (in liq) [2016] VSCA 309; (2016) 50 VR 752
Re Arcabi Pty Ltd (Receivers & Managers Appointed) (in liq); Ex parte Theobald& Herbert in their capacities as Receivers & Managers of Arcabi Pty Ltd (Receivers & Managers Appointed) (in liq) [2014] WASC 310; (2014) 288 FLR 236
Re Greater West Insurance Brokers Pty Limited [2001] NSWSC 825; (2001) 39 ACSR 301
Re G B Nathan and Co Pty Ltd (in liq) (1991) 24 NSWLR 674
Sanderson as Liquidator of Sakr Nominees Pty Ltd (in liq) v Sakr [2017] NSWCA 38; (2017) 93 NSWLR 459
Venetian Nominees Pty Ltd v Conlan (1998) 20 WAR 96
Walley, in the matter of Poles & Underground Pty Ltd (Administrators Appointed) [2017] FCA 486
Warner, in the matter of GTL Tradeup Pty Ltd (in liq) [2015] FCA 323; (2015) 104 ACSR 633
Wicks v Michael Giles Real Estate Pty Ltd (In Liquidation) [2004] QSC 438
Division: General Division Registry: New South Wales National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 199 Date of last submissions: 1 September 2021 Date of hearing: 21 December 2020, 1 June 2021 and 30 July 2021 Counsel for the Applicants: Mr M Rose Solicitor for the Applicants: Ashurst Australia Amicus Curiae: Mr P O’Connor of Crown Solicitor of Queensland representing Office of Fair Trading (Qld) Interested Persons: Set out in the Schedule ORDERS
NSD 1333 of 2019 BETWEEN: SAID JAHANI, PHILIP CAMPBELL-WILSON AND GRAHAM KILLER AS JOINT AND SEVERAL LIQUIDATORS OF RALAN PROPERTY SERVICES QLD PTY LTD (IN LIQUIDATION) ACN 603 015 096
First Applicant
RALAN PROPERTY SERVICES QLD PTY LTD (IN LIQUIDATION) ACN 603 015 096
Second Applicant
ORDER MADE BY:
FARRELL J
DATE OF ORDER:
16 FEBRUARY 2022
THE COURT NOTES THAT:
In these orders, “NAB Trust Account” means the bank account defined in paragraph 10 of the affidavit of Said Jahani affirmed on 4 November 2020 and filed on 12 November 2020.
THE COURT ORDERS THAT:
1.The first applicant has an equitable lien over the funds in the NAB Trust Account as security for its remuneration and expenses on the basis of the principle in In re Universal Distributing Company Ltd(in liquidation) [1933] HCA 2; (1933) 48 CLR 171 in the amount of $165,863.16 (excluding GST).
2.The entitlement of interested persons to costs is reserved.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
FARRELL J:
INTRODUCTION
On 30 July 2019, Said Jahani, Philip Campbell-Wilson and Graham Killer, partners in Grant Thornton, were appointed as voluntary administrators of Ralan Property Services Qld Pty Ltd (in liquidation) (Company) and 57 other entities (Ralan Group) and they will be referred to in these reasons as administrators where relevant to that capacity.
The Ralan Group specialised in the development, marketing and management of residential and commercial property (relevantly) in Queensland. Mr Jahani deposed that forty-four of the entities in the Ralan Group did not trade.
The Company held a licence under the Property Occupations Act 2014 (Qld) (Occupations Act) to carry on a real estate agent services business. At the time of the administrators’ appointment, the Company had an account styled “Ralan Property Services Qld Pty Ltd Statutory Trust ACC” with the National Australia Bank (NAB Trust Account). The NAB Trust Account is a “trust account” for the purposes of the Agents Financial Administration Act 2014 (Qld) (Administration Act). As at 30 July 2019, there was an amount of $2,154,809.69 standing to its credit and that balance has not changed.
Mr Jahani’s investigations indicate that there are 1,647 separate contracts for sale of residential units by companies in the Ralan Group in respect of which deposit moneys are held in the NAB Trust Account on behalf of 1,078 individuals. For approximately 1,445 contracts for sale, the remaining amount of the deposit is $100. I will refer to those persons who entered into contracts for the purchase of residential units on whose behalf moneys are held in the NAB Trust Account as depositors.
On 1 August 2019, Jason Tracy, Salvatore Algeri and Timothy Heenan of Deloitte Touche Tomatsu (Deloitte receivers) were appointed as joint and several receivers and managers of all present and after acquired property of the companies in the Ralan Group described in (a), (b) and (c) below by subsidiaries of Wingate Group Holdings Pty Limited:
(a)Win Mezz No. 245 Pty Ltd appointed the Deloitte receivers in respect of:
(i)Ralan Paradise Holdings Pty Ltd, the holding entity for the “Paradise Resort” hotel business and future development of the Ruby 2 Tower, Ruby 3 Tower and Ruby 4 Tower developments at Surfers Paradise, and
(ii)Ralan Paradise No. 2 Pty Ltd and Ralan Paradise No. 3 Pty Ltd, both of which contracted with purchasers of units in Ruby 1 Tower, Ruby 2 Tower, Ruby 3 Tower and Ruby 4 Tower developments;
(b)Win Mezz No. 196 Pty Ltd appointed the Deloitte receivers in respect of Ralan Paradise No. 1 Pty Ltd, which undertook the development of the Ruby 1 Tower at Surfers Paradise and held legal title to unsold apartments and commercial premises there, and Ruby Apartments Pty Ltd which held management rights over the Ruby 1 Tower; and
(c)Win Mezz No. 157 Pty Ltd appointed the Deloitte receivers in respect of Ralan Budds Beach No. 1 Pty Ltd, which held legal title to the land on which it was to undertake the development of the Sapphire project at Surfers Paradise.
On 5 August 2019, BABBL Pty Ltd as custodian of the ALT Trust No.1 appointed Kenneth Michael Whittingham as receiver and manager of the whole of the undertaking, property and assets of Ralan Paradise Resort Pty Ltd and Ralan Paradise No. 4 Pty Ltd. Ralan Paradise Resort Pty Ltd operated the “Paradise Resort” hotel. Ralan Paradise No. 4 Pty Ltd held legal title to the property on which the “Paradise Resort” hotel operated and on which Ruby 2 Tower, Ruby 3 Tower and Ruby 4 Tower were to be built.
I will refer to the Deloitte receivers and Mr Whittingham collectively as the receivers and managers.
On 9 August 2019, there was a concurrent first creditors’ meeting of the 58 companies in the Ralan Group.
In his affidavit affirmed on 20 August 2019 in connection with an application for extension of the convening period for the second meeting of creditors of the companies in the Ralan Group, Mr Jahani deposed that:
(a)The Ruby No 1 Tower development had been completed, with 219 of 243 contracts for residential units settled;
(b)Contracts for 446 of 477 residential units in the Ruby No 2 Tower development had been exchanged;
(c)Contracts for 433 of 489 residential units in Ruby No 3 Tower development had been exchanged;
(d)Contracts for 347 of 406 residential units in the Ruby No 4 Tower development had been exchanged; and
(e)Contracts for 397 of 673 residential units in the Sapphire development had been exchanged.
Contracts for apartments in the Ruby Towers 2, 3 and 4 and the Sapphire development did not proceed to completion. The remaining deposits held in the NAB Trust Account for the purchasers of units in Ruby Tower 1 relate to contracts for sale that did not settle because of the appointment of receivers and managers who rescinded the contracts for sale.
By a letter dated 23 August 2019, Steve Browne, Principal Financial Investigations Officer, Marketplace and Financial Investigations of the Office of Fair Trading (Qld) (OFT), advised Mr Killer that:
As you may be aware the role of the Office of Fair Trading (“OFT”) in Queensland is to monitor Queensland businesses to ensure a safe and fair marketplace. It achieves this goal by undertaking some of the following functions:
•investigating breaches of the legislation administered by the OFT;
•conciliating complaints between consumers and traders;
•taking enforcement action where appropriate; and
•licensing various industries including: real estate agents, motor dealers and security providers.
The OFT is following up on reports that deposits paid by some of the buyers of ‘off the plan’ units being developed and sold by the Ralan Group (in Queensland) were by way of a written ‘side agreement’ used by the Ralan Group as unsecured loans.
The Queensland Property Occupations Act 2014 (“[Occupations Act]”) addresses situations where a part payment (e.g. deposit) is made to a property developer.
Under the [Occupations Act], the deposit received by the property developer must be paid directly to either the public trustee, a law practice or a property agent. The money received must then be held in trust and dealt with in accordance with laws governing that trust account.
The law governing trust accounts of property agents is the Agents Financial Administration Act 2014 ([Administration Act]). Under [the AdministrationAct], withdrawals can be made from a special trust account to cover expenses with the consent of both parties to the transaction.
If a developer is found in breach of either [the Occupations Act] or [the Administration Act], the OFT will take appropriate enforcement action and this may include court prosecution.
The OFT would expect an immediate notification if or when you became aware of any breach of the aforementioned legislation that has or may have been committed by any of the entities within the Ralan Group.
By an email sent on 30 August 2019, Mr Browne requested Mr Jahani to provide relevant details of presales of units in the Ralan Group’s residential towers in Queensland, including details of the contracts, deposits, side agreements and relevant entities within the Ralan Group that were involved in property development and presales. Mr Jahani provided that information by email to Mr Browne dated 3 September 2019. Mr Jahani advised as follows:
In relation to the pre-sales being conducted in Queensland by the Ralan Group, please see the attached documents:
1. Sale contract – this is a standard contract used for all sales;
2. Signed front pages for a sample buyer –·[redacted]
3. Side letter between [redacted] in relation to the release of the deposit.
What the document trail shows, is that the purchaser enters into a contract with a SPV in the Ralan Group – in this instance called Ralan Paradise No. 3 Pty Limited to buy an apartment for $780,000 with a deposit of $78,000. Then the side letter reveals that the deposit will be reduced to $100 and the balance of funds will be transferred to another entity in the group called Ralan Capital Investment Pty Limited as an unsecured loan. We commonly saw that purchasers would (as in this case) place an amount greater than 10% into this unsecured loan as they appeared to be attracted by the high interest rates. Finally, the land upon which this apartment was going to be built was not owned by Ralan Paradise No. 3 Pty Limited (the vendor) but by another SPV in the Group. When we questioned the Group’s solicitor regarding this he referred us to page 60 (Clause 48) of the attached contract which provided a provision for the transfer of the land and the purchaser’s interest in it. The director of the Group also confirmed it was their intention once the property had been sub-divided that the real property would be transferred into the vendor entity on the contract.
The licenced Queensland entity that acted as the agent in the group was called Ralan Property Services Qld Pty Limited and the trust account they operated was with NAB and has been frozen by us. The account details are: (NAB) [redacted] and related to pre-sales. The co-director on this entity alongside William O’Dwyer was Kate Madigan who is a licenced real estate agent. We have not identified at this stage any wrongdoing by Ms Madigan. Another entity in the group, Ruby Apartment Pty Limited also operates a trust account which is used for a service apartment business. This is under the control of separate Receivers (Deloittes). The account details are: (NAB) [redacted].
Finally, I attach a slide deck from the first creditors meeting. On pages 10-11 you will see a summary of the various developments the group was undertaking in the Gold Coast, level of pre-sales, and quantum of released deposits.
In his affidavit affirmed on 20 August 2019, Mr Jahani deposed that, based on preliminary findings, there appeared to be a shortfall of $278,635,568 in respect of amounts initially paid as deposits by purchasers in the Surfers Paradise projects identified above and a project at Arncliffe in New South Wales. Those deposits were released to companies in the Ralan Group pursuant to side agreements with purchasers.
The administrators provided a report dated 13 November 2019 to the members of the Committee of Inspection for Ralan Capital Investment Pty Ltd, Ralan Arncliffe Pty Ltd and Ruby Apartments Pty Ltd (COI Report). They are the only companies in the Ralan Group in respect of which a Committee of Inspection was appointed at the first creditors’ meeting.
The administrators provided the Voluntary Administrators’ Report to Ralan Group creditors dated 28 November 2019 (Administrators’ Report) ahead of the second meeting of creditors scheduled for 9 December 2019. The executive summary stated:
•The Group commenced as a project marketing company in 1998 selling off the plan apartments for developers and in 2008 expanded into property development.
•At the date of the Administrators’ appointment, the Group had completed over 30 developments, mostly in NSW.
•In 2014, the builder primarily used by the Group to construct its developments, Steve Nolan Constructions, entered Administration which had a significant financial impact on the Group and its ability to continue as a result of increased costs and the overall losses it suffered on the 5 developments being built at the time.
•As a result of an unsustainable business model that replicated a partial Ponzi scheme, accumulated losses and poor management of the Group, the Group was placed into Administration on 30 July 2019.
•At the date of our appointment there was c.$238 million owed to secured creditors, c.$323 million to unsecured creditors and c.$3 million in priority claims (employees).
•Upon appointment a decision was made to continue to trade all the individual business units whilst an asset sale campaign was undertaken. We continued to trade all business units until the appointment of the Receivers’ (at which time responsibility for trading and asset realisations transferred to them) or until the business/assets were sold.
•The majority, if not all, of the Group’s assets have now either been sold or are in the process of being sold.
•With the exception of assets owned by Ruby Collections Management Pty Ltd (furniture in Ruby Tower 1) and Ralan Property Care Pty Ltd (strata contracts and plant and equipment) all assets of the Group are under the control of Receivers and Managers. The Receivers and Managers are responsible for realising these assets in line with their obligations under Section 420A of the Corporations Act 2001, which requires that they obtain market price or the best price possible in the circumstances.
•At this stage, it is unlikely there will be any surplus funds remaining after the Group assets have been sold and the secured creditors (NAB, Westpac, Wingate and Balmain) are paid in priority to all other creditors.
•However, any funds recovered by a Liquidator (should the Group proceed to Liquidation) in a successful litigation action against a related or third party will be made available to the general body of creditors. Generally speaking, a secured creditor is not afforded priority over these recoveries.
•With the appointment of the various Receivers, the majority of time incurred by the Administrators’ to date relates to conducting investigations into the affairs of the Group, including but not limited to the reason for the Group’s collapse, any wrongdoing by the primary director, Mr William O’Dwyer, and related and third parties knowledge into the Group’s strategy of releasing purchasers’ deposits.
•Our preliminary investigations reveal that the Group has been trading whilst insolvent from at least 30 June 2014, if not earlier, when Steve Nolan Construction (the Group’s builder) entered Voluntary Administration, which had a knock on financial impact to the Group (discussed further at page 18). After this date, the Group continued to make losses on all developments (the exception of Ruby Tower 1 which is still to be determined).
•Our analysis shows that even if the Group secured funding for Ruby Tower 2, 3, 4 and Sapphire, it would have incurred an overall loss of over $140 million on these developments and would not have been in a position to pay all creditors in full.
•We have found evidence that the director, Mr William O’Dwyer breached Sections 180, 181, 184, 588G, Chapter 5C and Chapter 7 of the Act. Specifically, we found that the Group manipulated financial records which it provided to third parties such as the banks in order to conceal the liability it owed to purchasers for their released deposits.
•We estimate that there may be up to $11 million in unfair preferences and voidable transaction recoveries open to a Liquidator to pursue should the Group be placed into Liquidation at the second meeting of creditors. The actual claims may be significantly greater than $11 million, however, at this stage $11 million represents our best estimate of what may be recovered.
•Our investigations have identified a number of other voidable transactions which require further review, including the purchase of Group properties by Mr O’Dwyer and his family trust, the purchase of Bitcoin in Mr O’Dwyer’s name using Group funds (recorded in his shareholder loan account) and the granting of new security by the Group to Wingate in the month prior to our appointment (June 2019). Our investigations into these and other transactions will continue if the Group is placed into Liquidation.
•We received two (2) DOCA proposals from the Group’s primary director, Mr William O’Dwyer on 26 November 2019. Details on the proposed DOCAs are included at Section 8 of the report and the DOCA proposals are attached as Appendices.
•The first DOCA proposal relates to 7 entities within the Group only. These entities are the QLD entities in which purchasers entered into contracts for the Ruby Towers and Sapphire development (and subsequently released their deposits), Ralan Capital Investments Pty Ltd (the entity in which released deposits were paid to) and The Ralan Group Pty Ltd (the entity in which private investors provided unsecured loans to).
•In summary, the DOCA proposal does not provide any monetary benefit to creditors. There is no ‘new funds’ being paid into the DOCA pool by Mr O’Dwyer. The only potential (although we question if this is truly a benefit) upside of the DOCA proposal is that creditors will be provided with a discount on a future apartment to be built by a third party (details of which are unknown).
•The key terms of the DOCA, which make it highly contingent and likely to fail, include a requirement for all creditors of the DOCA Entities to enter into a New Sales Contract for the purchase of a new apartment (putting a positive obligation on all creditors) and an inability for creditors of these entities to bring a claim against Mr O’Dwyer or the DOCA entities. It is unclear what effect, if any, a successful claim/action by ASIC or another government agency against Mr O’Dwyer will have on the DOCA.
•We have become aware through members of the Committee of Inspection, that there are a number of parties who have expressed that creditors will be no ‘worse off’ in executing the DOCA and if it fails, the Group enters Liquidation and thereafter, claims are brought against the various parties/entities. We do not agree with this view. We stress to creditors that the statute of limitations may apply to any claim that may be brought by a Liquidator and/or creditor. A delay in entering Liquidation will therefore impact the time available to a Liquidator and/or creditor to bring an action.
•The second DOCA is in relation to Ralan Arncliffe Pty Ltd only. It is similar to the first DOCA except for the definition of “Investor Claims.” Creditors are being asked to compromise the remaining balance of any claims they may have which are not honoured by the Receivers/secured creditors in the Arncliffe (Orchid) development. This takes into consideration that purchasers may have some of their claim honoured if they decide to continue with a purchase in the Orchid development.
•For the reasons set out on pages 89 and 90, we do not recommend that creditors approve either of the two DOCAs. It is the Administrators’ recommendation that all entities of the Group be wound up for the reasons stated on page 103 of the report.
Messrs Jahani, Campbell-Wilson and Killer were appointed as joint and several liquidators of the Company and some other Ralan Group entities pursuant to resolutions of creditors on 17 December 2019 and they will be referred to as liquidators where relevant to that capacity.
The liquidators sent a circular to creditors dated 18 September 2020 (September Circular) in which they:
(a)Notified creditors of the proposed interlocutory process by providing a copy of it in draft;
(b)Provided a summary of the process the liquidators proposed to adopt in distributing moneys from the NAB Trust Account (including the proposed direction not to distribute funds to persons with $500 or less in the account which is outlined at [21] below);
(c)Stated that the recipient of the September Circular appeared to have a claim on the NAB Trust Account to the extent of the amount that they paid into the account less any release of their deposit which they authorised;
(d)Sought approval of their remuneration and expenses by circular resolutions (on the basis that the costs of an in person meeting could not be justified) set out in three Notices of Proposal to Creditors set out in Appendix B to the September Circular in a total amount of $247,603 comprising:
(i)For the period from 30 July 2019 to 16 December 2019, $70,152 (exclusive of GST);
(ii)For the period from 17 December 2019 to 27 August 2020, $27,451 (exclusive of GST); and
(iii)For the period from 28 August 2020 to finalisation, $150,000 (exclusive of GST); and
(e)Provided a Remuneration Report set out in Appendix C to the September Circular.
It is Mr Jahani’s evidence that, on the day following despatch of the September Circular, members of Mr Jahani’s staff identified that there was a typographical error in the email address specified at the end of each Notice of Proposal to Creditors for receipt of completed documents to vote on resolutions. The error was the addition of an “n” in the surname in the email address. Grant Thornton’s information technology department set up an email address corresponding to the typographical error by noon that day to receive responses. Staff also responded to emails addressed to “[email protected]”, the email address used in the administration, which some creditors used when they received a “bounce back” after responding the erroneous email address.
Less than 10% of creditors voted and a majority in value but not in number approved the remuneration resolutions.
APPLICATION
By an interlocutory process dated 5 November 2020, the liquidators applied under s 90-20 of the Insolvency Practice Schedule (Corporations) being Sch 2 to the Corporations Act 2001 (Cth) (IPS (Corporations)) for orders under s 90-15(1) of the IPS (Corporations) and s 96 of the Trusts Act 1973 (Qld). The application related to the dispersal of moneys held to the credit of the NAB Trust Account and the payment of the liquidators’ remuneration and expenses. A copy of the application and Mr Jahani’s affidavit affirmed on 4 November 2020 and exhibit SJ-3 were served on the Australian Securities and Investments Commission (ASIC) on 13 November 2020. ASIC indicated that it did not intend to appear at the hearing of the application.
Liquidators’ position as at 21 December 2020
The liquidators initially sought a direction that they would be justified in adopting a process for assessing and verifying claims to amounts standing to the credit of the NAB Trust Account. The proposed process, as outlined in the September Circular, was as follows. No return would be made to 939 depositors with a balance of less than $500 because it would cost more than $500 per depositor to establish each claim to the funds. After payment of the liquidators’ remuneration and legal costs, approximately 85 cents in the dollar would be paid to 139 depositors with over $500, provided they were able to provide a payment receipt or original bank statement showing the original payment to the Company.
The liquidators sought that direction because it was Mr Jahani’s opinion that the NAB Trust Account was the only source from which the liquidators’ remuneration (which includes remuneration for the period that they were administrators) and expenses could be paid. The evidence given in his affidavits affirmed on 4 November 2020 and 1 June 2021 is to the effect that:
(a)The Company’s books and records indicate that it is a creditor of seven related entities in an aggregate amount of $29,406,902 but the liquidators do not currently propose any actions for recovery of that amount. The liquidators are also liquidators of the related entity debtors and they do not expect those entities to pay any dividend to unsecured creditors;
(b)While there are three term deposit bank accounts, those funds are held on separate and distinct trusts for specific purchasers under specific land sale contracts. Mr Jahani does not believe that there is any basis for the liquidators’ remuneration and expenses to be recovered from those funds; and
(c)The Company’s books record an asset of $413,887.13 as “GST on acquisitions”. However, based on the liquidators’ investigations, that “purported asset” has no realisable value. That is because it appears to be a book entry for capitalisation of GST from time to time, rather than the net balance of GST input tax credits (or any other amount) which the Company might be able to claim from the Commissioner of Taxation, who is owed in excess of $892,000 in respect of the Company’s GST obligations.
In written submissions filed on 2 December 2020, the liquidators relied on Mr Jahani’s affidavit affirmed on 4 November 2020. The submissions:
(a)Noted that notice of the liquidators’ intention to file the interlocutory application was provided to each person who appeared to have an entitlement to moneys in the NAB Trust Account and the chief executive of the OFT;
(b)Relied on authorities relevant to s 90-15 of the IPS (Corporations): In the matter of Go Energy Group Ltd [2019] NSWSC 558 at [16] (Black J); In the matter of Courtenay House Capital Trading Group Pty Ltd (in liq) [2019] NSWSC 495 at [2] (Black J); In the matter of Hawden Property Group Pty Ltd (in liq) (ACN 003 528 345) [2018] NSWSC 481; (2018) 125 ACSR 355 at [6]-[8] (Gleeson JA); Walley, in the matter of Poles & Underground Pty Ltd (Administrators Appointed) [2017] FCA 486 (Gleeson J) and In the matter of RCR Tomlinson Ltd (administrators appointed) and Ors [2020] NSWSC 735 (Black J);
(c)Submitted that it would be sensible, practical and expedient in the circumstances that claims of less than $500 be treated as having no entitlement, relying on Georges v Seaborn International (Trustee), in the matter of Sonray Capital Markets Pty Ltd (in liq) [2012] FCA 75; (2012) ACSR 442 (Sonray) at [129]-[136] (Gordon J); and
(d)In relation to approval of the liquidators’ remuneration where a statutory trust is involved, relied on In the matter of AAA Financial Intelligence Ltd (in liquidation)ACN 093 616 445 [2014] NSWSC 1004 at [13] (Brereton J) (AAA Financial Intelligence Ltd (in liquidation)) and In re MF Global Australia Ltd (in liq) [2012] NSWSC 994 (Black J). They also relied on Kelly, in the matter of Halifax Investment Services Pty Ltd (in liquidation) (No 6) [2019] FCA 2111 (Gleeson J) and In the matter of Independent Contractor Services (Aust) Pty Limited ACN 119 186 971 (in liquidation) (No 2) [2016] NSWSC 106 (Brereton J). The evidence in support of the claimed remuneration was the Remuneration Report.
Opposition of interested persons as at 21 December 2020
Both the approval of the remuneration and expenses out of the NAB Trust Account and the direction were resisted by a number of persons who filed correspondence, notices of appearance, grounds of opposition, affidavits and submissions concerning the application. I note that some of the material filed in affidavit form can properly be accepted only as submissions. They were depositors to the NAB Trust Account or claimed to represent people who entered into contracts for the purchase of apartments “off the plan” from companies in the Ralan Group. They were given leave to be heard on the application without ultimate objection by the liquidators. A basis of objection to leave being given to some was noted in the liquidators’ written and oral submissions. I will refer to these people as “interested persons”. Given that much of the material was repetitive, I will refer to only some of the materials. Submissions from the interested persons are generally considered chronologically in these reasons.
Suichin (Erin) Lin’s affidavit made on 18 November 2020 contained correspondence with the liquidators that she made on behalf of herself and the “Ralan Claims Support Committee”.
The correspondence raised points made in a number of the submissions, notices of appearance and affidavits. It was to the effect that: Depositors were concerned about the provision of the wrong email address for response to the September Circular. They were also concerned that it was not sent to some “creditors” at all. Many of the depositors have suffered tremendous financial losses, are elderly, cannot speak English or do not understand legal terms. They feel cheated and distrust Grant Thornton whom they would like to see removed. They feel that Grant Thornton failed to protect unsecured creditors’ interests. The depositors objected to depositors with balances less than $500 receiving nothing and to payment of the liquidators’ remuneration and expenses from the NAB Trust Account at all. The depositors wished to review invoices, not just the general information in the Remuneration Report and they said they would arrange for volunteers to attend to distribution so that costs would be minimised.
In a response provided to Ms Lin on 12 November 2020, Grant Thornton:
(a)Explained the error in the email address for receipt of responses to the September Circular and the steps taken to address it. The explanation was in terms similar to Mr Jahani’s evidence to this Court;
(b)Said that the September Circular was emailed to all creditors on the list of creditors relating to the Company. Creditors of other Ralan Group entities would not have received the email and Grant Thornton received only one email advising that a depositor did not receive an email, which they later found in their spam filter. On the day Grant Thornton issued the September Circular, they also published a copy on their website;
(c)Said that a full accounting of all remuneration claimed by Grant Thornton was in the Remuneration Report and that it complies with insolvency practice regulations. Legal invoices could not be provided to the depositors because of legal privilege. The liquidators advised ASIC that the resolutions to approve payment of the liquidators’ remuneration proposed in the September Circular were not passed. Court approval would now be sought and depositors would be advised of the terms of the proposed application;
(d)Said that only the liquidators could attend to distribution of the funds in the NAB Trust Account because the use of volunteers would involve too great a risk of defalcation; and
(e)Said that the September Circular was not an update in relation to the liquidation of all companies in the Ralan Group or recovery actions to be taken in relation to those other companies. The liquidations of Ralan Group companies were not pooled. Litigation funders were bringing actions on behalf of creditors of the Ralan Group companies. The liquidators were not in a position to bring action against other Ralan Group companies in relation to funds released under side letters: the Company suffered no loss, the depositors did.
By an email dated 13 November 2020, Ms Lin requested the liquidators to transfer the NAB Trust Account to a fund directed by the chief executive under the Administration Act or otherwise to ASIC. In submissions filed on behalf of the liquidators on 2 December 2020, the liquidators referred to the request conveyed by Ms Lin. They said that they understood it to be a request to adopt the mechanism for the appointment of receivers of the NAB Trust Account under Div 3 of Part 4 of the Administration Act. That was because the powers under ss 62 and 63 of that Act are predicated on the chief executive having appointed a receiver under s 47 of the Administration Act. The liquidators’ position at that stage was that there did not appear to be any direct mechanism by which the funds in the NAB Trust Account could be paid to the chief executive.
Ms Lin annexed a range of documents to her affidavit dated 18 December 2020 which was relied on in many of her submissions which she filed subsequently and her statement of 21 December 2020. I note the following matters raised by Ms Lin.
Ms Lin says that her group have questions about the legality, independence and justice of Grant Thornton’s role as administrators and liquidators. Ms Lin states that her group have come to believe that Grant Thornton assisted with “serious misconducts” to allow crime to be gotten away with and continued damage to the interests of unsecured creditors. In support of this, Ms Lin submitted as follows:
First, Deloitte referred Grant Thornton to the Ralan Group and the Deloitte receivers were appointed to “Gold Coast entities” of Ralan Group by Wingate. Ms Lin also refers to a similar appointment in relation to the Arncliffe project.
Annexure SL-4 is Grant Thornton’s declaration of independence, relevant relationships and indemnities (DIRRI) which Ms Lin says was part of the notification to creditors of the administrators’ appointment of the Ralan Group companies on 31 July 2019. I note that, in the DIRRI, Grant Thornton said:
This appointment was referred to us by Deloitte Touche Tohmatsu Limited (“Deloitte”) (“the Referrer”). The [Ralan] Group are a tax client of Deloitte and sought initial advice from Deloitte prior to our involvement. We believe that this referral does not result in a conflict of interest or duty because:
•There is no commercial relationship, arrangement or connection with the Referrer that would challenge our objectivity;
•The Referrer has the discretion to refer potential insolvency appointments to any insolvency practitioner(s) of its choosing. There is no expectation, agreement or understanding that the Referrer will refer any potential insolvency appointments to GTAL going forward. The Referral of potential insolvency appointments going forward are not contingent on the outcome of this appointment;
•Our relationship with the Referrer will not influence our ability to comply with our statutory and fiduciary obligations associated with this appointment;
•No fee has or will be paid for this referral;
•Requests for consent to act as an external administrator from advisors are common practice and do not impact on our independence ln carrying out our duties as Administrators; and
•Any work previously carried out in respect of other matters referred by the Referrer does not have any bearing on this Administration and will not impact on compliance with our statutory and fiduciary duties.
Prior to our appointment, we had the following meetings and telephone discussion with the Group’s advisor and its director:
•On 26 July 2019, Said Jahani received a telephone call from the Referrer to discuss a potential insolvency appointment;
•On 27 July 2019, Said Jahani and his staff attended a meeting with the Referrer to discuss the background and financial position of the Group; and
•On 29 July 2019, Said Jahani and his staff attended a meeting with the Referrer and a director of the Group, William O’Dwyer, to further discuss the background and financial position of the Group and the implications of the formal insolvency process.
We received no remuneration for this advice.
In our opinion, the aforementioned meetings and telephone conversation do not result in a conflict of interest or duty, or affect our independence for the following reasons:
•ARITA’s Code of Professional Practice specifically recognise the need for practitioners to provide advice on the insolvency process and the options available and do not consider such advice results in a conflict or is an impediment to accepting the appointment;
•Advice was only provided to the Group in respect of the formal insolvency process. No personal advice was provided to the board, the directors or other stakeholders; and
•The pre-appointment advice will not influence our ability to be able to fully comply with statutory and fiduciary obligations associated with the Administration or the Group in an objective and impartial manner.
We have provided no other information or advice to the Group, the directors and its advisors prior to our appointment beyond that outlined in this DIRRI.
Second, Ms Lin submitted that Grant Thornton refused to give lawyer Mathew Bransgrove (who Ms Lin says had nearly 500 retainers from unsecured creditors) access to “Ralan’s record[s]” to search for evidence for a proposed class action against some secured creditors, including Wingate and Westpac, and against Deloitte.
Ms Lin relies on annexure SL-10 which contains email correspondence between Mr Bransgrove and Ms Lin and between Mr Bransgrove and Ashurst (the solicitors for the administrators) concerning Ashurst’s letter of 5 December 2019. In Ashurst’s letter, Grant Thornton agreed to provide Mr Bransgrove with access to some of the Ralan Group’s books and records “identified by [the administrators] as part of their investigations focusing on the information made available to advisors and lenders in relation to the release of deposits”. Mr Bransgrove complained that:
·Grant Thornton was not prepared to grant access to all of the Ralan Group’s books and records;
·Grant Thornton would not make the records easily searchable (for example on a document management database);
·Mr Bransgrove would only be given two days to consider the material and he would not be allowed to copy documents; and
·The liquidators claimed a fee of $15,000 to cover their expenses.
These matters were also the subject of submissions filed by Jingjing Fu on 18 December 2020, submissions made by Xiao Qing Wu that were accepted for filing on 11 December 2020 and an affidavit made on 18 December 2020 containing submissions by Stanley Xie.
Ms Lin noted the advice received from Piper Alderman on 9 December 2020 that the Supreme Court of New South Wales had approved an application on behalf of a number of unsecured creditors of the Ralan Group for examinations into the involvement of Deloitte and BDO Australia in the affairs of the Ralan Group.
Third, Ms Lin submitted that Grant Thornton poorly managed voting on a deed of company arrangement proposed to creditors of the Ralan Group at the second creditors’ meeting. I take this to be a reference to the deeds of company arrangement considered at the creditors’ meeting held on 9 December 2019. Annexure SL-9 is a copy of an email chain in January 2020 between Ms Lin and employees of Grant Thornton in relation to voting at the meeting (which I take to be the second creditors’ meeting on 9 December 2019). Ms Lin claims that the votes of some creditors were not counted in relation to the deed of company arrangement proposals relating to Ruby 3 and Ruby 4 Towers.
Fourth, Ms Lin complains that Grant Thornton has stopped investigation of unfair preferences and voidable transactions despite what was said on page 13 of the Administrators’ Report as follows:
We estimate that there may be up to $11 million in unfair preferences and voidable transaction recoveries open to a Liquidator to pursue should the Group be placed into Liquidation at the second meeting of creditors. The actual claims may be significantly greater than $11 million, however, at this stage $11 million represents our best estimate of what may be recovered.
Fifth, Ms Lin relies on the fact that, at page 14 of the Administrators’ Report, the administrators recommended against voting in favour of the deeds of company arrangement proposed by Mr O’Dwyer as follows:
It is the Administrators’ recommendation, for the reasons outlined on page 103, that the Group, including the DOCA Entities and Ralan Arncliffe Pty Ltd, be wound up. The Administrators’ reasons include, but are not limited to:
1.The Group is clearly insolvent and requires a mechanism to deal with creditors’ claims
2.There are a number of potential actions that could be commenced by a Liquidator, subject to sufficient funding, which would not be possible under the terms of the proposed DOCAs; and
3.It is the Administrators’ opinion that the proposed DOCAs are highly contingent and likely to fail.
but the chair of the second creditors’ meeting exercised a casting vote in favour of one deed of company arrangement. Annexure SL-8 is said to be a partial extract of the minutes of the second creditors’ meeting and it provides as follows:
The Chairperson stated that for Ralan Arncliffe Pty Ltd, creditors voted for liquidation and against the DOCA and as result Ralan Arncliffe Pty Ltd would enter into liquidation.
The Chairperson stated that for the DOCA Entities, creditors have voted for the DOCA and against liquidation. The breakdown of the poll results was tabled for creditors present at the meeting and is attached as Appendix E.
The Chairperson advised that with the exception of Ralan Paradise No.2 Pty Ltd (“RP2”), all other entities voted in favour of the DOCA by majority in value and a majority in number. In RP2, there was a majority in number, but not a majority in value which means there is a split vote.
The Chairperson explained that where there is a split vote, the law dictates that the Chairperson may exercise a casting vote.
Taking into account the ARITA Professional Code of Practice and case law authority, pursuant to IPR 75-115, the Chairman noted that he would exercise a casting vote in favour of the DOCA proposal for RP2.
The Chairperson gave the following reasons as to why he voted in favour of the DOCA proposal:
•In relation to RP2, we have a majority in number (112 v 103) supporting a DOCA but not in value, with $87,720 v $60,307 voting against.
•Taking into account the ARITA Professional Code of Practice and case law authority, pursuant to IPR 75-115, as chairman of the meeting, I am exercising a casting vote for RP2 in favour of the DOCA for the following reasons:
1.The estimated return to creditors of RP2 alone purely from liquidator actions in a liquidation scenario is currently nil. Creditors of RP2 will therefore not receive a presently identifiable benefit if RP2 goes immediately into liquidation as opposed to entering into a DOCA.
2.All creditors of RP2 have been admitted to vote for the value of their deposit that was not released to Ralan Capital Investments Pty Ltd and is held by Ralan Property Services QLD Pty Ltd, which is currently treated as being held on trust. I note that there is currently $382,356 being held in the trust account of Ralan Property Services QLD Pty Ltd in relation to RP2 creditors. The claim of creditors of RP2 is for the return of their unreleased or reduced “deposit” for each claimant. The return available in respect of that claim, will not change whether RP2 goes into liquidation or enters into a DOCA. Our expectation is that the creditors of RP2 will …
Sixth, Ms Lin claimed that the liquidators were trying to mislead the depositors and the Court into believing that the funds in the NAB Trust Account were assets of the Company and states that the release of those funds should not be treated as a dividend to creditors. She relied on annexures SL-1 and SL-12 which are copies of a solicitor’s covering letter to Ms Lin dated 22 and 23 March 2016 confirming exchange of contracts for the purchase of residential units from Ralan Paradise No. 3 Pty Ltd and Ralan Paradise No. 2 Pty Ltd, and cl 8.11(d) and (e) to cl 8.14(b)(i) of the respective contracts. Ms Lin notes that cl 8.14 states that if the contract is terminated without default by the buyer, the deposit must be given back to the buyer.
Seventh, Ms Lin opposed the liquidators’ proposal as too costly and submitted that if the Court approves the liquidators’ application then the unsecured creditors will “suffer another hard hit mentally”. She submitted that, having regard to the Administration Act, the liquidators could not charge their “service fees” to the NAB Trust Account. Ms Lin requested the Court’s assistance in setting up a “self-managed” trust fund to help the depositors get their trust moneys.
In submissions dated 20 January 2021, Ms Lin made a further proposal for distribution of the NAB Trust Account to depositors relying on a former Ralan Group employee’s knowledge of Ralan Group’s systems and identification of depositors in information contained in annexure E to the COI Report which was annexed to Ms Lin’s affidavit dated 21 December 2020. I note that the COI Report related to Ralan Capital Investment Pty Ltd, Ralan Arncliffe Pty Ltd and Ruby Apartments Pty Ltd and that the Administrators’ Report at page 6 indicates that those were the only Ralan Group entities in respect of which the Committee of Inspection was appointed.
Mr Xie raised the following issues in addition to those noted by Ms Lin. I note that Mr Xie is not a lawyer, although he purports to act under powers of attorney given by Wenhao Tony Ye, Guoying Li, Lin Chen, and Jin Ju Yan. The liquidators note that Mr Xie claims to be a creditor of the Company but he does not appear to be a depositor and Mr Yan also appears not to be a depositor. In summary, Mr Xie:
(a)Claimed that Grant Thornton had a conflict of interest in the Ralan Group;
(b)Said that there were procedural irregularities in the first creditors’ meeting of the Ralan Group, that Grant Thornton “monopolised procedure[s]” and did not give an opportunity for the appointment of a new voluntary administrator, an assertion he made at the first creditors’ meeting to a Grant Thornton staff member who denied that to be true;
(c)Said that, even though he had been appointed to the Committee of Inspection at the first creditors’ meeting he had not been asked to do anything in overseeing the administration and he had been asked to attend only one meeting of the Committee of Inspection which was held on 20 November 2019;
(d)Made a number of assertions that appear to relate to a deed of company arrangement proposed by Mr O’Dwyer and the appointment of the Deloitte receivers to a number of Ralan projects; and
(e)Asserted that Grant Thornton refused to give “key evidence” to Mr Bransgrove and makes a number of complaints of the kind outlined at [34] above in relation to that matter.
Other matters raised in notices of appearances and submissions filed by depositors before the interlocutory hearing on 21 December 2020 submitted that:
(a)Grant Thornton should work in the creditors’ interests because the conduct of the Ralan Group and Mr O’Dwyer was criminal and Ralan Group traded while insolvent since 2014. The liquidators should investigate to find “hidden money”, not seek “easy money” for their own remuneration from the NAB Trust Account. After they have been defrauded of so much, the depositors’ money in the NAB Trust Account is their “last piece of hope” and they would suffer further mentally if the liquidators were paid from the NAB Trust Account;
(b)Grant Thornton was referred to Mr O’Dwyer by Deloitte. Deloitte had knowledge of the Ralan Group’s practices from at least February 2015. Deloitte were appointed as receivers of a number of Ralan Group companies and depositors believe those arrangements were made to exploit loopholes in the law to get away with crime;
(c)Grant Thornton is doubling up on its claims to remuneration or making excessive claims to remuneration having already received $1.4 million. I note that the remuneration claimed in the COI Report was in relation to the voluntary administration of Ralan Capital Investment Pty Ltd, Ralan Arncliffe Pty Ltd and Ruby Apartments Pty Ltd (but not the Company) of $1,149,557 (for the period from 30 July 2019 to 10 November 2019) and $304,000 (for the period from 11 November 2019 to 9 December 2019);
(d)During the voluntary administration period, creditors’ emails and calls were not returned or answered and requests from the Committee of Inspection were rejected. Grant Thornton did not arrange a translator at the first creditors’ meeting;
(e)Three law firms were actively preparing class actions for unsecured creditors but ultimately ceased. Grant Thornton should co-operate with those law firms but instead they asked an unreasonably high fee for access to documents so that crimes have not been exposed; and
(f)The moneys in the NAB Trust Account are not assets of the Company; they should be protected under s 15 of the Administration Act which is said to state that withdrawals cannot be made to cover expenses without the consent of both parties to the transaction.
Sections 20-22 of the Administration Act
Having regard to the terms of ss 20-22 of the Administration Act (including the imposition of criminal liability for breach of ss 21 and 22), I considered it appropriate to hear from the chief executive who was not represented when the hearing on 21 December 2020 commenced. Sections 20-22 of the Administration Act provide as follows:
20 Trust money not available to agent’s creditors
An amount paid, or required to be paid, to a trust account under this division can not be—
(a) used for payment of the debt of a creditor of an agent; or
(b) attached or taken in execution under a court order or process by a creditor.
Division 3 Payments from trust accounts
21 When payments may be made from trust accounts
(1)An amount paid to a trust account must be kept in the account until it is paid out under this Act.
Maximum penalty—200 penalty units or 2 years imprisonment.
(2)An amount may be paid from a trust account only in a way permitted under this Act.
Maximum penalty—200 penalty units or 2 years imprisonment.
22 Permitted drawings from trust accounts
(1)An agent may draw an amount from the agent’s trust account to pay the agent’s transaction fee or transaction expenses for a transaction only if—
(a)the amount is drawn against the transaction fund for the transaction; and
(b)the agent is authorised to draw the amount under this section.
Maximum penalty—200 penalty units or 2 years imprisonment.
(2)The agent is authorised to draw an amount from the transaction fund to pay a transaction expense when the expense becomes payable.
(3)After the transaction is finalised, the agent is authorised—
(a)to draw an amount from the transaction fund to pay the person entitled to the amount, or someone else in accordance with the person’s written direction, that is equal to the difference between—
(i)the balance of the transaction fund; and
(ii)the total of the agent’s transaction fee and any outstanding transaction expense; and
(b)after the amount, if any, mentioned in paragraph (a) has been paid—to draw the agent’s transaction fee from the transaction fund.
Example of when a transaction is finalised—
the settlement of a contract for the sale of property or the termination of the contract
(4)For subsection (3)(a) or (b), if a dispute about the transaction fund arises, the transaction is not taken to be finalised until the agent is authorised to pay out the transaction fund under division 5.
(5)The agent must pay an amount mentioned in subsection (3)(a) to the person entitled to it, or someone else in accordance with the person’s written direction—
(a)if the person asks, in writing, for the balance—within 14 days after receiving the request; or
(b)if the person has not asked, in writing, for the balance—within 42 days after the transaction is finalised.
Maximum penalty—200 penalty units or 2 years imprisonment.
(6) In this section—
transaction expense means an expense an agent is authorised to incur in connection with the performance of the agent’s activities for a transaction.
transaction fee means fees, charges and commission payable for the performance of an agent’s activities for a transaction.
transaction fund means an amount held in an agent’s trust account for a transaction.
Chief executive’s appearance on 21 December 2020
After a brief adjournment of the hearing on 21 December 2020, Peter O’Connor, a Senior Principal Lawyer for the Crown Solicitor of Queensland, appeared and submitted that the chief executive had not received a letter giving notice of the interlocutory application from the liquidators’ solicitors. Following the hearing, Mr Jahani had a telephone conversation with Mr Browne of the OFT and he was informed, for the first time, that the OFT was considering the potential for the appointment of a receiver to the NAB Trust Account pursuant to the Administration Act.
Sections 47, 48, 78 and 79 of the Administration Act and appointment of receiver of NAB Trust Account
Sections 47 and 48 of the Administration Act provide as follows (note to s 47(1) excluded):
47When receiver may be appointed
(1)If the chief executive believes, on reasonable grounds, defalcation has, or may have, been committed in relation to an agent’s trust account, the chief executive may appoint a receiver if—
(a) the agent consents to the appointment; or
(b) the chief executive—
(i) gives the agent written notice—
(A)stating the chief executive proposes to appoint a receiver on the ground that defalcation has, or may have, been committed in relation to the agent’s trust account; and
(B)outlining the facts and circumstances forming the basis for the ground; and
(C)inviting the agent to show, in writing, within a stated time of at least 21 days, why the appointment should not be made; and
(ii)after considering any written representations given within the stated time, still considers the ground exists.
(2)The chief executive may immediately appoint a receiver if the chief executive believes, on reasonable grounds, a person can not obtain payment or delivery of trust property held for the person by an agent because of—
(a)the agent’s mental or physical infirmity; or
(b)the agent’s death; or
(c)the abandonment of the agent’s business; or
(d)if the agent is a licensee—
(i) the agent’s disqualification from holding a licence; or
(ii) the cancellation or suspension of the agent’s licence; or
(iii) a refusal to renew the agent’s licence; or
(iv) the expiry of the agent’s licence.
48 Trust property over which receiver may be appointed
A receiver may be appointed over trust property—
(a)held by an agent; or
(b)held by another person for an agent; or
(c)recoverable by an agent; or
(d)if an agent is dead, that may be recoverable by the agent’s personal representative.
On 22 December 2020, the OFT discovered that the liquidators’ solicitors’ letter dated 13 October 2020 advising of the liquidators’ intention to make the interlocutory application had been received by the OFT but, due to administrative oversight, it was forwarded to the incorrect business unit for consideration. The Court was advised promptly of that fact. The chief executive appeared as amicus curiae on all occasions subsequent to 21 December 2020.
By written submissions filed on 20 January 2021, the chief executive advised that: The prima facie evidence supported an allegation that deposit funds had not been “reinvested” in accordance with the terms of contracts signed by investors for the purchase of properties “off the plan”. On that basis, there may have been a “defalcation”. That enlivened the chief executive’s discretion to appoint a receiver under s 47 of the Administration Act. The process had begun to make an appointment. Pursuant to s 79(2)(a)(i) of the Administration Act, the receiver would be remunerated through the claim fund established under s 78 of the Administration Act and in accordance with a costs agreement settled at the time of appointment. However, work undertaken by the liquidators prior to their appointment as receivers would be viewed separately from “future work” and it would not be recoverable against the claim fund.
Section 78 of the Administration Act relates to the establishment of the claim fund, its funding by the Treasurer of Queensland and how moneys in it are to be held by the relevant department. Section 79 provides as follows:
79 How fund may be applied
(1)The fund must be used to pay the amount of all claims allowed against the fund.
(2) The fund may also be used to pay—
(a) the remuneration and costs of the following—
(i) a receiver appointed under section 47;
(ii) a special investigator appointed under section 70; or
Note—
The remuneration and costs of a receiver are recoverable under section 64 (Recovery of remuneration and costs). The remuneration and costs of a special investigator are recoverable under section 75 (Recovery of remuneration and costs). Amounts recovered under these sections by the chief executive are paid to the fund under section 120 (Recovery of payments—general).
(b) a special payment by the chief executive under part 8, division 2.
(3) The Treasurer may transfer an amount from the fund to the consolidated fund.
On 10 February 2021, the chief executive appointed Messrs Jahani and Killer as receivers of the NAB Trust Account pursuant to s 47(1)(a) of the Administration Act. That appointment eliminated the need for a direction concerning the adoption of a process for assessing and verifying claims to amounts standing to the credit of the NAB Trust Account and meant that the receivers’ remuneration for assessing claims on that Account would be paid out of the claim fund under s 79.
Case management hearing on 24 February 2021 and orders then sought by liquidators
A case management hearing was held on 24 February 2021 and following it orders were made for the filing of further evidence and submissions. The application was set down for hearing on 1 June 2021 having regard to the availability of counsel. The liquidators filed submissions on 17 and 26 March 2021 and the chief executive filed submissions on 7 April 2021. The liquidators filed a further affidavit affirmed by Mr Jahani on 17 March 2021.
The orders which the liquidators then sought were as follows:
(a)The Court approve the liquidators’ remuneration incurred in connection with investigating and administering the funds in the NAB Trust Account and this remuneration be fixed in the amount of $177,416.41 plus GST of $17,741.64 for the period from 30 July 2019 to 1 March 2021;
(b)Their remuneration be paid out of the NAB Trust Account; and
(c)Their costs and expenses incurred in connection with investigating and administering the funds in the NAB Trust Account and this application be paid out of the NAB Trust Account on an indemnity basis,
subject to their undertaking to the Court that they will limit their claims to be paid any of those amounts out of the NAB Trust Account to an aggregate amount not exceeding $215,481 plus GST of $21,548.10 (upon the liquidators claiming, receiving and re-contributing to the NAB Trust Account GST input tax credits received on that GST component of $21,548.10). Mr Jahani deposed that the cap represented a 23% discount to remuneration and expenses actually incurred. The Court notes that it was Mr Jahani’s evidence as at 17 March 2021 that the legal costs that the liquidators seek to recover are $101,617.14 plus GST of $10,033.71.
It was (and is) the position of both the chief executive and the liquidators that if the liquidators’ remuneration and expenses incurred prior to their appointment as receivers and the costs of this application are paid out of moneys contributed to the NAB Trust Account then there will be a shortfall in moneys available to pay depositors in full. They also agreed that if the liquidators’ remuneration and expenses are not paid out of the NAB Trust Account, there will be no shortfall. The liquidators submitted that, having regard to the cap on the remuneration and expenses they claim, depositors would be paid at least 90 cents in the dollar if they were paid out of the NAB Trust Account.
Submissions relating to hearing on 1 June 2021
Liquidators’ submissions
In their submissions filed in March 2021 and in oral submissions made at the hearing on 1 June 2021 the liquidators submitted in summary as follows.
First, there is no direct authority as to whether liquidators’ remuneration may be paid from a trust account established under the Administration Act notwithstanding the terms of s 21 of the Administration Act.
Second, they relied on the “salvage principle” in In re Universal Distributing Company Ltd (in liquidation) [1933] HCA 2; (1933) 48 CLR 171 at 174-175 (Dixon J, as his Honour then was). They submitted that it is settled law that the remuneration, costs and expenses incurred by a person such as a liquidator in preserving, recovering and realising a fund on behalf of others should be borne by the fund and that entitlement is secured by an equitable lien over the fund. They relied on Coad v Wellness Pursuit Pty Ltd (in liq) [2009] WASCA 68; (2009) 40 WAR 53 (Wheeler, Pullin and Buss JJA) and In the matter of Stephen Parbery, Nicholas Martin and Mark Robinson as liquidators of Trio Capital Limited (in liquidation) [2012] NSWSC 597; (2012) 88 ACSR 700 (Trio Capital Limited (in liquidation)) at [18] (Black J). Where the company in liquidation is not a trading trust, a claimant to a fund must meet the reasonable administration costs of administering the claim: see Re Greater West Insurance Brokers Pty Limited [2001] NSWSC 825; (2001) 39 ACSR 301 (Re Greater West Insurance Brokers) at [19] (Young CJ in Eq), relying on Re G B Nathan and Co Pty Ltd (in liq) (1991) 24 NSWLR 674 (Re G B Nathan) (McLelland J).
Third, the liquidators submitted that: A liquidator is entitled to be indemnified out of the trust assets for reasonable remuneration, costs and expenses, relying on 13 Coromandel Place Pty Ltd v C L Custodians Pty Ltd (in liq) [1999] FCA 144; (1999) 30 ACSR 377 at [34] (Finkelstein J). While s 22 of the Administration Act constrains payments out of a trust fund by an agent, it does not prevent the use of those funds to indemnify a liquidator for reasonable remuneration, costs and expenses. There would be inherent unfairness in depriving liquidators of reasonable remuneration and expenses where they have administered trust funds for a long period for the benefit of contributors to the fund. The liquidators did not indicate how such a payment would be authorised under the Administration Act.
They said that there would be particular unfairness where, as here, neither the contributors to the fund nor the chief executive has taken steps to have a receiver appointed and allowed the liquidators to undertake work for the benefit of those contributors. Such an outcome would result in insolvency practitioners being unwilling to undertake the role of liquidator: see Re Greater West Insurance Brokers at [22].
Fourth, the liquidators said that this approach is consistent with cases which found that an external administrator’s reasonable remuneration and expenses should be paid in priority to persons with equitable claims upon funds held upon statutory trusts. They relied on Re Greater West Insurance Brokers, which concerned s 28(4) of the Insurance (Agents and Brokers) Act 1984 (Cth) (repealed) (Brokers Act). They also relied on In the matter of All Class Insurance Brokers Pty Ltd (in liq); Vardy v Westpac Banking Corporation [2014] NSWSC 475 (White J) (All Class Insurance Brokers) and Warner, in the matter of GTL Tradeup Pty Ltd (in liq) [2015] FCA 323; (2015) 104 ACSR 633 (Farrell J) (Re GTL Tradeup), which concerned reg 7.8.03 of the Corporations Regulations 2001 (Cth). See also Sonray at [291]ff and In re MF Global Australia Ltd (in liq) (No. 2) [2012] NSWSC 1426 at [50], [54] and [61] (Black J). That is because, while none of those cases dealt with an express provision such as s 21(2) of the Administration Act, there was in each case a de facto requirement to only use funds as specified in the legislation. For instance, in Re Greater West Insurance Brokers, payment of remuneration usurped the statutory priorities under the Brokers Act, with the effect that there was less money to be paid to other claimants on the fund.
Fifth, the liquidators submitted that even if the Court were to find that ss 21 and 22 of the Administration Act prohibited the payment of moneys from the NAB Trust Account to the liquidators, nothing in the Administration Act operates to subvert the existence of an equitable lien on those funds. In this regard, the liquidators relied on s 53 of the Administration Act which relevantly provides as follows:
53 Possession of receivership property
(1) A receiver may take or enter into possession of receivership property.
…
(5)The receiver may take or enter into possession of receivership property under subsection (1) despite a lien or other security over it claimed by another person.
(6)However, the taking or entry into possession does not affect the person’s claim to the lien or other security against a person other than the receiver.
The liquidators submitted that, in light of the foregoing:
… any funds paid to beneficiaries are impressed with an equitable charge such that part of those funds ought to be distributed to the Liquidators (potentially, having regard to the operation of ss 21 and 22 of the [Administration] Act, by the Receivers once those funds are in the possession of the Receivers and form part of the receivership property under s 53 of the [Administration] Act) in satisfaction of their reasonable remuneration and expenses.
Chief executive’s submissions
In written submissions filed on behalf of the chief executive on 7 April 2021 and at the hearing on 1 June 2021, Mr O’Connor submitted that:
(a)The chief executive does not cavil with the “uncontroversial notion” that liquidators are entitled to be indemnified out of trust assets for their costs and expenses associated with a liquidation;
(b)However, the cases relied on by the liquidators are decided under different legislative regimes from this case and the implication by law of a right to claim an equitable lien for remuneration is subject to the wording of the legislative context in which the claim arises; and
(c)Section 21 of the Administration Act is drafted in unequivocal terms and does not permit such an implication: moneys may only be distributed from a trust account as permitted under the Administration Act and there is no manner prescribed in that Act for the distribution of funds to an external administrator upon a licensee becoming insolvent.
The chief executive acknowledged that that view would have the result that the industries which must maintain trust accounts governed by the Administration Act would be the only industries where a liquidator could be denied reasonable remuneration for their work connected with the liquidation.
The chief executive noted the decision in Wicks v Michael Giles Real Estate Pty Ltd (In Liquidation) [2004] QSC 438. In that case, the only licensed director died so that there was no one authorised under the Property Agents and Motor Dealers Act 2000 (Qld) (PAMD Act) to operate a trust account. The trust account was subject to ss 383 and 384 of the PAMD Act which are in relevantly the same terms as ss 20 and 21 of the Administration Act. As a result, landlords were unable to be paid rent which had been paid into the trust account by tenants so that they were taking their business elsewhere, thus deflating the value of the rent roll that was the respondent company’s main asset for which there was a willing purchaser. No one was willing to be appointed as a director of the respondent company because there were substantial group tax and other liabilities for which a new director might become liable under the Income Tax Assessment Act 1997 (Cth). It was common ground that, as there was no default or defalcation, there was no basis for the chief executive to appoint a receiver to the trust account under the PAMD Act. Accordingly, the Court appointed a receiver. The liquidator of the respondent company, who had also been appointed as receiver to the trust account and provisional liquidator, sought directions concerning payments to be made out of the trust account to property owners and for remuneration and expenses incurred as receiver.
Justice Moynihan of the Supreme Court of Queensland found that the combined effect of ss 383 and 384 of the PAMD Act was that moneys in the trust account could only be paid to the property owners on whose behalf moneys were held on trust: Wicks at [19]. His Honour found that the PAMD Act did not authorise payment of the receiver’s remuneration and expenses out of the trust account and he rejected an argument that the receiver was not a “creditor” of the respondent company in relation to remuneration and expenses: see Wicks at [19]-[21] and [29]. His Honour then said at [23]-[25]:
23The applicant, citing Re Oygevault International BV (In Liquidation) 14 ACSR 245 considered making a submission that the receiver’s remuneration be treated as an expense in the winding up rather than a deferred expense. There was, however, no evidence as to the effect of such an order on what was otherwise available for unsecured creditors.
24It is, however, unnecessary to consider that aspect of the matter because after taking instructions counsel for the applicant informed me that he did not pursue the point since there were sufficient funds available in any event.
25Those being the consideration, I direct: -
1.Property owners who had appointed the company as agent to manage the letting of properties are entitled to be paid rental deposits paid after 16 July 2004 to the company by the tenants of those properties.
2.The property being the trust accounts conducted under the Property Agents and Motor Dealers Act 2000 (Qld) are Michael Giles Real Estate Pty Ltd as provided by the order of 30 July 2004:
(a)The outlays and expenses of the receiver in getting in, preserving and administering the property be treated as an expense under s 556(1)(a) of the Corporations Act in the winding up of Michael Giles Real Estate Pty Ltd.
(b)Otherwise, the receivers remuneration in respect of the appointment made on 30 July 2004 be treated as a deferred expense in terms of the winding up of the company as provided for by s 566 of the Corporations Act;
3. I direct the liquidator to act in accordance with directions 1 and 2.
The chief executive submitted that:
(a)The decision in Wicks is distinguishable from the present case because Moynihan J was not called upon to analyse the PAMD Act in any depth. That was because the amount of the trust fund was sufficient to pay all property owners with claims on the trust account and the receiver’s remuneration and expenses, and that was the determinative factor in the orders made. The liquidators agree with that position.
(b)The Administration Act repealed the PAMD Act with the intention of simplifying and improving regulation in those industries governed by the PAMD Act. The intention of the legislature was to tighten protection for consumers, that is, purchasers and sellers. The Explanatory Notes to the Agents Financial Administration Bill 2013 (Qld) make it clear the “trust account” and “claim fund” provisions were intended to be for the benefit and protection of persons who might otherwise suffer financial loss as a result of their dealings with agents. They do not expressly refer to the potential for loss arising from liquidation, but rather protection from defalcation or other unscrupulous practices. It might be observed that liquidation may often be the result of such practices.
(c)Section 21 of the Administration Act requires that an amount paid to a trust account must be kept in that account until it is paid out under the Administration Act. The unambiguous text of the legislation reveals an intention to protect the depositors from loss and its provisions should not be read narrowly as being designed only to protect against a defalcation by an agent but rather as a global protection from loss of consumers’ funds.
(d)Amounts held in a trust account established under the Administration Act are not “assets” in the property pool of the company in liquidation. If they were, the broader protective intent of the Administration Act becomes illusory.
(e)If the chief executive’s construction is not accepted and the liquidators’ application is granted, then there will inevitably be a shortfall in the funds to be paid to the claimants in the amount of the liquidators’ remuneration and expenses. In those circumstances, it is to be expected that any amounts remaining in the trust account would be transferred to the consolidated fund for disbursement by the chief executive so that, ultimately, the investors would not suffer a pecuniary loss. This submission relied on s 62 of the Administration Act.
Interested persons’ submissions
A number of submissions filed by interested persons prior to the hearing on 1 June 2021 reiterated points previously made and further submissions which may relevantly be summarised as follows:
(a)Section 22 of the Administration Act prohibits payment of the liquidators’ remuneration and expenses;
(b)Reliance is placed on statements by the Office of Fair Trading of New South Wales concerning the protection of deposits in “off the plan” purchases;
(c)Reliance is placed on references to the value of bitcoin and a house situated in Bellevue Hill in New South Wales which the administrators identified as having been owned by Mr O’Dwyer in the COI Report. It is suggested that the liquidators’ remuneration should be recovered from those assets;
(d)Support is expressed for the proposal put forward by Ms Lin in her affidavit dated 21 December 2020 and for the chief executive’s submissions;
(e)The precedents relied on by the liquidators relate to industries other than real estate; real estate is subject to the Administration Act and the case is therefore distinguishable;
(f)As professional insolvency practitioners, Grant Thornton should have prepared a business plan before accepting appointment. If there is not enough money to pay their fees out of the Company’s assets or to pursue voidable transactions, those are matters that they should have taken into account before accepting appointment rather than having remuneration taken out of the NAB Trust Account; and
(g)The liquidators applied to the Court on their own accord and therefore they should bear the legal costs incurred. The chief executive’s appointment of Grant Thornton as receivers of the NAB Trust Account indicates that Grant Thornton is the “losing party” which is another factor in support of why the depositors should not pay legal fees.
Submissions filed after hearing on 1 June 2021 and ss 62 and 63 of the Administration Act
At the hearing on 1 June 2021, in light of the submission made orally set out at [63(e)] above, I invited the chief executive to file submissions on the operation of s 62 of the Administration Act in practice and how the Universal Distributing principle might apply in the current circumstances.
Sections 62 and 63 of the Administration Act provide as follows:
62 Payment of claims
(1) This section applies if the receiver has—
(a)given notice under section 59(1); and
(b)complied with section 61.
(2)The receiver may pay a claim allowed by the receiver only if the receivership property is enough to pay all claims allowed by the receiver.
(3)If the receivership property is not enough to pay all of the allowed claims, the receiver—
(a)may pay any part of the property that consists of money to the chief executive; and
(b)must give a copy of the final claims report prepared under section 61(7) to the chief executive.
(4) Money paid to the chief executive under subsection (3) must be—
(a)paid to the consolidated fund; and
(b)paid from the claim fund under section 63(3)(b).
(5) In this section—
claim does not include a claim by the agent.
63 Money not dealt with by receiver
(1)This section applies to receivership property consisting of money in the receiver’s possession.
(2) The receiver must give the money to the chief executive if—
(a) the receiver has not dealt with it under this division; and
(b) the chief executive, by written notice, asks for it.
(3)Money given to the chief executive under subsection (2) must be paid to the consolidated fund and be paid from the claim fund in the following order—
(a)to reimburse claims paid from the claim fund in relation to the agent;
(b)to pay unsatisfied claims against the claim fund in relation to the agent;
(c)to pay the remuneration and costs of a receiver appointed under section 47;
(d)to pay the remuneration and costs of a special investigator appointed under section 70;
(e)to pay claims by the agent against the money.
Chief executive’s submissions
The chief executive’s submissions were filed on 3 June 2021. The chief executive submitted that: Having regard to s 62(3)-(4) of the Administration Act, in practice, if a receiver appointed under the Administration Act has complied with the relevant provisions of that Act in the conduct of the claims process and there are sufficient funds to pay all of the claims, then the receiver will pay the claims. However, if there are insufficient funds, then the balance will be transferred to the consolidated fund and the chief executive will ensure that the funds are paid to the depositors in accordance with s 63(3)(b) of the Administration Act. The chief executive will supplement any deficiency out of the claim fund established under s 78 of the Administration Act to ensure there is no loss to the claimants.
The chief executive then submitted as follows (citations inserted):
9.In the present matter, if the Chief Executive’s interpretation of s 21 is accepted then the liquidator may not receive their remuneration from the funds held in the trust account and there will be sufficient funds in that account to pay the claims. However, if the application is granted then there will be a shortfall in the trust account and those funds would be transferred to the Chief Executive to manage the release of funds to the allowed claims.
Universal Distributing
10.The principle from Universal Distributing was restated by the High Court in Stewart v Atco [Pty Ltd (in liq) (2014) 252 CLR 307 at [22]-[23]]:
The principle in Universal Distributing is stated at some length, no doubt because Dixon J was concerned to identify its sources. It may be more shortly stated as: a secured creditor may not have the benefit of a fund created by a liquidator’s efforts in the winding up without the liquidator’s costs and expenses, including remuneration, of creating that fund being first met. To that end, equity will create a charge over the fund in priority to that of the secured creditor.
The circumstances in which the principle will apply are where: there is an insolvent company in liquidation; the liquidator has incurred expenses and rendered services in the realisation of an asset; the resulting fund is insufficient to meet both the liquidator’s costs and expenses of realisation and the debt due to a secured creditor; and the creditor claims the fund. In these circumstances, it is just that the liquidator be recompensed. To use the language of Deane J in Hewett v Court [(1983) 149 CLR 639 at 668-669], it might be said that a secured creditor would be acting unconscientiously in taking the benefit of the liquidator’s work without the liquidator’s expenses being met. However, such a conclusion is avoided by the application of the principle stated in Universal Distributing.
11.Universal Distributing and Stewart v Atco were followed by the Victorian Court of Appeal in Primary Securities Ltd v Willmott Forests Ltd [[2016] VSCA 309 at [16]], where Maxwell P stated;
… what needs to be shown in order to establish the liquidator’s lien is that:
(a)the costs and expenses incurred by the liquidator were incurred exclusively in caring for, preserving and/or realising property;
(b)the activity of care, preservation and/or realisation enured for the benefit of the creditors of the company (including the secured creditor); and
(c)there is property which can properly be subjected to the liquidator’s charge for remuneration, costs and expenses.
12. The Chief Executive reiterates previous submissions which were to the effect;
12.1.In the context of the regime under [the Administration Act], an amount paid to a trust account must be kept in the account until it is paid out under the Act, per s 21;
12.2.The unambiguous text of the legislation reveals an intention to protect the depositors from loss, the provision should not be read narrowly to act as a protection against a defalcation from the agent only but a global protection from loss of those funds;
12.3.Amounts held in the trust account established under [the Administration Act] are not ‘assets’ in the property pool of the company in liquidation, if that were the case then the broader protective intent of [the Administration Act] becomes illusory.
13.If the Chief Executive’s construction of s 21 is accepted and the above passage from the judgement of Maxwell P is accepted, then in the present case, there is no “property which can properly be subjected to the liquidator’s charge for remuneration”.
14.If the Chief Executive’s construction is not accepted and the application is granted, then there will inevitably be a shortfall in the funds to be paid to the claimants in the amount of the applicants’ remuneration. In those circumstances, it is to be expected that any remaining balance of the trust account would be transferred to consolidated revenue for disbursement by the Chief Executive. Ultimately the creditors would not suffer a pecuniary loss.
Liquidators’ submissions
I note that s 90-15(3)(a) of the IPS (Corporations) confers a broad power on the Court to make “an order determining any question arising in the external administration of the company”. Section 90-15(3)(a) accommodates the determination of substantive rights as long as appropriate notice has been afforded to potentially affected persons: see In the matter of Hawden Property Group Pty Ltd (in liq) (ACN 003 528 345) [2018] NSWSC 481; (2018) 125 ACSR 355 at [8] (Gleeson JA). Addressing the issues arising concerning the dispersal of moneys in the NAB Trust Account to depositors entitled to those moneys and the liquidators’ entitlement to reasonable remuneration and expenses for administering the NAB Trust Account is a matter arising in the course of liquidation of the Company.
Further, s 29 of the Federal Court of Australia Act 1976 (Cth) confers power on the Court to make declarations of right as follows:
21 Declarations of right
(1)The Court may, in civil proceedings in relation to a matter in which it has original jurisdiction, make binding declarations of right, whether or not any consequential relief is or could be claimed.
(2)A suit is not open to objection on the ground that a declaratory order only is sought.
The declaration sought relies on the Court’s equitable jurisdiction since there is no dispute that the funds in the NAB Trust Account are subject to a statutory trust. I have found that the Administration Act does not prevent the implication of an equitable lien over the NAB Trust Account for the liquidators’ reasonable remuneration and expenses.
In AAA Financial Intelligence Ltd (in liquidation), Brereton J set out relevant principles as follows and the highlighted matters are particularly relevant to this case:
13 As to the first, the applicable principles may be stated as follows:
(a)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 [Re Suco Gold Pty Limited (1993) 33 SASR 99; 7 ACLR 873; Grime Carter & Co Pty Limited v Whytes Furniture (Dubbo) Pty Limited [1983] 1 NSWLR 158; Re Sutherland; Re French Caledonia Travel Service Pty Ltd (in liq) [2003] NSWSC 1008; (2003) 59 NSWLR 361; 48 ACSR 97, [201]; Bastion v Gideon Investments Pty Ltd (in liq) (2000) 35 ACSR 466, 480 [70]; In the matter of North Food Catering Pty Ltd [2014] NSWSC 77].
(b)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 [Re GB Nathan & Co Pty Ltd(in liq) (1991) 24 NSWLR 674, 685-689; Re Greater West Insurance Brokers Pty Ltd [2001] NSWSC 825; (2001) 39 ACSR 301; French Caledonia, [209]].
(c)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 referable to administering the trust assets [13 Coromandel Place Pty Ltd v CL Custodians Pty Ltd (in liq) (1999) 30 ACSR 377, 385; French Caledonia, [211], [213]. This 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 [Berkeley Applegate (Investment Consultants) Ltd; Harris v Conway [1989] Ch 32, 50-51; Re Application of Sutherland [2004] NSWSC 798; (2004) 50 ACSR 297; Trio Capital Ltd (Admin App) v ACT Superannuation Management Pty Ltd [2010] NSWSC 941; (2010) 79 ACSR 425; In re MF Global Australia Ltd (in liq) (No 2) [2012] NSWSC 1426, [55]; Alphena Pty Ltd (in liq) v PS Securities Pty Ltd atf Joseph Family Trust [2013] NSWSC 447; (2013) 94 ACSR 160].
(d)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 [French Caledonia, [212]].
(e)Where the liquidator is administering, through the company of which he/she is 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 [Re Suco Gold, ACLR 882-3; 13 Coromandel, 386].
14In this case, the company did not act solely as a trustee. Prima facie, costs and expenses of the winding up should be borne by its non-trust assets. However, it appears that it has none (although this remains to be proven). Subject to that, the liquidators are entitled to their reasonable and proper costs and expenses from the trust assets, but only in respect of such work as is referable to administration of the trust assets. …
It is well settled that the onus is on the liquidator or other external administrator to establish that the remuneration claimed is reasonable and that it is the function of the Court to determine the remuneration by considering the material provided and bringing an independent mind to bear on the relevant issues. See cases involving liquidators: Venetian Nominees Pty Ltd v Conlan (1998) 20 WAR 96 at 102 (Kennedy, Ipp and Wallwork JJ); Conlan v Adams [2008] WASCA 61; (2008) 65 ACSR 521 at [28]-[29] (McLure and Buss JJA and Newnes AJA) and Sanderson as Liquidator of Sakr Nominees Pty Ltd (in liq) v Sakr [2017] NSWCA 38; (2017) 93 NSWLR 459 (Sakr Nominees) at [54] (Bathurst CJ) and [69]-[72] (Beazley P, Gleeson and Barrett JJA and Beach AJA). See case involving receivers: Hutchins, in the matter of Ardenberg Pty Ltd (in liq) (Administrators Appointed) (No 2) [2020] FCA 1424 (Hutchins) at [17] relying on In the matter of Say Enterprises Pty Ltd [2018] NSWSC 396 at [6] (In the matter of Say Enterprises Pty Ltd).
The liquidators should supply material in support of their application by reference to the matters which are now referred to in s 60-12 of the IPS (Corporations). That is so, notwithstanding that the claim is now to an equitable lien for remuneration and expenses over trust assets rather than for remuneration to be paid out of an insolvent company’s assets.
Section 60-12 of the IPS (Corporations) provides as follows:
60-12 Matters to which the Court must have regard
In making a remuneration determination under paragraph 60-10(1)(c) or (2)(b), or reviewing a remuneration determination under section 60-11, the Court must have regard to whether the remuneration is reasonable, taking into account any or all of the following matters:
(a)the extent to which the work by the external administrator was necessary and properly performed;
(b)the extent to which the work likely to be performed by the external administrator is likely to be necessary and properly performed;
(c)the period during which the work was, or is likely to be, performed by the external administrator;
(d)the quality of the work performed, or likely to be performed, by the external administrator;
(e)the complexity (or otherwise) of the work performed, or likely to be performed, by the external administrator;
(f)the extent (if any) to which the external administrator was, or is likely to be, required to deal with extraordinary issues;
(g)the extent (if any) to which the external administrator was, or is likely to be, required to accept a higher level of risk or responsibility than is usually the case;
(h)the value and nature of any property dealt with, or likely to be dealt with, by the external administrator;
(i)the number, attributes and conduct, or the likely number, attributes and conduct, of the creditors;
(j)if the remuneration is worked out wholly or partly on a time-cost basis—the time properly taken, or likely to be properly taken, by the external administrator in performing the work;
(k)whether the external administrator was, or is likely to be, required to deal with one or more controllers, or one or more managing controllers;
(l) …
(m)any other relevant matters.
The Court’s consideration of the work done by the liquidator must include whether it was reasonable for the liquidator to carry it out and the appropriateness of the amount charged for it. Such an evaluative process, whilst difficult in some circumstances, is not beyond the competence of the Court: see Sakr Nominees at [59] and [69]-[72].
When considering the reasonableness of claimed remuneration, the question of proportionality is important, as explained by Yates J in Hutchins at [18] and [20]:
18… In Templeton v Australian Securities and Investments Commission [2015] FCAFC 137; 108 ACSR 545 (Templeton), the Full Court said:
[32]The question of proportionality in terms of the work done as compared with the size of the property or activity the subject of the insolvency administration or the benefit or gain to be obtained from the work is an important consideration in determining overall reasonableness: see Re AAA Financial Intelligence Ltd (in liq) [2014] NSWSC 1004 at [18] and [19] per Brereton J, Re AAA Financial Intelligence Ltd (in liq) (No 2) [2014] NSWSC 1270 at [35], [36], [43] and [45] per Brereton J, Mirror Group Newspapers plc v Maxwell [1998] 1 BCLC 638 at 645, 651 and 652 per Ferris J (also reported at [1998] BCC 324), Re On Q Group Ltd (in liq) [2014] NSWSC 1428 at [20] per Brereton J, Bank of Nova Scotia v Diemer [2014] ONCA 851 at [33], [45], [55] and [56] per Pepall JA, Re Roslea Path Ltd (in liq) [2013] 1 NZLR 207 at [108], [115] and [121] per Heath and Venning JJ, Brook v Reed [2012] 1 WLR 419 at [51], [86] and [87] per Richards J, referring to the relevant 2004 UK Practice Statement [2004] BCC 912, Re Korda; Re Stockford Ltd (2004) 140 FCR 424 at [47] per Finkelstein J, although we do not endorse his Honour’s obiter observations on the “lodestar” methodology as being the required approach as distinct from merely one practical way to proceed in a particular case.
[33]Generally, in looking at proportionality, the value of the services rendered must be considered. We would endorse the observations of McLure JA in Conlan as liquidator of Rowena Nominees Pty Ltd (in liquidation)v Adams (2008) 65 ACSR 521 at [47] where her Honour observed:
As to the performance of a task reasonably embarked upon, the work done must be proportionate to the difficulty or importance of the task in the context in which it needs to be performed. This is what is encompassed in assessing the value of the services rendered. Using an example from the law, the time spent by an appropriately qualified and experienced practitioner in drafting a statement of claim should be proportionate to the amount in issue.
[34]Finally, even if one was not to address proportionality as an express factor, nevertheless its absence may have forensic significance in determining reasonableness. Another way to look at proportionality can be to conclude from a lack of proportionality between the cost of the work done relative to the value of the services provided that there has been overcharging or excessive remuneration claimed (see Thackray v Gunns Plantations Ltd (2011) 85 ACSR 144 at [64] per Davies J).
(Emphasis in original.)
…
20Reference should also be made to the discussion of principles by Bathurst CJ in Sanderson as Liquidator of Sakr Nominees Pty Ltd (in liquidation) v Sakr [2017] NSWCA 38; 93 NSWLR 459 at [48] – [60]. I note in particular Bathurst CJ’s observation at [57] that the mere fact that the work performed does not lead to an augmentation of the funds available for distribution does not mean that there is no entitlement to remuneration for the work performed.
Consideration
I accept that the identification of the NAB Trust Account was not complex and no payments have yet been made out of it since the administrators were appointed.
However:
(a)There were many depositors and related contracts (including side agreements);
(b)Many of the depositors are aged, do not speak English and do not understand legal terminology, complicating communications with them; and
(c)Execution of those tasks may have been complicated in some cases arising from variations of Chinese names used in that documentation and records.
Accordingly, the task of communicating with depositors to determine their entitlements was time-consuming and has more than normal complexity attached to it. Such work relates to distribution of the NAB Trust Account and properly falls within the Universal Distributing principle: see Trio Capital Limited (in liquidation) at [18] (Black J).
I also accept that work falling within the Universal Distributing principle includes:
(a)Work done in obtaining bank account statements for the NAB Trust Account and reconciling them with the Company’s records;
(b)Seeking legal advice as to matters associated with identifying depositors’ entitlements to funds in the NAB Trust Account for the purpose of distributing moneys in that Account; and
(c)Work done, and obtaining related legal advice in relation to, seeking creditor or Court approval to remuneration for that work.
All such claims can only be made for work which was necessary and reasonably incurred.
I am satisfied that the amount of $62,743.50 (excluding GST) plus legal expenses of $10,845 (excluding GST) can properly be claimed in relation to the VA period. Having reviewed annexures SJ-12 and SJ-13, I am satisfied that work was done at appropriate levels of seniority and the hours claimed do not appear to be excessive for the work done.
I have considered whether it might have been possible for either the administrators or the chief executive to pursue appointment of a receiver under s 47 of the Administration Act before the liquidators were appointed on 17 December 2019. I am satisfied that the failure to seek such appointment during the voluntary administration period was not a factor which I should take into account in determining the declaration which I should make concerning the reasonable remuneration and expenses of the administrators in that period.
First and second liquidation periods
In determining the liquidators’ entitlement to remuneration for the first and second liquidation periods, the question of whether the remuneration was reasonably incurred in light of the possibility of securing the appointment of a receiver under s 47 of the Administration Act assumes greater significance.
It is true that the approach adopted by the liquidators (seeking approval from creditors and the Court of the proposal set out in the Notices of Proposal to Creditors and the interlocutory application) has been adopted in other cases. For example, in Sonray, Gordon J (then a Judge of this Court) ordered that entitlements of less than $50 were to be disregarded. However, the scheme proposed by the liquidators of the Company in this case failed to take account of the possibility of the chief executive appointing a receiver under s 47 of the Administration Act. There is no evidence that recourse to such a scheme was available in cases such as Sonray.
Under the proposal set out in the interlocutory application, the NAB Trust Account would bear the whole burden of the liquidators’ remuneration and costs and 939 of the 1,078 depositors would receive no return. However, if a receiver were appointed, the costs of identifying depositors and the amount due to them and of distributing moneys held in the NAB Trust Account would be borne by the claim fund established under the Administration Act.
I note that the administrators took advice concerning the Administration Act during the VA period (see the table in [143] above under the heading “Legal”). However, the possibility of approaching the chief executive to appoint a receiver under either of s 47(1) or (2) does not appear to have been taken into account before 21 December 2021, even after Ms Lin had raised the issue in her submissions filed on 13 November 2020.
As the NAB Trust Account was regulated under the Administration Act, the failure to take account of the regime under that Act and initiate conversations with the chief executive concerning the appointment of a receiver by 27 August 2020 has a bearing on the declaration I should make as to the reasonableness of the liquidators’ claimed remuneration and expenses. The interested persons’ submission that it was necessary for the liquidators to take account of the regime governing the NAB Trust Account rather than rely on precedents from a different statutory regime was properly made.
In saying that, I acknowledge that:
(a)The suite of legislation comprising the Administration Act and the Occupations Act is not straightforward and it deals with insolvent administrations (to the extent it does) in an odd way. It is not well suited to dealing with collapses of real estate schemes of the size and complexity of the Ralan Group; and
(b)Sections 21-22 and 149 of the Administration Act appear not to have received judicial consideration at the time the interlocutory application was made. However, their statutory predecessors in the PAMD Act had received consideration: see Wicks and Hambleton.
I also acknowledge that it is true that the regime for the appointment of a receiver under s 47 of the Administration Act is reliant on the chief executive having a belief, on reasonable grounds, either that:
(a)There has or may have been a defalcation in relation to an agent’s trust account (s 47(1)); or
(b)That a person cannot obtain payment or delivery of trust property held by the agent (s 47(2)).
However, it is my view that it was open to the liquidators, with a proper understanding of ss 47, 48, 78 and 79 of the Administration Act and ss 76 and 77 of the Occupations Act, to have initiated discussions with the chief executive after 17 December 2019 and at least by 27 August 2020. The early appointment of a receiver was in the best interests of the depositors. That is because, from the time of appointment, it avoided imposition on the NAB Trust Account of the liquidators’ remuneration and expenses.
Relevantly to s 47(1):
(a)On 3 September 2019, Mr Jahani sent Mr Browne the letter set out at [12] above advising of the payments out of the NAB Trust Account to Ralan Capital Investment Pty Ltd in accordance with the side letters and therefore not reinvested in accordance with the terms of the sale contracts or any other way in accordance with the provisions of the Administration Act; and
(b)On 28 November 2019, in the Administrators’ Report, the administrators advised creditors that the Ralan Group had been insolvent since 2014, it had an unsustainable business model that replicated a partial Ponzi scheme, and the administrators thought that Mr O’Dwyer had breached ss 180, 181, 184, 588G and Chapters 5C and 7 of the Corporations Act in his role as a director of companies in the Ralan Group.
Accordingly, the basis for the appointment of a receiver existed by 28 November 2019 and certainly by August 2020.
Further, relevantly to s 47(2)(d)(ii), by 17 December 2019:
(a)The liquidators had been appointed by resolution of the Company’s creditors. Under s 77 of the Occupations Act, a corporate licensee’s licence is automatically cancelled when the licensee is wound up; and
(b)On Mr Jahani’s evidence Assura Group Pty Ltd prepared the last audit report for the NAB Trust Account. It covered the period from 1 November 2017 to 31 October 2018. The next audit report was due in late 2019 but the administrators did not have funds (other than the NAB Trust Account) out of which to pay for such a report and that Account was not available for that purpose. Accordingly, there were grounds for cancelling the Company’s licence because, under s 76(1)(c) of the Occupations Act, a licensee’s licence may be cancelled when the chief executive is satisfied that a licensee has failed to file an audit report under s 34 of the Administration Act. Under s 76(4) of the Administration Act, the licence will remain suspended until the audit report is provided.
The scale of the Ralan Group collapse, the vulnerability of many non-English speaking and aged purchasers, the publicity surrounding the second creditors’ meeting and the information in the letter given to Mr Browne on 3 September 2019 were all likely to have an impact on consumer confidence in the apartment construction industry in Queensland. That would be contrary to the legislative objectives of the Administration Act as stated in the Explanatory Notes to the Agents Financial Administration Bill (2013) (Qld) as follows:
The Government has committed to growing a four pillar economy in Queensland focused on tourism, agriculture, resources and construction. As part of this commitment, the Government has adopted a specific property and construction strategy in recognition of the importance of the property and construction sector to the State’s economy and the fundamental role it plays in creating the built environment, and providing jobs, affordable housing, and investment and growth opportunities for Queensland. The repeal and split of the PAMD Act aligns with the Government’s priorities and its Property and Construction Strategy by demonstrating the Government’s commitment to Queensland businesses to have legislation that is appropriately responsive to the needs of each respective industry and strips away unnecessary red tape. This Bill is a component of the Government’s achievement of this commitment.
Industry groups will benefit from having legislation and obligations that are specific to their line of business. In addition, industry-specific Acts will mean future legislative reforms will be more responsive to marketplace changes in each industry. This is anticipated to lead to increased industry standards, simplified compliance and increased consumer confidence in the regulated industries without having to increase the regulatory burden on licensees …
It would therefore have been reasonable for the chief executive of the OFT to consider whether a receiver should be appointed to the NAB Trust Account earlier than 10 February 2021. However, it is unnecessary for me to make a finding concerning the timeliness of the chief executive’s decision-making. It is necessary for me to consider the reasonableness of the liquidators’ claim to remuneration and expenses for the first and second liquidation periods.
I accept that much was going on with the Ralan Group in November-December 2019 so that distribution of the NAB Trust Account might not have been a primary focus of the liquidators at that time or in early 2020. However, Mr Jahani’s evidence is that, by the end of the first liquidation period (27 August 2020), preparation of his affidavit in support of the interlocutory application had commenced and advice had been received from counsel in respect of distribution of the “trust funds” (see the table at [145] above under the heading “Legal”). I infer that at least by that time, the liquidators and their lawyers will have contemplated the proposal that some depositors would not receive any return of moneys still held in the NAB Trust Account. Such a course should only be taken when no other is reasonably open. The inflammatory nature of such a proposal to depositors who had lost significant sums, who were aged and often did not speak English or understand legal matters is evidenced by over 3,000 email and telephone communications which followed the depositors’ receipt of the September Circular.
I have taken into account the dangers of applying hindsight to the reasonableness of decisions taken by external administrators. Having said that, in my view, circumstances existed by the end of the first liquidation period which would, had the liquidators approached the chief executive at that time, have justified the chief executive in being satisfied that either s 47(1) or (2) was available to found the appointment of a receiver. The liquidators then knew that the only source of their reasonable remuneration and expenses would be the NAB Trust Account. If the chief executive was satisfied that a receiver should be appointed, it would have been unnecessary to propose that 939 of 1,078 depositors receive nothing from the NAB Trust Account. That was likely to be less inflammatory than the proposal set out in the September Circular.
Further, if the chief executive was not satisfied that the preconditions to the appointment of a receiver existed under either of s 47(1) or (2) notwithstanding the liquidators’ proposal that by far the majority of depositors with less than $500 in the NAB Trust Account would receive nothing, it was open to the liquidators to seek a direction under s 90-15 of the IPS (Corporations) that they would be justified in refusing to make payments from the NAB Trust Account. If such a direction were given, s 47(2) of the Administration Act would then certainly have been satisfied.
I have taken those matters and the following matters into account in determining the liquidators’ reasonable remuneration for the first and second liquidation periods:
(a)The balance of the NAB Trust Account is and has been since July 2019, $2,154,809.69;
(b)If the liquidators are allowed all of their claimed capped remuneration and expenses of $215,481 (GST exclusive), then their remuneration and expenses, together with the $300,000 fee to be paid to the receivers, will amount to $515,481 (GST exclusive);
(c)The amount of remuneration for which the liquidators sought approval from creditors was $247,603 (GST exclusive) inclusive of an estimate of $150,000 in relation to work to be done after 27 August 2020. With the claimed legal expenses this would have been an aggregate amount of $349,220.14 (GST exclusive);
(d)I infer that, in estimating $150,000 for the work to be done after 27 August 2020 as stated in the Notices of Proposal to Creditors, the liquidators took into consideration that they would only need to confirm the identity of, and the amount to be paid to 139 depositors who had $500 or more in aggregate deposits in respect of 202 contracts. There would be substantially more work to be done by the receivers in relation to the 1,078 depositors in respect of 1,647 contracts. The receivers also have reporting obligations under Part 4, Div 3 of the Administration Act for which they will be entitled to claim remuneration. It is not clear to me why the estimate for processing each of the depositors’ claims of $300 (as set out in Mr Jahani’s 1 September 2021 affidavit) was less than the $500 estimated in the application to the Court;
(e)There is considerable force to the chief executive’s argument that there is no rate for work done by the receivers discernible from the arrangement for a fixed amount of $300,000 without regard to the seniority of the persons undertaking the work or the time taken. However, the liquidators did undertake work in the first and second liquidation periods for the purpose of identifying depositors and the amounts to which they were entitled in the NAB Trust Account. I accept that the work done will relieve the receivers of the need to undertake that work. It is unknowable whether the receivers would have proposed or accepted a $300,000 (GST exclusive) fee had that work not already been undertaken as liquidators;
(f)Had the chief executive been approached before the September Circular was sent to the Company’s creditors or had the letter sent on 13 October 2020 to the chief executive been followed up, substantial costs for work undertaken by the liquidators and legal fees might have been avoided. Having said that:
(i)It is highly likely that some application to the Court would have been required to fix the liquidators’ remuneration and expenses or to obtain a direction of the kind contemplated at [187] above;
(ii)That is because the chief executive was not willing to pay the liquidators’ remuneration and expenses for a period prior to the receivers’ appointment. It is notable that the appointment of an administrator is not a “trigger” to the chief executive’s powers under s 47(2) of the Administration Act. That is because (in contrast to a licensee failing to file a required audit report or being wound up or the winding up of a licensee) it is not a trigger for the suspension or cancellation of a licence under ss 76 or 77 of the Occupations Act;
(iii)The administrators are entitled to remuneration for their work on the basis of the Universal Distributing principle notwithstanding the fact that the Administration Act makes no express provision for it; and
(iv)Some remuneration and legal costs are likely to have been incurred by the liquidators in negotiating the appointment of a receiver had the issue not arisen during the proceedings which are now before the Court and I consider that that remuneration is sufficiently related to the repayment of trust moneys to fall within the Universal Distributing principle.
Taking into account those matters, I am prepared to accept that the amount of remuneration claimed (at the discounted rate of 15.6%) for work done in the first liquidation period which is not Other Work is reasonable and accordingly I will allow an amount of $17,219.71 (being $20,402.50 less the 15.6% discount). I am prepared to allow the amount claimed at the discounted rate in relation to “Legal” (see [145] above). The liquidators were entitled to take legal advice as to their next steps and it is likely that some application to this Court would have been necessary to obtain approval of their remuneration and expenses even if the chief executive had agreed to appoint a receiver under s 47 during the first liquidation period.
In relation to the second liquidation period, I do not consider remuneration associated with the decision to proceed with the proposal set out in the September Circular was reasonably incurred. Upon proper review of the Administration Act and the Occupations Act, another course was open to be pursued which, if successful, would have resulted in a better return to depositors. The appointment of a receiver would most likely have avoided the avalanche of communications which the liquidators received from creditors of the Company for which they claim $36,665.39 (being $43,442.41 set out in the table at [146] less 15.6%) for dealing with depositors’ queries and drafting the September Circular.
Accordingly, I will not allow the claimed remuneration in relation to the second liquidation period attributed to “creditors”. I will allow remuneration in relation to the other categories of claimed remuneration for the second liquidation period, save for some adjustment in relation to the amount claimed for “legal” work in relation to “Assets/Investigations” ($16,318.50) set out in the table at [146] above. While much of the work related to the interlocutory application as originally framed, I accept that it would have been necessary to obtain legal advice in relation to the appointment of a receiver, in negotiating with the chief executive and in pursuing some form of creditor or Court approval or declaration concerning an entitlement to remuneration for the period prior to their appointment as receivers. Accordingly, I am prepared to allow $4,079.62 discounted by 15.6% for this work of the liquidators related to legal matters.
Accordingly, for the second liquidation period I would allow $15,054.95 (being $17,837.62 discounted by 15.6%).
In aggregate, the amount that I would allow for the liquidators’ remuneration is $95,018.16 (GST exclusive) being the sum of the amounts arrived at [171], [189] and [192] above.
Expense claim: legal fees
I note that the liquidators made a submission that the Court should not review claimed expenses and an order for expenses will normally be made. In In the matter ofSay Enterprises Pty Ltd at [6], Brereton J said (citations omitted):
In respect of disbursements, no Court approval or specific order is necessary in the absence of a challenge, although receivers should scrutinise them to ensure that they are reasonable and properly payable, and the Court has an inherent jurisdiction to review receivers’ disbursements as they are officers of the Court. However, a receiver may seek a direction that he would be justified in paying certain disbursements in order to obtain prior protection in respect of such a disbursement.
In this case, Mr Jahani seeks a declaration concerning his entitlement to a capped amount of remuneration and expenses. However, no invoices for legal expenses have been put into evidence and Mr Jahani has given no evidence that he has scrutinised the invoiced costs to ensure that they are reasonable and properly payable. In those circumstances, I consider that it is necessary for me to consider whether the amount claimed is reasonable, and if not, what should be allowed.
I am satisfied that Ashurst has acted for the administrators and liquidators throughout their external administration of the Ralan Group and the Company in particular. Ashurst have been the solicitors on the record for the administrators (in relation to their application for an extension of the convening period) and on the interlocutory application. Further, Mr Jahani’s evidence for the VA period and the first and second liquidation periods indicate that the liquidators took advice concerning the matters discussed at [143], [145] and [147] above. In response to a question, Ashurst provided the information discussed at [153] above.
In relation to claimed legal expenses of the first and second liquidation periods of an aggregate amount of $90,772.14 (GST exclusive), I am prepared to allow an amount of $60,000 (GST exclusive). The failure to recognise the course open to the liquidators in seeking appointment of a receiver thus alleviating cost to the NAB Trust Account for liquidators’ remuneration and avoiding differential treatment of depositors resulted in the liquidators incurring unnecessary legal costs. The lack of detail in the evidence before me means that I should err on the conservative side of what my experience of amounts claimed in litigation of this kind would lead me to understand is consonant with matters of this kind. I have also taken into account the liquidators’ evidence that a further amount of approximately $18,000 has been incurred in legal costs since March 2021, which is not being claimed.
Conclusion
Taking into account the balance of the NAB Trust Account is $2,154,809.69 and the need for proportion having regard to necessary tasks undertaken by the liquidators, I consider that the reasonable amount of remuneration and expenses is $165,863.16 (GST exclusive). I understand the liquidators intend that they be entitled to recover any GST. I will make a declaration accordingly.
COSTS
Ms Lin has indicated that the interested persons wish to be heard on costs. Accordingly, I will reserve the issue of costs.
I certify that the preceding one hundred and ninety-nine (199) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Farrell. Associate:
Dated: 16 February 2022
Schedule
First Interested Person
XU ZHI HU
Second Interested Person
SUICHUN LIN
Third Interested Person
LING ZOU
Fourth Interested Person
JINGJING FU
Fifth Interested Person
STANLEY XIE
Sixth Interested Person
SHUYAN DONG
Seventh Interested Person
XIAO QING WU
Eighth Interested Person
NA MIN ZHAO
Ninth Interested Person
GUOYING LI
Tenth Interested Person
WENHAO TONY YE
Eleventh Interested Person
THE CHIEF EXECUTIVE, OFFICE OF FAIR TRADING (QLD)
Twelfth Interested Person
BO HUANG
Thirteenth Interested Person
TING TING MIAO
Fourteenth Interested Person
JYH SHING LI
Fifteenth Interested Person
DALI ZHOU
Sixteenth Interested Person
HUI TING CHEN
Seventeenth Interested Person
KELLY RONG XUE
Eighteenth Interested Person
YU ZHEN WU
Nineteenth Interested Person
FANG ZHAO
Twentieth Interested Person
JIAN LI
Twenty First Interested Person
LEI LIU
Twenty Second Interested Person
BING ZHONG WU
Twenty Third Interested Person
ANN YUAN QIENG ZHANG
Twenty Fourth Interested Person
EMMY CHOU
Twenty Fifth Interested Person
YAN MING SONG
Twenty Sixth Interested Person
CHUANMEI XIANG
Twenty Seventh Interested Person
FULU HUN
Twenty Eighth Interested Person
MIN ZHENG
Twenty Ninth Interested Person
MEI LI
Thirtieth Interested Person
GUANGCHAO GUAN
Thirty First Interested Person
YUQIONG ZHOU
Thirty Second Interested Person
HUAJING HUANG
Thirty Third Interested Person
HAIYAN CAO
Thirty Fourth Interested Person
XIANGWEN ZHONG
Thirty Fifth Interested Person
JIA LUO HUANG
Thirty Sixth Interested Person
XIE PINGFANG
Thirty Seventh Interested Person
AISHU NALAHARA
Thirty Eighth Interested Person
LEE SEE WAH
Thirty Ninth Interested Person
YE MINGQING
Fortieth Interested Person
LUAN XIANG WANG
Forty First Interested Person
LONG CHEN
Forty Second Interested Person
HAN JINGYUN
Forty Third Interested Person
ZHONG YU
Forty Fourth Interested Person
XIAO YANG WENG
Forty Fifth Interested Person
YICHUAN LI
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