Kite v Mooney, in the matter of Mooney's Contractors Pty Ltd (in liq) (No 2) - [2017] FCA 653

FEDERAL COURT OF AUSTRALIA
Kite v Mooney, in the matter of Mooney’s Contractors Pty Ltd (in liq) (No 2) [2017] FCA 653

File number: NSD 1228 of 2016

Judge: MARKOVIC J

Date of judgment: 13 June 2017

Catchwords:
CORPORATIONS – application for directions under ss 424 and 511 of the Corporations Act 2001 (Cth) (Corporations Act) – application for judicial advice – where insolvent company is trustee of a trading trust – where sole business of the corporate trustee was carrying on the business of the trust – where no assets held by the corporate trustee in its own right – where company ceased to be trustee of the trust upon appointment of external administrators – whether trust assets held by company as bare trustee – whether bare trustee has a right of indemnity for actions undertaken as trustee – whether the right of indemnity is “property of the company” for the purposes of the priority regimes in the Corporations Act – whether employee entitlements ought to be paid out of trust assets in accordance with statutory priority regime – whether liquidators justified in calling for proofs of debt and having recourse to trust assets to satisfy those claims – whether liquidators entitled to costs incurred by the company in realising and dealing with trust assets – whether liquidator’s remuneration and costs of the application should be paid out of the assets of the trust

TRUSTS AND TRUSTEES – nature of the trustee’s right of indemnity – whether trustee’s right of indemnity is “property of the company” for the purposes of the priority regime in the Corporations Act – whether the property subject to the lien in support of the trustee’s right of indemnity is “property of the company” for the purposes of the priority regime in the Corporations Act – whether the trustee’s right of indemnity or the property subject to the lien in support of the trustee’s right of indemnity is available to creditors generally or is only available for creditors of the trust to meet trust liabilities

Legislation:
Corporations Act 2001 (Cth) ss 424, 479(3), 511, 555, 556

Trustee Act 1925 (NSW) s 63

Cases cited:
13 Coromandel Place Pty Ltd v C L Custodians Pty Ltd (in liq) (1999) 30 ACSR 377; [1999] FCA 144

In the matter of AAA Financial Intelligence Ltd (in liquidation) ACN 093 616 445 [2014] NSWSC 1004

Agusta Pty Ltd v Provident Capital Ltd [2012] NSWCA 26

Aussie Airlines Pty Ltd v Australian Airlines Limited (1996) 68 FCR 406

Australian Competition and Consumer Commission v MSY Technology Pty Ltd (2012) 201 FCR 378

Bruton Holdings Pty Ltd (in liq) v Federal Commissioner of Taxation (2011) 193 FCR 442

Caterpillar Financial Australia Limited v Ovens Nominees Pty Ltd [2011] FCA 677

CGU Insurance Limited v One.Tel Limited (in liquidation) (2010) 242 CLR 174

Chief Commissioner of Stamp Duties for New South Wales v Buckle (1998) 192 CLR 226

Federal Commissioner of Taxation v Bruton Holdings Pty Ltd (in liq) (2008) 173 FCR 472

Freelance Global v Bensted [2016] VSC 181

Re Gerard Cassegrain & Co Pty Limited (in liquidation) [2013] NSWSC 257

Macedonian Orthodox Community Church St Petka Incorporated v His Eminence Petar The Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66

Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360

Pascoe, in the matter of Brentwood Village Limited (in liquidation) [2014] FCA 1295

Porter v Miller Street Pty Limited [2008] FCAFC 77

Re Amerind Pty Ltd (receivers and managers apptd) (in liq) [2017] VSC 127

Re Berkeley Applegate (Investment Consultants) Ltd (in liq) [1989] Ch 32

Re Byrne Australia Pty Ltd [1981] 1 NSWLR 394

Re Byrne Australia Pty Ltd (No 2) [1981] 2 NSWLR 364

Re Dungowan Manly Pty Ltd (in liq) (2015) 105 ACSR 648; [2015] NSWSC 491

Re Enhill Pty Ltd [1983] 1 VR 561

Re Gerard Cassegrain & Co Pty Limited (in liquidation) [2013] NSWSC 257

Re Independent Contractor Services (Aust) Pty Limited (in liq) (No 2) [2016] NSWSC 106; (2016) 305 FLR 222

Re Kayford Ltd (in liq) [1975] 1 WLR 279

Re One.Tel Network Holdings Pty Ltd (Hall as rec and mgr) [2001] NSWSC 1065; (2001) 40 ACSR 83

Re Rosewood Research Pty Limited [2014] NSWSC 449

Re Staff Benefits Pty Ltd [1979] 1 NSWLR 207

Re Suncoast Restoration Pty Ltd (in liq) (2013) 211 FCR 203

Re Suco Gold Pty Ltd (in liq) (1983) 33 SASR 99

Sutherland Re; French Caledonia Travel Service Pty Ltd (in liq) (2003) 59 NSWLR 361

Re Universal Distributing Company Limited (in liq) (1933) 48 CLR 171

Theobald, in the matter of Finplas Pty Ltd [2014] FCA 31

Warner, Re GTL Tradeup Pty Ltd (in liq) [2015] FCA 323; 104 ACSR 633

Woodgate, in the matter of Bell Hire Services Pty Ltd (in liq) [2016] FCA 1583

Heydon JD and Leeming MJ, Jacobs’ Law of Trusts in Australia (8^th ed, LexisNexis Butterworths, 2016)

Date of hearing: 11 October 2016

Date of last submissions: 21 April 2017

Registry: New South Wales

Division: General Division

National Practice Area: Commercial and Corporations

Sub-area: Corporations and Corporate Insolvency

Category: Catchwords

Number of paragraphs: 153

Counsel for the Plaintiffs: Mr C D Wood with Ms T Phan

Solicitor for the Plaintiffs: McCabes Lawyers Pty Ltd

Counsel for the Defendants: The defendants did not appear

ORDERS

NSD 1228 of 2016

BETWEEN:
ROBERT KITE AND MARK HUTCHINS IN THEIR CAPACITY AS LIQUIDATORS OF MOONEY'S CONTRACTORS PTY LTD (IN LIQUIDATION) ACN 144 726 296

First Plaintiff

MOONEY'S CONTRACTORS PTY LIMITED (IN LIQUIDATION) ACN 144 726 296

Second Plaintiff

AND:
LANCE MOONEY

First Defendant

SHELLY MOONEY

Second Defendant

JUDGE:

MARKOVIC J

DATE OF ORDER:

13 JUNE 2017

THE COURT:
1.Directs that, pursuant to s 511(1) of the Corporations Act 2001 (Cth) (Act), the first plaintiffs would be justified in treating all of the assets of the Mooney Family Trust (Trust) as assets beneficially held by the second plaintiff (Company), as bare trustee, subject to any charge or lien that the Company has over the assets of the Trust to secure the payment of any debts properly incurred by the Company as trustee.
2.Declares that the Company has a right of indemnity from the assets of the Trust for debts incurred prior to 27 April 2015.
3.Orders that the first plaintiffs, in their capacity as receivers and managers, have the power to pay dividends to creditors of the Company incurred in its capacity as trustee of the Trust, including the proceeds of the sale of the business and assets of the Trust.
4.Directs that, pursuant to ss 511(1) and 424 of the Act, the first plaintiffs, in their capacities as liquidators and receivers and managers, would be justified in calling for proofs of debt of the Company for debts incurred prior to 27 April 2015 and in having recourse to the assets of the Trust to satisfy those claims.
5.Orders that, following the sale of any business and assets of the Trust and the distribution of the assets of the Trust to the creditors of the Company, provided there is no surplus after costs and expenses and payment to all of the just creditors of the Company and the Trust, the receivers retire upon the distribution of proceeds to the creditors.
6.Directs that, pursuant to ss 511(1) and 424 of the Act, the first plaintiffs, in their capacities as liquidators and receivers and managers, would be justified in not paying employee entitlements out of the assets of the Trust in accordance with the priorities set out in s 556(1) of the Act.
7.Directs that, pursuant to ss 511(1) and 424 of the Act, the first plaintiffs, in their capacities as liquidators and receivers and managers, would be justified in recovering the costs and expenses incurred by the Company and the liquidators in realising the Trust assets and otherwise dealing with the Trust assets from the Trust assets.
8.Declares that the first plaintiffs, in their capacities as liquidators and receivers and managers, are entitled to a lien over the assets of the Trust in respect of fees incurred in their capacity as voluntary administrators in conducting the voluntary administration of the Company.
9.Declares that the first plaintiffs are entitled to a lien over the assets of the Trust in respect of fees incurred in their capacity as deed administrators in controlling the administration of the Deed of Company Arrangement of the Company.
10.Declares that the first plaintiffs are entitled to a lien over the assets of the Trust in respect of fees incurred in their capacity as liquidators in conducting the winding up of the Company.
11.Orders that the costs of this proceeding be costs in the winding up.
12.Declares that the first plaintiffs have a lien over the assets of the Trust for the costs of this proceeding.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT
MARKOVIC J:

Robert Kite and Mark Hutchins, the first plaintiffs, are the liquidators of Mooney’s Contractors Pty Ltd (in liquidation) (Company), the second plaintiff. They are also the receivers and managers of certain assets held by the Company in its capacity as trustee of the Mooney Family Trust (Trust).
On 27 April 2015 Messrs Kite and Hutchins were appointed as joint and several voluntary administrators of the Company. At the time of or shortly after his appointment as an administrator of the Company, Mr Kite became aware of the existence of the Trust. According to Mr Kite, the Company was incorporated for the sole purpose of acting as trustee of the Trust and never traded in its own right.
On 7 June 2015 the Company entered into a deed of company arrangement (DOCA) with Messrs Kite and Hutchins as deed administrators. The Company defaulted under the terms of the DOCA and on 7 July 2016 it was placed into liquidation. Messrs Kite and Hutchins were appointed as joint and several liquidators of the Company.
On 29 July 2016, pursuant to orders of this Court made under s 57 of the Federal Court of Australia Act1976 (Cth), Messrs Kite and Hutchins were appointed as joint and several receivers and managers over the assets of the Trust with the powers provided by s 420 of the Corporations Act 2001 (Cth) (Corporations Act) (other than those in ss 420(2)(s), (t), (u) and (w)) as if the references to “the corporation” therein were to the Trust (Receivers).
Messrs Kite and Hutchins now seek directions, orders and declarations pursuant to ss 424(1) and 511 of the Corporations Act and r 14.23 of the Federal Court Rules 2011 (Cth) (Rules). The Company seeks judicial advice in relation to various aspects of Messrs Kite and Hutchins’ ongoing administration of the assets of the Company. Messrs Kite and Hutchins also seek declarations and orders that they are entitled to an equitable lien over the Trust assets in respect of their fees.
RELIEF SOUGHT
On 29 July 2016 the Court ordered that the plaintiffs’ originating application filed on that day be treated as an originating process. The plaintiffs no longer press all of the relief sought in the originating process. In addition the plaintiffs now rely on s 511 of the Corporations Act, in lieu of s 479(3), as the basis for the directions sought by them in their capacity as liquidators. Accordingly the plaintiffs now seek the following relief:
…
6.The Receivers have in respect of the Trust business and property the powers that a liquidator has in respect of the business and property of a company under the Act including, without limitation:
…
(b)The power to pay dividends to the creditors of the Company incurred in its capacity as trustee of the Trust including the proceeds of the sale of the business and assets of the Trust.
7.An order that, subject to order 6, following the sale of any business and assets of the Trust, and the distribution of the proceeds of such sale to the creditors of the Company, the Receivers provide any surplus proceeds or remaining assets of the Trust to any incoming trustee of the Trust or to the beneficiaries and retire as Receiver.
…
10.A direction pursuant to section [511] of the Act or alternatively judicial advice that the Liquidators would be justified in treating all assets of the Company as assets beneficially held by the Trust, as bare trustee, subject to any charge or lien that the Company has over the assets of the Trustee in respect of debts properly incurred by the Company as Trustee.
11.A direction pursuant to section [511] of the Act or alternatively judicial advice that the Liquidators, if appointed as receivers over the assets of the Trust, would be justified in paying employee entitlements out of the assets of the Trust in accordance with the priorities in section 556(1) of the Act.
…
14.A declaration that the Company has a right of indemnity from the assets of the Trust for debts incurred prior to 27 April 2015 being the date on which the Company entered into Voluntary Administration.
…
18.A direction that the Liquidators would be justified in calling for proofs of debts of the Company, incurred prior to 27 April 2015 and to have recourse to the assets of the Trust to satisfy those claims.
…
21.A direction pursuant to section [511] of the Act, or judicial advice, that the Liquidators would be justified in recovering the costs and expenses incurred by the Company and Liquidators in realising any Trust assets, and otherwise dealing with the Trust, from the Trust assets.
…
23.A declaration that the Liquidators are entitled to a lien over the assets of the Trust in respect of fees incurred in their capacity as Voluntary Administrators in conducting the voluntary administration of the Company.
24.A declaration that the Liquidators are entitled to a lien over the assets of the Trust in respect of fees incurred in their capacity as Deed Administrators in conducting the administration of deed of company arrangement of the Company.
25.A declaration that the Liquidators are entitled to a lien over the assets of the Trust in respect of fees incurred in their capacity as Liquidators in conducting the winding up of the Company.
26.An order that the costs of this proceeding be costs in the winding up.
27.A declaration that the Liquidators have a lien over the assets of the Trust for the costs of these proceedings, or alternatively an order under section 93 of the Trustee Act or an order under section 72 of the Trusts Act that the costs of these proceedings be paid out of the assets of the Trust.
…
NOTICE TO THE DEFENDANTS AND OTHER INTERESTED PARTIES
A number of affidavits proving service on the defendants and other interested parties, including creditors, were read by the plaintiffs. The evidence established that:
(1)on 28 July 2016 Lance and Shelly Mooney, the first and second defendants respectively and beneficiaries of the Trust, were notified of this proceeding and that the first plaintiffs intended to seek orders from the Court that they be appointed as receivers and managers of the assets of the Trust. At that time the originating process and various affidavits, including an affidavit of Mr Kite affirmed 27 July 2016, were provided to Mr and Mrs Mooney. In subsequent correspondence Mr and Mrs Mooney indicated that they consented to the orders being sought;
(2)on 4 August 2016 Macquarie Leasing Pty Ltd, Thorn Australia Pty Ltd, Westpac Banking Corporation Limited (Westpac) and Commonwealth Bank of Australia, all creditors of the Company, were served with Mr Kite’s affidavit affirmed on 27 July 2016;
(3)on 5 August 2016 Nissan Financial Services Australia, a creditor of the Company, was served with the originating process, the affidavit of Mr Kite affirmed on 27 July 2016, an affidavit of Jason Tang affirmed 26 July 2016 and a sealed copy of the Court’s orders made on 29 July 2016;
(4)on 16 August 2016 Mooney’s Contractors Group Pty Ltd (in liquidation) (MC Group), a related party and creditor of the Company, was served with the originating process, the affidavit of Mr Kite affirmed on 27 July 2016, the affidavits of Messrs Hutchins and Tang each affirmed 26 July 2016 and a sealed copy of the Court’s orders made on 29 July 2016;
(5)on 16 August 2016 FactorOne, a division of Scottish Pacific Business Finance Pty Ltd, was served with the affidavits of Messrs Hutchins and Tang each affirmed 26 July 2016 and a sealed copy of the Court’s orders made on 29 July 2016;
(6)on 25 August 2016 the solicitors for the plaintiffs wrote to each of the following persons enclosing a sealed copy of the Court’s orders made on 24 August 2016 and notifying them of the date fixed for hearing of the originating process:
(a)Mr and Mrs Mooney and the beneficiaries of the Trust;
(b)MC Group;
(c)FactorOne;
(d)Thorn Australia Pty Ltd;
(e)Agnew’s Supa and G Agnew and J Zamparutti;
(f)Agnew Investments Pty Ltd and Colleen Agnew Super Pty Ltd;
(g)Westpac;
(h)Commonwealth Bank of Australia;
(i)Capital Finance Australia Ltd;
(j)Nissan Financial Services Australia; and
(k)Macquarie Leasing Pty Ltd;
(7)on 5 October 2016 the plaintiffs’ outline of submissions was served on Mr and Mrs Mooney and the beneficiaries of the Trust. They were again informed of the hearing date;
(8)on 6 October 2016 the solicitors for the plaintiffs sent an email to Mr and Mrs Mooney which included the following:
In your email to us dated 29 July 2016 (attached) you indicated that you both consented to the orders sought in the originating application. Can you please confirm by reply (email is fine) that this is still the case.
If your position has changed and you wish to oppose the orders sought, could you please indicate this in your response and identify the specific orders you object to.
As you are aware from our letter to you dated 25 August 2016, the matter is listed for final hearing at 9.30am on 11 October 2016. Accordingly, we would appreciate if you could please provide your response to us by no later than 5.00pm on 7 October 2016 .
In response, on 7 October 2016 Mrs Mooney informed those solicitors that she did not oppose the orders sought;
(9)on 6 October 2016 Messrs Kite and Hutchins wrote to the former employees of the Company notifying them of the hearing and the effect of the orders sought in relation to employees; and
(10)on 7 October 2016 the solicitors for the plaintiffs wrote to each of the persons listed in [7(6)] above enclosing the plaintiffs’ outline of submissions and confirming the hearing date. The letter to Westpac also included a further copy of the Court’s orders made on 24 August 2016 and the affidavit of Mr Kite filed 30 September 2016, as it seemed that earlier letters providing that material had been incorrectly addressed.
Upon commencement of the hearing the matter was called outside the court room. No party other than the plaintiffs appeared. I am satisfied, based on the evidence before me, that the defendants and the parties who may have had an interest in the proceeding received sufficient notice of it. The defendants have chosen not to appear and at least one of them has indicated that she does not oppose the relief sought by the plaintiffs.
RELEVANT FACTS
The plaintiffs relied on two affidavits affirmed by Mr Kite on 27 July 2016 and 30 September 2016 respectively. Before setting out the facts as they relate to the orders now sought by the plaintiffs it is relevant to note that, upon and during their appointment as voluntary administrators and then deed administrators, Mr Kite proceeded on the basis that he and Mr Hutchins were entitled to deal with the assets of the Trust and that those assets were available to satisfy the claims of creditors. They did so because of advice they received from their former solicitors referred to at [17] below. That state of affairs continued until about the time that Messrs Kite and Hutchins were appointed as liquidators in July 2016.

The background to the issues that now arise and the steps that Messrs Kite and Hutchins took following their appointment, first as administrators, then as deed administrators and, more recently, as liquidators of the Company, are set out below. The evidence discloses that, as a result of his investigations, Mr Kite formed the view that the Company operated solely as trustee of the Trust and that he was unable to identify any assets held by the Company in its own right.
The establishment of the Trust and early events
On 21 June 2010 the Company was incorporated for the purpose of acting as the trustee of the Trust. The Trust is constituted by trust deed dated 21 June 2010 between the settlor and the Company as trustee (Trust Deed). The Trust Deed relevantly provides:
(1)in clause 1, “Definitions”:
(a)“Trust Fund” is defined to mean:
1.30.1the Settled Sum;
1.30.2any money and other property having the nature of either capital or income acquired or accepted by the Trustee as an addition to the Settled Sum; and
1.30.3the investments and property for the time being representing those sums or any part of them;
(b)“Designated Beneficiary” and “Beneficiary” are also defined. The Designated Beneficiaries are Lance Gene Barry Mooney and Shelly Jane Margosis, who is the same person as Shelly Mooney. The term “Beneficiary” is very broadly defined and includes each Designated Beneficiary;
(2)in clause 3.2, which relates to creation of the Trust:
With effect on and from the date of this Deed, the Trustee agrees to hold the Trust Fund on trust subject to the terms of this Deed.
(3)in clause 5.2, concerning vacation of the office of trustee:
A Trustee will remain in office until the Trustee:
…
5.2.5has a liquidator, receiver, administrator or official manager appointed or becomes an Externally Administered Body Corporate (in the case of a corporation);
On 10 June 2014 the Company entered into a contract with Queensland Rail Limited (Queensland Rail), which was an agreement in relation to the rates the Company could charge Queensland Rail for the provision by it of personnel to perform tasks as and when specified by Queensland Rail (QR Contract). The provision of personnel pursuant to the QR Contract was at the discretion of Queensland Rail, depending on its resourcing requirements. There was no guaranteed income to the Company.
On 24 April 2015 the Company, in its own capacity and in its capacity as trustee for the Trust, entered into a debtor finance facility deed with FactorOne (FactorOne Facility). The FactorOne Facility was secured by a general security agreement over the Company.
Appointment of Messrs Kite and Hutchins as voluntary administrators
On 27 April 2015 Messrs Kite and Hutchins were appointed as joint and several voluntary administrators of the Company. Upon their appointment, by reason of the operation of clause 5.2.5 of the Trust Deed, the Company was removed as trustee of the Trust.
Messrs Kite and Hutchins commenced investigating the Company’s affairs. Mr Kite, when provided with the Company’s management accounts, observed that it prepared those accounts as trustee of the Trust.
On 29 April 2015 Mr Kite appointed Slattery Asset Advisory (Slattery) to undertake a valuation of the assets of the Company held as trustee of the Trust. Slattery provided a valuation dated 30 April 2015.
Shortly after their appointment Messrs Kite and Hutchins requested that Westpac release funds held in bank accounts in the Company’s name. In a response dated 8 May 2015 Westpac asked Messrs Kite and Hutchins to confirm certain details about the Company in its capacity as trustee of the Trust. It was in that context that Messrs Kite and Hutchins sought advice from their former solicitors and were advised that, while an insolvency event may disqualify a corporate trustee under a deed of trust, the contractual, common law and statutory right of indemnity remained unaffected, such that the liability incurred in the Company’s capacity as trustee of the Trust entitled it to an indemnity from the Trust fund, which included the funds held by Westpac.
On 12 May 2015 the former solicitors for Messrs Kite and Hutchins wrote to Westpac seeking, on behalf of their clients, release of the funds held in bank accounts with Westpac by the Company in its capacity as trustee of the Trust.
On 21 May 2015 Messrs Kite and Hutchins, in their capacity as administrators, circulated a notice of meeting and report to creditors of the Company pursuant to s 439A of the Corporations Act (Report). The Report set out an overview of the work that the administrators had undertaken. It also recorded that the administrators considered a proposal from Mr Mooney for a DOCA. That proposal involved, in summary, a cash contribution of $200,000 to be paid within 30 days of execution of the DOCA and further cash contributions totalling $220,000 payable from the Company’s future trading over a period of 18 months. Messrs Kite and Hutchins recommended that the creditors accept the DOCA proposal because it was likely to provide a better return to the Company’s creditors than would be achieved from an immediate winding up of the Company. On 28 May 2015 Messrs Hutchins and Kite circulated an addendum to the Report addressing an identified error in the estimated dividend calculations.
Mr Kite’s evidence is that he prepared the Report and assessed the DOCA proposal having regard to the objectives of his appointment as an administrator of the Company under Pt 5.3A of the Corporations Act. That is, to allow the business, property and affairs of the Company to be administered in a way that either maximised its chance of continuing or, if that was not possible, to result in a better return for creditors than if the Company were immediately wound up. Mr Kite says that at that time he did not separately consider the interests of the Trust in determining whether to suggest that the creditors enter into a DOCA but proceeded on the basis that the interests of the Company and the interests of the Trust were the same, namely, continuing the existence of the Company, if possible, and maximising returns to its creditors. At that time, Mr Kite’s understanding was that the creditors of the Company were creditors of the Trust, given that the Company traded on behalf of the Trust. He did not consider that there would be a circumstance where the assets of the Trust would not be available to meet the claims of the creditors of the Trust.
The DOCA and Messrs Kite and Hutchins as deed administrators
On 1 June 2015, at a creditors’ meeting of the Company, the creditors resolved, among other things, that:
(1)the remuneration of the joint and several administrators for various periods be approved; and
(2)the Company execute a DOCA under s 439C(a) of the Corporations Act and that the remuneration of the administrators and deed administrators be paid in accordance with the resolution of the creditors made at that meeting.
Accordingly, on 7 June 2015 Messrs Hutchins and Kite entered into a DOCA as deed administrators of the Company on the terms proposed by the director of the Company, Mr Mooney, and accepted by the Company’s creditors. The other parties to the DOCA were the Company as trustee for the Trust, MC Group and Mrs Mooney.
Clause 10.1(d)(ix) of the DOCA provided that the Deed Fund would comprise of, among other things, all of the Company’s Work-in-Progress as at the Commencement Date. “Work-in-Progress” was defined in cl 1.1 of the DOCA to mean the “net value attributable to works undertaken by the Company both prior to the Appointment Date and during the Voluntary Administration Period for which invoices have not, as at the Commencement Date, been raised by the Company to the respective debtors who received the benefit of those works”. The Commencement Date was the date of execution of the DOCA.
According to Mr Kite the value of the Work-in-Progress was $176,147.91. The Company failed to remit that amount to the Messrs Kite and Hutchins to be included in the Deed Fund. Instead, the Company appeared to have utilised the Company’s facility with FactorOne to access funds in respect of the Work-in-Progress. It also failed to remit those funds to Messrs Kite and Hutchins for inclusion in the Deed Fund.
On 10 and 13 November 2015 there was an exchange of correspondence between the Company and the deed administrators about this issue. An arrangement was reached whereby the Company would remit the value of the Work-in-Progress into the Deed Fund over a period ending on 29 February 2016.
On 21 June 2016 Mr Kite, in his capacity as joint and several deed administrator, sent a letter to the Company which provided as follows:
I have concerns as to the continuation of the Deed of Company Arrangement ("DOCA"). My staff and I have previously corresponded with you / members of your staff, in relation to, inter alia, the cash flow projections for the Company and the Company's ability to continue to meet its present obligations.
In light of the above, I have formed a view that it is no longer desirable to continue with the DOCA and I am calling a meeting for creditors to consider, amongst other things, the termination of the DOCA in accordance with clause 17.4(c) of same.
My reasoning for convening the said meeting is as follows:
ŸThe Company has failed to lodge its March 2016 Business Activity Statement with the Australian Taxation Office ("ATO"), and pay the associated liability resulting from same.
ŸThe Company has failed to pay it post-DOCA trading liabilities including a substantial amount owing to the ATO. I am aware that the Company was subject to a payment arrangement for its post-DOCA taxation liabilities to which I am now aware it has since defaulted.
ŸI have received a number of telephone calls from former employees / suppliers who have claims against the Company accrued during the post-DOCA period. While I note that various arrangements / representations have been made from the Company in respect to these claims, the fact that the claims are not being paid is the ordinary course of business provided further concerns in relation to the ongoing viability of the Company.
If you wish to put forward a proposal to vary the DOCA for creditors to consider, please provide same by 2:00PM, 24 June 2016. In considering any proposal to vary the DOCA, I must advise that given my reasoning detailed in the above points, any proposed variation, absent any significant cash injection to resolve the Company's post-DOCA creditors, is unlikely to receive my support.
On 28 June 2016 Messrs Kite and Hutchins sent the Company a notice of default under the terms of the DOCA, notifying the Company of defaults in its obligations under the DOCA and requiring it to rectify those defaults by 6 July 2016. The notice included:
Pursuant to clause 16.2 of the DOCA, if the Company does not rectify certain types of default (specifically, defaults described in clauses 16.3 and 16.4 of the DOCA) within the time required within the notice of default, the DOCA will automatically terminate and the Company will be placed into liquidation in accordance with section 445C(c) of the Act, we, as the Deed Administrators will become the joint and several liquidators of the Company.
On or about 30 June 2016 Mooney’s Corp Pty Ltd (Mooneys Corp) agreed to assume the employees of the Company and to honour all accrued entitlements of those employees other than rail crews associated with the QR Contract. The sole director, secretary and shareholder of Mooneys Corp was Mr Mooney’s father, Darrell Mooney.
On or about 4 July 2016, in light of his anticipated appointment as a joint liquidator of the Company, Mr Kite became aware of more recent authorities concerning the manner in which assets of a trust ought to be dealt with on appointment of a liquidator to a corporate trustee and sought advice from his current solicitors. It was this advice that caused Messrs Kite and Hutchins to approach the Court to obtain directions as to how to deal with the assets of the Trust.
Termination of the DOCA and appointment of Messrs Kite and Hutchins as liquidators and then as the Receivers of the assets of the Trust
The Company failed to rectify the defaults notified to it in accordance with the requirements of the notice of default. Accordingly, the DOCA was terminated and the Company was placed into liquidation on 7 July 2016. On that day Mr Kite and Nicholas Chan, a senior accountant from Mr Kite’s office, met with Mrs Mooney and Jonathan Ebertson, who until 30 June 2016 had been the Company’s internal accountant. At that meeting Messrs Kite and Chan were informed that the Company:
(1)had leases for office space and for a yard;
(2)was performing work under the QR Contract and that its only immediately foreseeable expenses under that contract were for staff employed to do the work. The only staff employed by the Company were the casual staff employed in connection with the QR Contract; and
(3)owned plant and equipment, some of which was subject to finance, but it was not required to use any of the plant and equipment nor any of its assets in connection with its performance of the QR Contract.
On 19 and 21 July 2016 Mr Kite issued disclaimer notices to various financiers and the lessors of the premises occupied by the Company. Disclaimer notices were subsequently lodged with the Australian Securities and Investments Commission and notifications of those notices were given to Mr and Mrs Mooney in their capacities as beneficiaries of the Trust and to Mr Mooney in his capacity as director of the Company.
On 21 July 2016 Mr Kite inquired with Mrs Mooney about the identity of the beneficiaries of the Trust. In response, Mrs Mooney informed him that the only beneficiaries were Mr and Mrs Mooney, their five children, all of whom were minors and in relation to whom notices could be sent to her and Mr Mooney and MC Group.
On or about 29 July 2016 all staff associated with the QR Contract, which was to be terminated as at 7 August 2016, were informed that their last day of work would be 7 August 2016.
As noted above, on 29 July 2016 the Court made orders appointing Messrs Kite and Hutchins as Receivers.
On 2 August 2016 Mr Kite became aware that a debtor, Coleman Rail Pty Ltd, had made a payment into the Company’s pre-appointment account held with Westpac that should have been paid to FactorOne in accordance with the terms of the FactorOne Facility. Those funds were transferred by Westpac to the Receivers’ account and then by the Receivers to FactorOne on 12 and 13 September 2016 respectively.
On 8 August 2016 Messrs Kite and Hutchins in their capacities as liquidators and Receivers ceased the trading operations of the Company in respect of the QR Contract and terminated all employees. By letter dated 9 August 2016 Messrs Kite and Hutchins notified the employees that their employment had been terminated, effective 8 August 2016.
From late-July 2016 to late-September 2016 Mr Kite negotiated and documented the sale of some of the Trust’s assets, including arrangements for the lease of those assets pending finalisation of the sale. On or about 30 August 2016, and before the terms of the sale of the assets were finalised, Mr Kite instructed Slattery to prepare a further valuation providing a market valuation of each of the assets the subject of the proposed sale. Based on an analysis prepared by Mr Chan, Mr Kite was satisfied that the proposed sale was likely to realise the best result.
On 22 September 2016, in accordance with the terms of the FactorOne Facility, FactorOne debited $36,000 from the FactorOne Facility for liquidated damages for breach of contract arising from acts of insolvency. As at 27 September 2016 there was a surplus of funds held by FactorOne of $10,625.56 payable to the Receivers and a further $94,549.05 in uncollected debtors that FactorOne had agreed to collect free of charge. Upon recovery of those debtors there will be approximately $105,000 available in the pool of funds from the conduct of the receivership.
Financial position of the Company
As at 30 September 2016 Mr Kite was of the view that there would be no surplus available to provide a return to the beneficiaries of the Trust. He deposed that:
(1)the business of the Company ceased trading as at 8 August 2016;
(2)the anticipated total asset pool for both the liquidation and the receivership was approximately $700,000;
(3)that figure did not take account of legal fees or the Receivers’, deed administrators’ and liquidators’ fees and disbursements; and
(4)no provision has been made for a potential loan asset recovery against the director of the Company or for possible voidable transactions, insolvent trading claims or any other potential claims which the liquidators may be able to pursue.
LEGISLATIVE FRAMEWORK AND RELEVANT LEGAL PRINCIPLES
Applications for directions
Messrs Kite and Hutchins seek directions from the Court in relation to the performance of their functions as Receivers and as liquidators. Section 424(1) of the Corporations Act enables a controller of property of a company to apply to the Court for directions in relation to any matter arising in connection with the performance or exercise of any of the controller’s functions and powers as controller. Relevantly, a controller, in relation to property of a corporation, means a receiver or receiver and manager of that property: s 9 of the Corporations Act.
In Re One.Tel Network Holdings Pty Ltd (Hall as rec and mgr) [2001] NSWSC 1065; (2001) 40 ACSR 83 Austin J considered s 424(1) of the Corporations Act. At [27] and [29]-[30] his Honour said the following about the operation of that section:
27In Deputy Commissioner of Taxation v Best & Less (Wollongong) Pty Ltd (1992) 7 ACSR 245 at 247 Lockhart J said that the power of the court to give directions to a controller must be interpreted liberally. He noted the diversity of the matters that may be raised before the court for directions, such as matters concerning the sale of property, borrowing, legal proceedings, giving up possession and similar matters.
…
29However, case law recognises some limitations upon the availability of directions under s 424. As Hodgson J observed in Re Vartex Petroleum Industries Pty Ltd (unreported, SC(NSW), Hodgson J, No 3688 of 1989, 17 August 1989, BC8901834), an application under s 424 and its statutory predecessor has some similarity to an application for judicial advice under s 63 Trustee Act 1925 (NSW), and is therefore subject to similar limitations. Case law on the statutory provision for judicial advice in trustee legislation shows that the court will not as a general rule give a trustee any opinion or advice where the question concerns the respective rights of the beneficiaries or their identity, or the matter is one of controversy between parties to the trust (although it may choose to give judicial advice, in the exercise of its discretion, where the controversy between the parties is confined to an issue of law and there are no disputed questions of fact: MTM Funds Management Ltd v Cavalane Holdings Pty Ltd (2000) 158 FLR 121; 35 ACSR 440). However, the procedure is appropriate where the question involves the nature and extent of the trustee’s powers or duties of management or administration: see R P Meagher and W M C Gummow, Jacobs' Law of Trusts in Australia, 6th ed, Butterworths, Sydney, 1997, para 2134. A common case for judicial advice is where the trustee seeks directions concerning the conduct of legal proceedings: see Glazier Holdings Pty Ltd v Australian Men's Health Pty Ltd [2000] NSWSC 253; BC200001836 at [133]-[142]. In a commercial context, it may be appropriate to give judicial advice to the responsible entity of a managed investment scheme, which is a statutory trustee under s 601FC(2) of the Corporations Act 2001 (Cth), as to whether it is justified in convening meetings to enable unitholders to consider a scheme of arrangement proposal: Re Mirvac Ltd (1999) 32 ACSR 107. However, there is an important distinction between ruling as to the propriety of the trustee's contemplated exercise of discretion, and ruling as to the wisdom of such exercise: Re IOOF Australia Trustees Ltd (1999) 205 LSJS 98.
30By analogy, it has been held that s 424 cannot be resorted to for the purpose of seeking the intervention of the court to make a commercial decision for the controller. In the Best & Less case, Lockhart J quoted (at 247) from the judgment of Street CJ in Eq in Re Mineral Securities Australia Ltd (in liq) [1973] 2 NSWLR 207 at 232, where Street CJ remarked that "when the Court is required to pronounce upon the commercial prudence of a transaction, it enters upon a slippery and uncertain field". Lockhart J declined on this ground to make the direction sought by the applicant, observing (at 249) that although the applicant appeared to have conducted his receivership with considerable skill, drive and ability, "he must make his decision according to the exigencies of the situation and make his own assessment of what is commercially sensible and feasible for him to do", as he was a receiver and manager appointed privately, not by the court.

Rule 14.23 of the Rules permits a receiver to apply to the Court for authority to do “any act or thing in a proceeding in the receiver’s name or in the name of another party”.
Section 511 of the Corporations Act applies in the case of a voluntary winding up. Subsection (1) permits a liquidator, among others, to apply to the Court to determine any question arising in the winding up or to exercise all or any of the powers that the Court might exercise if the company were being wound up by the Court. Subsection (2) provides that, if the Court is satisfied that the determination of the question or the exercise of the power will be just and beneficial, it may accede wholly or partially to any application on such terms and conditions as it thinks fit or may make such order as it thinks just.
In Warner, Re GTL Tradeup Pty Ltd (in liq) [2015] FCA 323; 104 ACSR 633 at [36] Farrell J summarised the principles relevant to an application under s 511 of the Corporations Act by reference to Re MF Global Australia Ltd (in liq) [2012] NSWSC 994 (Black J); Re ICS Real Estate Pty Ltd [2014] NSWSC 479 (Brereton J); and LexisNexis, Austin & Black’s Annotations to the Corporations Act (at September 2014) as follows:
(a)Similar principles apply whether the court exercises power under s 479(3) or s 511, save that under s 511 the court must be satisfied that the determination of a question in the winding up of the company or the exercise of the power will be “just and beneficial”. That is, s 511(2) confers a discretion on the court which must be exercised by reference to whether it is advantageous to the liquidation. The term “just and beneficial” is said to involve a similar concept to that comprised by the expression “just and equitable”.
(b)The function served by the power of the court to give directions under s 479(3) and determine a question or exercise a power under s 511 is to give a liquidator advice as to the proper course of action to take in the liquidation. The court may give directions that provide guidance on matters of law and the reasonableness of a contemplated exercise of discretion but will typically not do so where a matter relates to making and implementing a commercial or business decision.
(c)A direction can be made under s 479(3) in a voluntary liquidation by reason of ss 506(1)(b) and 511.
(d)If the liquidator has given full and fair disclosure to the court concerning the application, the effect of a determination under s 511 is to sanction a course of conduct by a liquidator and thereby protect the liquidator from claims that he or she has acted unreasonably or inappropriately.
(e)The power under s 511(1)(a) to “determine any question arising in the winding up” accommodates the determination of substantive rights, although the court would not do so without affording potentially affected parties the opportunity to be heard.
(f)Where a question concerns the respective rights of beneficiaries of a trust or their identity it is generally considered inappropriate to give advice under s 63 of the Trustee Act.
Given the similarity in approach to applications made by liquidators for directions under ss 511 and 479(3), which permits a court appointed liquidator to apply to the Court for directions, it is useful to set out the observations of Black J in Re Gerard Cassegrain & Co Pty Limited (in liquidation) [2013] NSWSC 257 that were cited with approval by Gleeson J in Pascoe, in the matter of Brentwood Village Limited (in liquidation) [2014] FCA 1295 at [45]. His Honour said at [18]:
… Section 479(3) allows a liquidator to apply to the Court for directions in relation to a matter arising in a winding up. The function of a liquidator's application for directions under that section is to give the liquidator advice as to the proper cause of action for him or her to take in the liquidation; Re Ansett Australia Ltd (admins apptd) v Korda [2002] FCA 90; (2002) 115 FCR 409; (2002) 40 ACSR 433 at [46]. The Court will typically not give such a direction where a matter relates to the making and implementation of a business or commercial decision, where no particular legal issue is raised and there is no attack on the propriety or reasonableness of the decision, but may do so where a legal issue or an attack on the propriety of the decision is raised: Re G B Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674 at 686-687; (1991) 5 ASCR 673; Re Ansett Australia Ltd at [65]. For example, the Court gave a direction to a liquidator that he would be acting properly in discontinuing appeals in Re Addstone Pty Ltd (in liq) (1997) 25 ACSR 357, where Mansfield J observed at 363 that one circumstance in which such a direction may be given is, “where the liquidator's proposed decision is the subject of criticism by a particular creditor or creditors as being unreasonable or mala fides.” In Pascoe; Re Matrix Group Ltd (in liq) above, Jacobson J observed that such a direction could be made, inter alia, where there was a legal issue of substance or procedure such as the propriety or reasonableness of the particular course. A liquidator is protected against a claim for breach of duty if he or she acts in accordance with a direction given by the Court under s 479(3) and he or she made full disclosure to the Court in the relevant application.
Applications for judicial advice
In the alternative, Messrs Kite and Hutchins seek judicial advice on behalf of the Company in its capacity as trustee pursuant to s 63 of the Trustee Act1925 (NSW) (Trustee Act), which relevantly permits a trustee to apply to the Court for an opinion, advice or direction on any question concerning the management or administration of the trust property. In Macedonian Orthodox Community Church St Petka Incorporated v His Eminence Petar The Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66 a majority of the High Court (Gummow A-CJ, Kirby, Hayne and Heydon JJ) held at [58]:
Only one jurisdictional bar to s 63 relief exists: the applicant must point to the existence of a question respecting the management or administration of the trust property or a question respecting the interpretation of the trust instrument. …
In Re Rosewood Research Pty Limited [2014] NSWSC 449 Darke J said at [30]:
Once the jurisdictional requirement under s 63 of the Trustee Act is satisfied, the Court has a discretion to provide advice of the kind contemplated by the section. That discretion is confined only by the subject matter, scope and purpose of the legislation (see the Macedonian Church case (supra) at [59] and [196]). It is clear, however, that the interests of the trust estate is of paramount importance (see the Macedonian Church case (supra) at [104], [105], [107], [125], [196] and [197]).
Declarations
The test to determine whether a party has sufficient standing to seek and obtain the grant of declaratory relief was summarised in Aussie Airlines Pty Ltd v Australian Airlines Ltd (1996) 68 FCR 406 at 414 by Lockhart J, with whom Spender and Cooper JJ agreed, as follows:
(1)the proceeding must raise a question that is not abstract or hypothetical. There must be a real question involved and the declaratory relief must be directed to the determination of legal controversies. The answer to the question must produce some real consequences for the parties;
(2)the relief must relate to present circumstances rather than circumstances that have not occurred or may never happen;
(3)the party seeking the relief must have a real interest to raise it; and
(4)generally, there must be a proper contradictor.
CONSIDERATION
Messrs Kite and Hutchins seek various orders, directions and declarations from the Court. They made detailed and extensive submissions to the Court setting out the authorities relevant to the relief sought and frankly and fully identifying where there is a controversy in those authorities.
The relief sought by Messrs Kite and Hutchins and the need to approach the Court in the manner that they have principally arises because the Company is the trustee of the Trust and was operated solely and held all of its assets in that capacity. That has raised issues relating to the order of priority in which certain pre-administration debts are to be paid and in relation to Messrs Kite and Hutchins’ entitlement to claim their costs and expenses. Those issues are addressed below, together with the balance of the orders sought by Messrs Kite and Hutchins. Before turning to them it is of assistance to address some issues of general application.
First, to the extent that Messrs Kite and Hutchins seek declaratory relief, this is a matter where, provided the entitlement to the relief is established, it would be appropriate to make declarations. The questions to be addressed by the giving of declarations are real; they relate to events which have occurred; the parties have a real interest in the outcome; and, although they have not appeared, the various creditors and Mr and Mrs Mooney are proper contradictors, in the sense that they have an interest, either as creditors or as beneficiaries and appointors, to oppose the declaratory relief sought: see Australian Competition and Consumer Commission v MSY Technology Pty Ltd (2012) 201 FCR 378 at [30]-[33].
Secondly, as this proceeding involves the Company’s actions as trustee it is relevant to note that, when a corporate trustee properly incurs a liability on behalf of the trust, the trustee has a right of indemnity or exoneration out of the trust assets and an equitable lien or equitable charge to secure the right of indemnity. Further, when the corporate trustee enters into liquidation its right of indemnity or exoneration is retained: Re Suncoast Restoration Pty Ltd (in liq) (2013) 211 FCR 203 at [27] (per Reeves J).
I turn now to address the specific relief sought.
Assets of the Company beneficially held by the trustee as bare trustee
In paragraph 10 of the originating process Messrs Kite and Hutchins and the Company seek a direction that they would be justified in treating all of the assets of the Company as assets beneficially held by the trustee as bare trustee subject to the usual charge or lien. In paragraph 14 of the originating process they then seek a declaration that the Company has a right of indemnity from the assets of the Trust for debts incurred prior to 27 April 2015, the date on which the Company entered into voluntary administration. Messrs Kite and Hutchins and the Company submitted that the declaration would effectively follow from the direction, if the Court were minded to make it.
I am satisfied that giving a direction in the form sought in paragraph 10 of the originating process should be made, together with the associated declaration in the form sought in paragraph 14 of the originating process. My reasons follow.
In light of Mr Kite’s evidence it is clear that the Company, which was incorporated on the same day that the Trust was settled, operated solely as trustee of the Trust. That conclusion is reinforced by the broad definition of “Trust Fund” included in the Trust Deed. The definition, combined with the trustee’s agreement to hold the Trust Fund on trust subject to the terms of the Trust Deed, makes it difficult to conceive of any activity or undertaking that is not covered by the terms of the Trust.
Upon the appointment of Messrs Kite and Hutchins as administrators, by reason of the operation of cl 5.2.5 of the Trust Deed, the Company ceased to be trustee of the Trust. In those circumstances the Company remains a bare trustee and may still hold the assets of the Trust, but its duties, rights and powers are limited to protecting the Trust assets. As bare trustee, the Company retains its right of indemnity or exoneration and its lien over the assets of the Trust: Caterpillar Financial Australia Limited v Ovens Nominees Pty Ltd [2011] FCA 677 (Gordon J) at [26].
In CGU Insurance Limited v One.Tel Limited (in liquidation) (2010) 242 CLR 174 the High Court (French CJ, Heydon, Crennan, Kiefel and Bell JJ) said at [36]:
… The trustee of a bare trust has no interests in the trust assets other than those which exist by reason of the office of trustee and the holding of legal title. Further, the trustee of a bare trust has no active duties to perform other than those which exist by virtue of the office of the trustee, with the result that the property awaits transfer to the beneficiaries or awaits some other disposition at their direction. One obligation of a trustee which exists by virtue of the very office is the obligation to get the trust property in, protect it, and vindicate the rights attaching to it. That obligation exists even if no provision of any statute or trust instrument creates it. It exists unless it is negated by a provision of any statute or trust instrument. …
In Porter v Miller Street Pty Limited [2008] FCAFC 77 a Full Court of this Court (Sundberg, Jacobson and Gordon JJ) considered the duty of a liquidator in relation to trust assets and said at [44]-[45]:
44In a winding up, the duty of the liquidator is to identify the assets of the company, and in that process to ascertain whether particular assets under the control of the company are beneficially owned by the company or by others: Nathan at 688. The liquidator must do all “other things as are necessary for the winding up of the affairs of the company and distributing its property”: s 477(2)(m) of the Corporations Act.
45In fulfilling those tasks, the liquidator cannot disregard the fact that the company holds property in trust for others. And to the extent that the company does hold property in trust for others, the liquidator must “act in a responsible way in the administration of the trust in the name of the company”: Crest Realty at 672. As we have said, what the duty to “act in a responsible way” will involve, and what degree of “administration” of the trust will be necessary, depends upon the particular circumstances: Re Crest Realty at 672.
In Federal Commissioner of Taxation v Bruton Holdings Pty Ltd (in liq) (2008) 173 FCR 472 (Bruton Holdings 2008) a Full Court of this Court (Ryan, Mansfield and Dowsett JJ) said at [79]:
As the primary Judge pointed out, the liquidators are winding up a former trustee, not a “serving” trustee. In the cases to which we have referred, as far as we can see, the position was otherwise. In the present case the liquidators cannot claim to have been performing Bruton’s duties as trustee. It no longer holds that position. It may still hold Trust property, but as a bare trustee. Its duties, powers and rights are limited to protecting the Trust assets. The liquidators’ duties, powers and rights cannot be any greater than Bruton’s. …
As submitted by the plaintiffs, the extent of the duties, powers and rights needs to be considered with the trustee’s lien over the trust fund. The lien is an entitlement to secure reimbursement or exoneration and confers a priority in favour of the trustee over the beneficiaries of a trust. The sale of assets held by the trustee to satisfy the right to reimbursement or exoneration can be authorised by a court of equity and, in that sense, there is an “equitable charge” over the trust assets, enforceable in the same way as any other equitable charge. However, the enforcement of the charge is an exercise of prior rights conferred upon the trustee as a necessary incident of the office of trustee: Chief Commissioner of Stamp Duties for New South Wales v Buckle (1998) 192 CLR 226 at 246-247 (Brennan CJ, Toohey, Gaudron, McHugh and Gummow JJ).
In Agusta Pty Ltd v Provident Capital Ltd [2012] NSWCA 26 Barrett JA (Campbell JA and Sackville AJA agreeing) said at [41]:
The right of a trustee to be indemnified out of trust property is often described as a charge or lien: see, for example, Vacuum Oil Co Pty Ltd v Wiltshire [1945] HCA 37; (1945) 72 CLR 319; Octavo Investments Pty Ltd v Knight [1979] HCA 61; (1979) 144 CLR 360. In Chief Commissioner of Stamp Duties v Buckle [1998] HCA 4; (1998) 192 CLR 226, the High Court preferred to regard it as a proprietary right constituting a beneficial interest enjoying priority over the beneficial interests of the beneficiaries. It is anomalous to refer to a person having a charge or lien over property of which the person is the owner. And as was emphasised by the High Court subsequently in CPT Custodian Pty Ltd v Commissioner of State Revenue [2005] HCA 53; (2005) 224 CLR 98, the "trust fund" enjoyed by the beneficiaries cannot be identified or quantified until the trustee's superior beneficial interest has been quantified and satisfied. The trustee's right is inseparable from and co-extensive with the trustee's obligations, both those already discharged but not yet reimbursed and those incurred but not yet discharged.
In Freelance Global v Bensted [2016] VSC 181 (Freelance Global) at [57] Riordan J, citing Sutherland Re; French Caledonia Travel Service Pty Ltd (in liq) (2003) 59 NSWLR 361 (French Caledonia) and Re Suco Gold Pty Ltd (in liq) (1983) 33 SASR 99 (Re Suco Gold), observed that liquidators of a corporate trustee acquire the power to deal with the assets of the company in lieu of the directors, including the corporate trustee’s right of indemnity and exoneration. His Honour also observed that a liquidator can, by using those personal rights, have recourse to trust property to discharge all liabilities that the trustee incurred in the administration of the trust before the winding up.
Powers of the Receivers in relation to the business and assets of the Trust
In paragraphs 6(b) and 7 of the originating process Messrs Kite and Hutchins seek, in their capacity as Receivers, first, in paragraph 6(b), an order that they have, in respect of the Trust business and property, the power to pay dividends to the creditors of the Company in respect of debts incurred by the Company in its capacity as trustee of the Trust, including the proceeds of sale of the business and assets of the Trust; and, secondly, in paragraph 7, an order that, following the sale of any business and assets of the Trust and distribution of the proceeds of sale to creditors, the Receivers provide any surplus or remaining assets of the Trust to any incoming trustee or to the beneficiaries and retire as Receivers. Messrs Kite and Hutchins also seek a direction in the form set out in paragraph 18 of the originating process that they would be justified in calling for proofs of debt of the Company for debts incurred prior to 27 April 2015, the date on which the Company entered into voluntary administration, and in having recourse to the assets of the Trust to satisfy those claims.
Once again, I am satisfied that orders and directions of this nature should be made.
The order sought in paragraph 6(b) only arises if there is a surplus remaining for creditors after the costs and expenses of the receivership have been paid. The plaintiffs submit that the power to pay dividends most likely arises as a result of the liquidators’ duty and power to pay dividends to creditors of the Company and the Company’s lien over the trust assets, but they seek the order for more abundant caution. The order, together with the direction in the form in paragraph 18, will enable the Receivers to call for proofs of debt incurred while the Company was trustee and to pay those creditors.
The order sought in paragraph 7 should be made in a modified form. Mr Kite is of the opinion that there will be no surplus available for payment to the beneficiaries of the Trust once creditors are paid. Thus an order of that nature is required to bring the receivership to an end and should be framed to achieve that purpose.
Right of indemnity from assets of the Trust
The balance of the directions, declarations and orders sought by Messrs Kite and Hutchins relate to the payment of particular claims out of the trust assets, being employee claims and Messrs Kite and Hutchins’ claims for their costs and expenses as administrators, Receivers and liquidators, including their remuneration. In relation to the latter category Messrs Kite and Hutchins submitted that there were two bases upon which a liquidator of a trust company has a right to claim costs and expenses out of the assets of a trust:
(1)the first arises from the corporate trustee’s right of indemnity. Messrs Kite and Hutchins submitted that a liquidator can exercise a power over the corporate trustee to cause the company to exercise its lien. This is presumably said to be so because upon appointment the liquidator acquires powers to deal with the assets of the company in lieu of the directors: see French Caledonia at [201]. Messrs Kite and Hutchins further submitted that a liquidator would have a lien for his or her fees and expenses over all of the corporate trustee’s property, which would include the trustee’s lien; and
(2)the second arises from the salvage principle enunciated in Re Universal Distributing Company Limited (in liq) (1933) 48 CLR 171 (Universal Distributing), which is discussed below.

Messrs Kite and Hutchins submitted that it is the first of the two alternatives set out above that leads to the conclusion that the liquidators can treat trust assets, in the circumstances of this case, as company assets for the payment of employee claims. The question that they submit then arises is whether those employee claims, to the extent that they are pre-administration claims, should be paid in priority to the claims of other creditors pursuant to the regime set out in s 556(1) of the Corporations Act.
Employee entitlements
In paragraph 11 of the originating process Messrs Kite and Hutchins seek a direction pursuant to ss 511 or 424 of the Corporations Act, or alternatively judicial advice, that they would be justified in paying employee entitlements out of the assets of the Trust in accordance with the priorities set out in s 556(1) of the Corporations Act.
Section 555 of the Corporations Act provides that, except as otherwise provided, all debts and claims proved in a winding up rank equally and, if the property of the company is insufficient to pay them in full, they must be paid proportionately. Section 556(1) then provides for an order of priority of payment of certain debts and claims in a winding up. It is in the following terms:
556 Priority payments
(1)Subject to this Division, in the winding up of a company the following debts and claims must be paid in priority to all other unsecured debts and claims:
(a)first, expenses (except deferred expenses) properly incurred by a relevant authority in preserving, realising or getting in property of the company, or in carrying on the company’s business;
(b)if the Court ordered the winding up—next, the costs in respect of the application for the order (including the applicant’s taxed costs payable under section 466);
(ba)if:
(i)during the period of 12 months ending when the winding up commenced, an application (the first application) was made under section 459P for the company to be wound up in insolvency; and
(ii)when the first application was made, the company was not under administration; and
(iii)the company began to be under administration at a time after the first application was made; and
(iv)the first application was not withdrawn or dismissed before the administration began; and
(v)the Court did not, in response to the first application, make an order under section 459A that the company be wound up in insolvency;
next, the costs in respect of the first application;
(c)next, the debts for which paragraph 443D(a) or (aa) entitles an administrator of the company to be indemnified (even if the administration ended before the relevant date), except expenses covered by paragraph (a) of this subsection and deferred expenses;
(da)if the Court ordered the winding up—next, costs and expenses that are payable under subsection 475(8) out of the company’s property;
(daa)if the company resolved by special resolution that it be wound up voluntarily—next, costs and expenses that are payable under subsection 446C(8) out of the company’s property;
(db)next, costs that form part of the expenses of the winding up because of subsection 539(6);
(dd)next, any other expenses (except deferred expenses) properly incurred by a relevant authority;
(de)next, the deferred expenses;
(df)if a committee of inspection has been appointed for the purposes of the winding up—next, expenses incurred by a person as a member of the committee;
(e)subject to subsection (1A)—next:
(i)wages, superannuation contributions and superannuation guarantee charge payable by the company in respect of services rendered to the company by employees before the relevant date; or
(ii)liabilities to pay the amounts of estimates under Division 268 in Schedule 1 to the Taxation Administration Act 1953 of superannuation guarantee charge mentioned in subparagraph (i);
(f)next, amounts due in respect of injury compensation, being compensation the liability for which arose before the relevant date;
(g)subject to subsection (1B)—next, all amounts due:
(i)on or before the relevant date; and
(ii)because of an industrial instrument; and
(iii)to, or in respect of, employees of the company; and
(iv)in respect of leave of absence;
(h)subject to subsection (1C)—next, retrenchment payments payable to employees of the company.
In effect, employee entitlements comprising wages, superannuation contributions and the superannuation guarantee charge payable by a company in respect of services rendered before the day on which the winding up is taken to have begun are to be paid after certain costs and expenses of the winding up and before ordinary creditors.
The Company, through its liquidators, seeks to pay a dividend to creditors, including employees, who have claims that arose prior to the appointment of the voluntary administrators, which is the day on which the winding up is taken to have begun: see ss 513B and 513C of the Corporations Act.
Notwithstanding its removal as trustee of the Trust upon appointment of the administrators, the Company continues to have the benefit of its rights of indemnity and exoneration in relation to liabilities incurred in trading the business of the Trust up to the date of appointment of the administrators: Theobald, in the matter of Finplas Pty Ltd [2014] FCA 31 at [23] (per Siopis J). To meet those provable claims, the liquidators would cause the Company to exercise the trustee’s lien and get in the assets of the trust.
The evidence establishes that the provable debts exceed the assets of the trust so that the whole of the Trust’s assets are required for the payment of creditor claims. No payment will be made to the beneficiaries of the Trust or to the shareholders of the Company.
As identified above, the issue that arises is whether the employee claims, which accrued prior to the appointment of the voluntary administrators, should be paid in priority to the balance of the creditors’ claims in accordance with s 556(1) of the Corporations Act. Messrs Kite and Hutchins submitted that the issue directs attention to the question of whether those employee claims accrued prior to the appointment of the administrators, in the sense of being provable debts, and that that date is significant because it is the trustee’s lien that is being invoked. In that regard I am satisfied that the evidence establishes that there are employee claims that accrued prior to the date of appointment of the administrators.
Messrs Kite and Hutchins submitted that the priority regime in s 556(1) of the Corporations Act would apply. They contended that that is so because the liquidator’s duty is to get in the property of the company, including equitable interests that may need to be recognised or perfected by court order, and to share all of the property between creditors. They said that obligation extends to all valuable rights, even if the legal or equitable right is imperfect or requires the assistance of a court for enforcement.
Resolution of the issue that arises is not straightforward. There has been a divergence of views in the decided cases as to the applicability of the statutory priority regime in the circumstances which Messrs Kite and Hutchins now face. On the one hand are the decisions in Re Enhill Pty Ltd [1983] 1 VR 561 (Re Enhill) and Re Suco Gold in which a Full Court of the Supreme Court of Victoria and a Full Court of the Supreme Court of South Australia respectively held that the statutory priority regime, at the time found in s 292 of the relevant Companies Acts, applied to distributions of trust property. On the other hand is an emerging line of authority based on the decision of Brereton J of the Supreme Court of New South Wales in Re IndependentContractor Services (Aust) Pty Limited (in liq) (No 2) [2016] NSWSC 106; (2016) 305 FLR 222 (Re Independent Contractor) in which his Honour held that the priority regime in s 556 of the Corporations Act did not so apply.
Messrs Kite and Hutchins submitted that I would follow Re Suco Gold; that, to the extent that Re Enhill is inconsistent with Re Suco Gold, Re Enhill was wrongly decided; and that Bruton Holdings 2008 lends strong support to the correctness of Re Suco Gold. They submitted that it does not matter that some of the authorities talk of the trustee’s lien vesting in the liquidator. They say that it is the trustee’s right that is being exercised and, to the limited extent that the liquidator has any title, he or she holds it for the creditors, contributories and, perhaps, beneficiaries. They further submitted that by reason of the lien the trustee can no longer be said to have bare legal title, or even to have an equitable interest that is inferior to that of the beneficiaries, but that it has an equitable interest in trust property which is property of the Company within the meaning of s 555 of the Corporations Act. They contended that the reasoning in Re Suco Gold is correct as a matter of principle because the trustee’s lien confers a sufficient beneficial interest over the property to make it “property of the company” within the meaning of s 555 of the Corporations Act.
In order to determine whether the Court should make the direction or give judicial advice in the terms sought by Messrs Kite and Hutchins it is necessary to consider the relevant authorities.
The starting point is the decision of a Full Court of the Supreme Court of Victoria in Re Enhill. I pause to observe that Re Enhill has been the subject of criticism in subsequent decisions including in this Court. Notwithstanding that, Messrs Kite and Hutchins submitted that it is relevant to the present analysis, pointing in particular to the observations of Lush J.
In Re Enhill the Full Court was concerned with an application by a liquidator to apply moneys resulting from the sale of assets held by the company as trustee in paying: first, the costs and expenses of the winding up, including the liquidator’s remuneration; secondly, the costs of the petitioning creditor; and thirdly, the liabilities of the company incurred in the course of or for the purposes of its business. The only assets held by the company at the time of its winding up were trust assets. The liquidator’s application to pay his own costs and expenses in priority to other creditors relied upon s 292(1)(a) of the Companies Act 1961 (Vic) (the equivalent of which is now found in s 556 of the Corporations Act), which provided that, subject to the provisions of that Act, on a winding up the costs and expenses of the winding up and the liquidator’s remuneration should be paid in priority to all other unsecured debts.
At 564 Young CJ referred to the judgment of the High Court in Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 (Octavo), noting that the question that arose for determination was not decided in Octavo but that the High Court had recognised that a trustee’s right to indemnity gave him or her a proprietary interest which, on bankruptcy, passed to his trustee in bankruptcy or, where the trustee was a company, came under the control of the liquidator. Young CJ said:
… In these circumstances to hold that a trustee in bankruptcy could only apply the proceeds of the right of indemnity towards some only of the bankrupt’s creditors, viz. creditors of the trust business, would deny the very purpose of the right to indemnity which is to exonerate the trustee’s personal estate. In a case like the present therefore the proceeds of the trustee’s lien are available for division among the bankrupt’s creditors generally, not only among creditors of the trust business, and in the case of a company in liquidation are subject to the control of the liquidator under s. 292. …
At 567 Lush J identified that the issue in the case, whether the liquidator has the right to his or her costs, expenses and remuneration under s 292(1)(a), was dependent on an analysis in terms of basic principle of a trustee’s right of indemnity or lien in respect of the trust assets. His Honour continued:
… I have used the word lien as a shorthand expression covering the trustee’s right as against the beneficiaries to retain the trust assets until he is put in funds to discharge the liabilities resulting from trust trading and his related right to raise himself, out of the trust assets, the necessary funds for that purpose. Professor H. A. J. Ford, in an article entitled “Trading Trusts and Creditors’ Rights” (1981), 13 M.U.L.R. 1, has suggested that this right is not a right of property but a power. It is, however, a power which can be, and is designed to be, used for the trustee’s own benefit, and is, I respectfully think, properly to be classed as a chose in action, and therefore as property of the trustee.
Lush J was of the opinion that the trustee’s right of indemnity was part of his personal property and that it “exists to enable him to recoup himself for, or to provide for, the debts which he must bear personally”. His Honour was of the view that the right of lien is a beneficial right of the trustee and that “the beneficial rights of the cestuis que trust as distinct from the trustee are reduced by the existence of the right of lien, and its exercise does not further diminish them”: at 569.
In the result, all three members of the Full Court in Re Enhill reached the conclusion that the trustee’s right of indemnity or lien over the trust assets was property of the corporate trustee which was available to its liquidator for division among the trustee’s creditors generally. It followed that pursuant to the statutory priority regime the liquidator was entitled to be paid his remuneration, costs and expenses out of moneys realised from the use or sale of the trust assets.
Messrs Kite and Hutchins submitted that, despite the criticism of the court’s view in Re Enhill that the proceeds of the trustee’s lien were available for creditors generally and not just creditors of the trust, there is some force in the observations of Lush J that the lien is a pre-existing beneficial interest in the property of the trust. Messrs Kite and Hutchins contended that if the lien is a beneficial interest in trust property then, even if it is not the whole of the beneficial interest, it must be property of the Company for the purposes of s 555 of the Corporations Act. That submission is further considered below.
The next decision relevant to the analysis is Re Suco Gold. There a Full Court of the Supreme Court of South Australia had before it a liquidator’s summons seeking directions as to whether he might apply money resulting from the sale of assets held by Suco Gold Pty Ltd (Suco Gold) as trustee of two unit trusts in paying and discharging the costs and expenses of the winding up, including the liquidator’s remuneration; the costs of the petitioning creditor; and the liabilities of the company incurred by it or for the purpose of its business. Suco Gold had no assets apart from its rights of indemnity and its only debts were those incurred in carrying out the two unit trusts. Although the Full Court reached the same result as in Re Enhill, in coming to that result it did not follow the same reasoning.
At 103 King CJ referred to the decision in Re Enhill, noting that the Full Court had held that the liquidator was entitled to apply the moneys resulting from a sale by him of assets held by the company as trustee in payment of his costs and expenses in priority to other claims. At 105 his Honour then considered an argument based on the reasoning in Re Enhill that:
·as the right of indemnity is effective to protect the trustee against debts which he has incurred but not paid, he or she is entitled to transfer trust property to himself or herself sufficient to meet those debts notwithstanding that he has not paid them;
·the property then ceases to be trust property and, if bankruptcy or liquidation supervenes before payment of the debts, that property is property of the bankrupt divisible among creditors generally and not just among those creditors whose debts were incurred in the performance of the trust; and
·the trustee’s right of indemnity vests in the liquidator and, if the right of indemnity has not been exercised prior to liquidation, the liquidator is entitled to property of the trust equal in amount to the liabilities incurred in the performance of the trust notwithstanding that those liabilities have not been paid and that that property is divisible among the general body of creditors.
King CJ found that argument to be “in conflict with fundamental principles of the law of trusts”. His Honour said that a trustee has no legal right to use or apply the trust property other than for authorised purposes of the trust. At 105 his Honour said:
… I cannot escape the conviction that if a trustee, or his trustee in bankruptcy, or liquidator in the case of a trustee company, is permitted to use trust property, not for the discharge exclusively of liabilities incurred in the performance of the trust, but in the discharge of other liabilities as well, the money is being used for an unauthorized purpose and is being used, moreover, for the benefit of the trustee, and of third parties, namely the non-trust creditors.
King CJ then considered a further argument based on Re Enhill, namely that the proposition affirmed by the High Court in Octavo, that the trustee’s right of indemnity is a beneficial interest in trust property which passes to the trustee in bankruptcy or the liquidator, leads to the conclusion that the trust assets, to the extent of the trust liabilities, pass to the trustee in bankruptcy or the liquidator for the benefit of the general body of creditors. His Honour considered that Octavo did not lead to that conclusion and rejected the reasoning in Re Enhill on this point, saying at 107-108:
The right of indemnity, it is true, exists for the trustee's own benefit and it passes to the trustee in bankruptcy or the liquidator. The proceeds of that right of indemnity are therefore part of the estate divisible among the creditors. It seems to me, however, that the right of indemnity can only produce proceeds for division among the creditors generally if the trustee has discharged the liabilities incurred in the performance of the trust and is therefore entitled to recoup himself out of the trust property. If he has not discharged the liabilities, the right of indemnity entitles him to resort to the trust property only for the purpose of discharging those liabilities. He may apply the trust moneys directly to the payment of the trust creditors or he may take it into his own possession for that purpose. If he takes trust property into his possession to satisfy his right to be indemnified in respect of unpaid trust liabilities, it seems to me that that property retains its character as trust property and may be used only for the purpose of discharging the liabilities incurred in the performance of the trust. The exercise of the right of indemnity is for the benefit of the trustee in that it relieves him of liability for the trust debts. If the trustee is bankrupt, or being a company is in liquidation, the trustee in bankruptcy or liquidator can exercise the right of indemnity which vests in him as part of the property of the bankrupt or insolvent company. If the trust liabilities have been discharged, the trustee in bankruptcy or liquidator is entitled to recoup the bankrupt estate out of the trust property and the proceeds of the right of indemnity become part of the property divisible among the creditors. If the liabilities have not been discharged, the trustee in bankruptcy or liquidator may, by reason of the right of indemnity which vests in him, apply the trust property to the payment of the trust liabilities, thereby exonerating the bankrupt estate to the extent of the value of the available trust assets. In the latter circumstances there cannot be proceeds of the right of indemnity which are available for distribution among the general body of creditors.

Robson J then turned to consider the conflicting decisions concerning the nature of the trustee’s right of indemnity where the trustee is entitled to be indemnified out of the assets of the trust for a liability incurred on behalf of the trust. His Honour considered the question of statutory interpretation and what is required by the principle of “one common law of Australia” and held that the proper course was for him to follow the reasoning in Re Independent Contractor: at [257]-[260].
As to the question of statutory construction, Robson J looked to the legislative history of the corporations legislation over the years, noting that the Corporations Act and Companies Act, with which Re Enhill and Re Suco Gold were concerned, are different statutes but that they are in pari materia. After setting out the relevant principles his Honour drew the following conclusions at [310]-[317]:
(1)the words of one legislature cannot be considered to bind the meaning intended by another legislature. The task of the court is to determine the will of the legislature that passed the Act and that task cannot logically be accomplished by looking to the expressed will of another legislature;
(2)the Full Court in Re Enhill, which it had been submitted was binding on Robson J, considered the Companies Act, which had been passed by the Victorian Parliament in 1961. It was not correct to say that the will of the Victorian Parliament or the interpretation of that will by the courts is a binding statement as to the meaning of words used by the Commonwealth Parliament in 2001;
(3)the “pages of the law reports are not blank” and the decision in Re Enhill remains highly persuasive. The words considered in Re Enhill were similar to those under consideration by Robson J;
(4)the difficulty in the case arose from the fact that the same can be said about the decision in Re Suco Gold, which was also a decision of a Full Court considering the South Australian Companies Act, part of the national uniform legislation considered by the Full Court in Re Enhill and equally a precursor to the Corporations Act;
(5)the same conclusion can be drawn in relation to the principle that a “legislature is assumed to know the judicial interpretation placed on the statutory words [by the court of another jurisdiction] and intended that interpretation to apply to the re-enactment”. The Commonwealth legislature may have known and intended the interpretation placed on the words in Re Enhill, but the same could be said for the interpretation given in Re Suco Gold; and
(6)uniformity of interpretation of a Commonwealth Act is to be preferred wherever possible.
Ultimately, Robson J concluded at [330]-[333] that he did not consider that either Re Enhill or Re Suco Gold was a binding precedent in interpreting the Corporations Act but nevertheless was of the view that each decision remained highly persuasive. His Honour noted that, given the Corporations Act is a Commonwealth statute, there was a preference for uniform interpretation. In light of that, Robson J posed the following questions: whether the reasoning in Re Enhill or Re Suco Gold is sufficiently persuasive that it should be extended in its application to the Corporations Act and whether the reasoning in Re IndependentContractor is plainly wrong. His Honour gave the following answers to those questions:
·he did not think the reasoning in Re Enhill was sufficiently persuasive to extend its application to the Corporations Act;
·insofar as Re Suco Gold is consistent with the line of cases leading to the conclusion that the trustee’s right of indemnity is trust property available only to meet trust liabilities (and Re Independent Contractor), it was sufficiently persuasive to extend its application to the Corporations Act. But as to whether the priority regimes apply to trust property, Robson J declined to extend the application of Re Suco Gold; and
·he was not satisfied that the decision of Brereton J in Re Independent Contractor that the trustee’s right of indemnity is not personal property of the trustee but is held on trust for the trust creditors was plainly wrong. His Honour said that he agreed with the decision in Re Independent Contractor.
His Honour then turned to consider the common law and at [363]-[367] observed that he was required to apply the common law of Australia in the context of a Commonwealth statute; that the Corporations Act refers to a common law term, “property of the company”; and that common law is the common law of Australia. His Honour held that in applying the Corporations Act he was required to apply the common law of Australia as reflected in the numerous cases concerning the nature of a trustee’s right of indemnity. His Honour also noted that he must have regard to the High Court’s decision that there is only one common law of Australia and that he ought not find that the interpretation of s 433(3) is different in Victoria than it is in New South Wales. In the result Robson J found that he was not bound by Re Suco Gold or Re Enhill, which his Honour described at [362] as “anomalous”, “not representative of the common law as it is understood in other jurisdictions” and “not a proper expression of the common law of Australia”, and that he should follow Re Independent Contractor: at [371]. His Honour also held, relying on Re Independent Contractor, that the trust assets should be distributed pari passu among the trust creditors.
I invited Messrs Kite and Hutchins to provide submissions on the effect of Re Amerind. They submitted that they have sought the Court’s advice on whether employee entitlements are to be dealt with in accordance with s 556(1) of the Corporations Act. Relying on the decision in Re Suco Gold, they had advanced the view that pre-administration claims ought to be paid in accordance with the statutory order of priority in a winding up.
Messrs Kite and Hutchins submitted that the problem with the reasoning in Re Independent Contractor is that it overlooks the beneficial interest created by the trustee’s lien. They further submitted that the decision in Re Amerind adds little by way of analysis on the critical question of why the trustee’s lien is not “property of the company”, whose property includes equitable interests. Messrs Kite and Hutchins contended that property of the company includes all valuable rights, even if the legal or equitable right is imperfect or requires the assistance of the Court for enforcement. In the circumstances, they remained of the view that they would be justified in applying s 556 to employee claims, notwithstanding that there are two single first instance decisions against that proposition and that Re Enhill and Re Suco Gold dealt with the predecessors to s 556.
I am unable to accept the position put by Messrs Kite and Hutchins. With respect, Robson J reached his conclusion in Re Amerind after considering in detail the nature of the trustee’s indemnity and lien. His Honour was not persuaded that either was property of the company and thus that the statutory priority regime would apply. I agree. Messrs Kite and Hutchins have not demonstrated that decision or the decisions in Re Independent Contractor and Woodgate are plainly wrong. I would follow those decisions and decline to make the direction sought.
Messrs Kite and Hutchins requested that if I was not persuaded to make the direction sought, as I am not, that I make a direction to the contrary effect. That is, a direction that the priority regime set out in s 556 of the Corporations Act does not apply. While that is evident from these reasons, for clarity I will make a direction to that effect.
Liquidators’ costs and expenses
The remaining directions and declarations sought by Messrs Kite and Hutchins relate to their costs and expenses during the three phases of the external administration of the Company:
(1)in paragraph 21 of the originating process Messrs Kite and Hutchins, in their capacity as liquidators, seek a direction pursuant to s 511 of the Corporations Act, or judicial advice, that they would be justified in recovering the costs and expenses incurred by the Company and the liquidators in realising any Trust assets and otherwise dealing with the Trust from the Trust assets;
(2)in paragraphs 23 to 25 of the originating process Messrs Kite and Hutchins seek declarations that they are entitled to a lien over the Trust assets in relation to the fees incurred by them variously in their capacities as voluntary administrators, deed administrators and liquidators;
(3)in paragraph 26 of the originating process Messrs Kite and Hutchins seek an order that the costs of this proceeding be costs in the winding up; and
(4)in paragraph 27 of the originating process Messrs Kite and Hutchins seek a declaration that the liquidators have a lien over the Trust assets for the costs of this proceeding or, alternatively, an order under s 93 of the Trustee Act or an order under s 72 of the Trusts Act 1973 (Qld) that the costs of this proceeding be paid out of the Trust assets.
I am satisfied that the directions and declarations should be made. My reasons follow.
As set out at [68] above, there are two bases upon which Messrs Kite and Hutchins can claim their costs and expenses. The second of those depends on the existence of what is known as the “salvage principle”, as first propounded in Universal Distributing. There Dixon J was concerned with the competing interests of a secured creditor and a liquidator appointed to the company over whose assets that creditor held its security. The secured creditor objected to the liquidator’s remuneration and disbursements being paid out of the assets of the company in priority to his security. At 174 his Honour said:
… The debenture-holders are creditors who have a specific right to the property for the purpose of paying their debts. But if it is realized in the winding up, a proceeding to which they are thus parties, the proceeds must bear the cost of the realization just as if they had begun a suit for its realization or had themselves realized it without suit …
In applying this principle, only those expenses appear to have been thrown against the fund belonging to the debenture-holders which have been reasonably incurred in the care, preservation and realization of the property. In the present case the liquidator has employed a material part of his time and energies in recovering moneys, both uncalled capital and debts, which enure for the debenture-holder, and in so far as these services increase the remuneration which he receives, I see no reason why the burden should not be thrown upon the proceeds. …
(citations omitted)
The principle enunciated by Dixon J has been relied on in subsequent decisions. In Re Dungowan Manly Pty Ltd (in liq) (2015) 105 ACSR 648; [2015] NSWSC 491 (Re Dungowan) Black J, in considering a claim by the liquidator for an equitable charge over certain property, said at [85]-[87] that:
85The liquidator submits, and I accept, that the remuneration, costs and expenses incurred by a liquidator in preserving, recovering and realising a fund on behalf of others would generally be paid out of, and are secured by an equitable lien over, the relevant fund. That proposition is well-recognised in the case law, although it raises a critical question as to what are the costs of preserving, recovering or realising the relevant fund: Re Universal Distributing Co Ltd (in liq) (1933) 48 CLR 171; [1933] ALR 107; [1933] HCA 2 (Universal Distributing); Coad v Wellness Pursuit Pty Ltd (in liq) (2009) 40 WAR 53; 71 ACSR 250; [2009] WASCA 68; Re Parbery (as liquidators of Trio Capital Ltd (in liq)) (2012) 88 ACSR 700; [2012] NSWSC 597 at [18]. In 13 Coromandel Place Pty Ltd v CL Custodians Pty Ltd (in liq) (1999) 30 ACSR 377; [1999] FCA 144 at [34], Finkelstein J observed that:
[34]These cases establish, clearly enough in my opinion, that provided a liquidator is acting reasonably he is entitled to be indemnified out of trust assets for his costs and expenses in carrying out the following activities: identifying or attempting to identify trust assets; recovering or attempting to recover trust assets; realising or attempting to realise trust assets; protecting or attempting to protect trust assets; distributing trust assets to the persons beneficially entitled to them.
86In Stewart (in his capacity as liquidator of Newtronic Pty Ltd (in liq)) v Atco Controls Pty Ltd (in liq) (2014) 252 CLR 307; 307 ALR 562; 98 ACSR 601; [2014] HCA 15, the High Court also considered the circumstances in which a liquidator’s equitable lien would be available over a settlement amount in liquidation, and observed that that principle in Universal Distributing applies where an insolvent company is 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 secured creditor claims the fund. Their Honours noted that the application of the principle avoids the result that a secured creditor would unconscientiously take the benefit of the liquidator’s work without the liquidator’s expenses being met and observed (at [41]) that such a lien arose simply from the fact that the liquidator’s costs and remuneration were incurred in realising the assets that created the relevant fund.
87Mr Golledge also relies on the decision in Re Crown Meats Pty Ltd (in liq) (2013) 93 ACSR 576; [2013] VSC 118 (Crown Meats) in support of the liquidator's claim to a lien. That decision has some similarities with the present case, so far as it involved a dispute as to the proceeds of sale of a property. Robson J (at [39] and the following) undertook a comprehensive review of the case law relating to the Universal Distributing lien. His Honour noted that such a lien could arise where the relevant work was necessary and the costs incurred to do it were reasonably incurred and could include the costs of distributing trust assets to persons beneficially entitled to them, or necessary to a “salvage objective”. …
More recently, in Freelance Global Riordan J considered the right of a liquidator appointed to a corporate trustee to recover expenses from trust assets. His Honour referred to the “salvage principle” as set out in Universal Distributing in terms to the effect that a person who works for the exclusive purpose of realising, caring for or preserving property to create a fund or pool of assets is entitled to a lien or charge against the fund or pool of assets for the expenses and remuneration incurred in such work. His Honour noted that the application of the salvage principle entitles a liquidator acting reasonably to be indemnified out of trust assets for its costs and expenses in identifying or attempting to identify trust assets; recovering or attempting to recover trust assets; realising or attempting to realise trust assets; protecting or attempting to protect trust assets; and distributing trust assets to the persons beneficially entitled to them: at [64].
Riordan J also referred to the principles in Re Berkeley Applegate (Investment Consultants) Ltd (in liq) [1989] Ch 32, where Edward Nugee QC, sitting as a deputy High Court judge, distinguished the cases decided on the basis of the salvage principle but held that the court could, as a condition of enforcing the trust beneficiaries’ rights and equity, require that an allowance be made for costs incurred and skill and labour expended in connection with the administration of the trust property: at [66]. That allowance of fair compensation to the liquidator was said to be an application of the principle that he who seeks equity must do equity. At [67] his Honour said:
The Court’s discretion to allow expenses and remuneration from trust assets is to be exercised sparingly and factors supporting the exercise of the discretion include the following:
(a)The work in respect of which expenses and remuneration were incurred, would have had to have been done in the interests of the beneficiaries of the trust in any event.
(b)The work has been of substantial benefit to the trust property and the beneficiaries.
(c)The administration of the trust assets is complex and requires the expertise of an experienced and capable insolvency practitioner. Such practitioners would only do the work if they are not left out of pocket for the expenses incurred; and are fairly remunerated.
(d)The liquidator was acting in accordance with the liquidator’s ‘duty to act in a responsible way’.
(e)The corporation’s own assets are insufficient to cover the costs of the winding up.
(footnotes omitted)
In this case there is a contest between Messrs Kite and Hutchins variously in their capacities as administrators, liquidators and Receivers and the general body of creditors. If the salvage principle applies then the general body of creditors will rank pari passu for the balance after Messrs Kite and Hutchins have deducted their remuneration and expenses from the fund. If it does not then the general body of creditors take pari passu without the deduction of that remuneration and associated expenses.
It is clear that Messrs Kite and Hutchins in their capacity as administrators and liquidators have exclusively expended their time and effort getting in and realising Trust assets. As the facts bear out, and as I have already observed, the Company operated solely as trustee for the Trust. It held all of its assets in that capacity and the steps it undertook were required so that Messrs Kite and Hutchins would meet their statutory duties and protect the Trust assets. Those obligations were coextensive. Further, it is clear that there are insufficient funds to meet the claims of creditors and Messrs Kite and Hutchins’ expenses, including their remuneration, such that there will be no return to beneficiaries. In all of the circumstances of this case I am satisfied that Messrs Kite and Hutchins are entitled to a lien of the type identified by Dixon J in Universal Distributors and the subsequent decisions which followed that judgment. I am satisfied that, relying on that lien, they are entitled to deduct their remuneration and expenses from the Trust fund before paying the general body of creditors.
Given my findings above I do not need to consider Messrs Kite and Hutchins’ submission that there is an alternate basis upon which the Court can allow a liquidator to take his or her remuneration and expenses out of the assets of the trust relying on Re Dungowan at [107].
Insofar as Messrs Kite and Hutchins incurred costs and expenses in their capacity as receivers, they are equally entitled to have their costs and expenses paid out of the assets of the Trust. 13 Coromandel Place Pty Ltd v C L Custodians Pty Ltd (in liq) (1999) 30 ACSR 377; [1999] FCA 144 concerned an application by an insolvency practitioner to have his costs, charges and expenses in acting first as a receiver, then as provisional liquidator and finally as liquidator paid out of the assets that C L Custodians Pty Ltd (in liq) (C L Custodians) held on trust. In relation to the question of whether the receiver was entitled to have his costs and expenses of the receivership paid out of the assets of C L Custodians, notwithstanding that those assets were held on trust, Finklestein J observed at 382:
The fact that the assets do not beneficially belong to a party to the suit in which the receiver is appointed (as in this case) cannot effect the receiver’s entitlement. That this should be so accords both with principle and authority. As regards principle, a receiver is appointed by the court because the court is satisfied that such an appointment is necessary to safeguard the interests of all persons who are interested or who may be interested in the assets placed under receivership: Tullett v Armstrong (1836) 48 ER 371; Owen v Homan (1853) 10 ER 997 at 1032. Once the court has decided that particular assets should be subjected to a receiving order it is right and proper that those assets should be applied to satisfy the receiver’s costs. It would be extraordinary if a receiver’s entitlement to costs was dependent upon it being established that the assets under his control, a control authorised by the court, were beneficially owned by a party to the proceedings. There will be many cases where a receiver will be appointed over property the ownership of which is not known at the time of appointment. If the receiver is not entitled to have his costs paid out of that property unless it is determined that the property belongs to a party to the proceeding few people will be willing to undertake the onerous task of acting as receiver.

The final issue is the question of the costs of this proceeding. As Farrell J observed in Woodgate at [24], where a trustee acts reasonably and in good faith, the general rule is that the trust assets bear the costs of the trustee’s application for advice and directions either directly or under the trustee’s indemnity. Given the circumstances in which Messrs Kite and Hutchins found themselves, the fact that the matter involves an insolvent trustee of a trust and the conflict in the authorities, it was appropriate for Messrs Kite and Hutchins to approach the Court for directions and other relief as they did. They are justified in paying the costs of the proceeding from Trust assets.
CONCLUSION
I will make declarations, directions and orders giving effect to my reasons as set out above.

I certify that the preceding one hundred and fifty-three (153) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Markovic.
Associate:
Dated: 13 June 2017

File number:	NSD 1228 of 2016
Judge:	MARKOVIC J
Date of judgment:	13 June 2017
Catchwords:	CORPORATIONS – application for directions under ss 424 and 511 of the Corporations Act 2001 (Cth) (Corporations Act) – application for judicial advice – where insolvent company is trustee of a trading trust – where sole business of the corporate trustee was carrying on the business of the trust – where no assets held by the corporate trustee in its own right – where company ceased to be trustee of the trust upon appointment of external administrators – whether trust assets held by company as bare trustee – whether bare trustee has a right of indemnity for actions undertaken as trustee – whether the right of indemnity is “property of the company” for the purposes of the priority regimes in the Corporations Act – whether employee entitlements ought to be paid out of trust assets in accordance with statutory priority regime – whether liquidators justified in calling for proofs of debt and having recourse to trust assets to satisfy those claims – whether liquidators entitled to costs incurred by the company in realising and dealing with trust assets – whether liquidator’s remuneration and costs of the application should be paid out of the assets of the trust TRUSTS AND TRUSTEES – nature of the trustee’s right of indemnity – whether trustee’s right of indemnity is “property of the company” for the purposes of the priority regime in the Corporations Act – whether the property subject to the lien in support of the trustee’s right of indemnity is “property of the company” for the purposes of the priority regime in the Corporations Act – whether the trustee’s right of indemnity or the property subject to the lien in support of the trustee’s right of indemnity is available to creditors generally or is only available for creditors of the trust to meet trust liabilities
Legislation:	Corporations Act 2001 (Cth) ss 424, 479(3), 511, 555, 556 Trustee Act 1925 (NSW) s 63
Cases cited:	13 Coromandel Place Pty Ltd v C L Custodians Pty Ltd (in liq) (1999) 30 ACSR 377; [1999] FCA 144 In the matter of AAA Financial Intelligence Ltd (in liquidation) ACN 093 616 445 [2014] NSWSC 1004 Agusta Pty Ltd v Provident Capital Ltd [2012] NSWCA 26 Aussie Airlines Pty Ltd v Australian Airlines Limited (1996) 68 FCR 406 Australian Competition and Consumer Commission v MSY Technology Pty Ltd (2012) 201 FCR 378 Bruton Holdings Pty Ltd (in liq) v Federal Commissioner of Taxation (2011) 193 FCR 442 Caterpillar Financial Australia Limited v Ovens Nominees Pty Ltd [2011] FCA 677 CGU Insurance Limited v One.Tel Limited (in liquidation) (2010) 242 CLR 174 Chief Commissioner of Stamp Duties for New South Wales v Buckle (1998) 192 CLR 226 Federal Commissioner of Taxation v Bruton Holdings Pty Ltd (in liq) (2008) 173 FCR 472 Freelance Global v Bensted [2016] VSC 181 Re Gerard Cassegrain & Co Pty Limited (in liquidation) [2013] NSWSC 257 Macedonian Orthodox Community Church St Petka Incorporated v His Eminence Petar The Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66 Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 Pascoe, in the matter of Brentwood Village Limited (in liquidation) [2014] FCA 1295 Porter v Miller Street Pty Limited [2008] FCAFC 77 Re Amerind Pty Ltd (receivers and managers apptd) (in liq) [2017] VSC 127 Re Berkeley Applegate (Investment Consultants) Ltd (in liq) [1989] Ch 32 Re Byrne Australia Pty Ltd [1981] 1 NSWLR 394 Re Byrne Australia Pty Ltd (No 2) [1981] 2 NSWLR 364 Re Dungowan Manly Pty Ltd (in liq) (2015) 105 ACSR 648; [2015] NSWSC 491 Re Enhill Pty Ltd [1983] 1 VR 561 Re Gerard Cassegrain & Co Pty Limited (in liquidation) [2013] NSWSC 257 Re Independent Contractor Services (Aust) Pty Limited (in liq) (No 2) [2016] NSWSC 106; (2016) 305 FLR 222 Re Kayford Ltd (in liq) [1975] 1 WLR 279 Re One.Tel Network Holdings Pty Ltd (Hall as rec and mgr) [2001] NSWSC 1065; (2001) 40 ACSR 83 Re Rosewood Research Pty Limited [2014] NSWSC 449 Re Staff Benefits Pty Ltd [1979] 1 NSWLR 207 Re Suncoast Restoration Pty Ltd (in liq) (2013) 211 FCR 203 Re Suco Gold Pty Ltd (in liq) (1983) 33 SASR 99 Sutherland Re; French Caledonia Travel Service Pty Ltd (in liq) (2003) 59 NSWLR 361 Re Universal Distributing Company Limited (in liq) (1933) 48 CLR 171 Theobald, in the matter of Finplas Pty Ltd [2014] FCA 31 Warner, Re GTL Tradeup Pty Ltd (in liq) [2015] FCA 323; 104 ACSR 633 Woodgate, in the matter of Bell Hire Services Pty Ltd (in liq) [2016] FCA 1583 Heydon JD and Leeming MJ, Jacobs’ Law of Trusts in Australia (8^th ed, LexisNexis Butterworths, 2016)
Date of hearing:	11 October 2016
Date of last submissions:	21 April 2017
Registry:	New South Wales
Division:	General Division
National Practice Area:	Commercial and Corporations
Sub-area:	Corporations and Corporate Insolvency
Category:	Catchwords
Number of paragraphs:	153
Counsel for the Plaintiffs:	Mr C D Wood with Ms T Phan
Solicitor for the Plaintiffs:	McCabes Lawyers Pty Ltd
Counsel for the Defendants:	The defendants did not appear