Lawrence, in the matter of Ozifin Tech Pty Ltd (in liq) v AGM Markets Pty Ltd (in liq)
[2022] FCA 1478
•9 December 2022
FEDERAL COURT OF AUSTRALIA
Lawrence, in the matter of Ozifin Tech Pty Ltd (in liq) v AGM Markets Pty Ltd (in liq) [2022] FCA 1478
File number(s): VID 313 of 2021
VID 235 of 2021
VID 211 of 2021Judgment of: BEACH J Date of judgment: 9 December 2022 Catchwords: CORPORATIONS – liquidation – application by liquidators for directions – disbursal of funds – funds in accounts – statutory trusts – s 981H of the Corporations Act 2001 (Cth) – constructive trusts – breach of fiduciary duties – conflict of interest – institutional constructive trust – remedial constructive trust – priorities – investors’ claims – directions to deal with trust funds – liquidators’ claims for remuneration – payment of remuneration from client accounts – recourse to trust assets – payment of remuneration out of trust assets – payment out of statutory trust funds – payment out of constructive trust funds – inter-company claims – equitable jurisdiction to remunerate a trustee – general expenses of liquidation being borne by trust assets – orders and directions made Legislation: Corporations Act 2001 (Cth) ss 471B, 544, 556, 981A, 981B, 981H, 983D, 983E, Schedule 2 ss 60-10, 60-12, 90-15, 90-20
Trustee Act 1958 (Vic) s 63
Corporations Regulations 2001 (Cth) reg 7.8.03
Cases cited: 13 Coromandel Place Pty Ltd v CL Custodians Pty Ltd (in liq) (1999) 30 ACSR 377
Australian Securities and Investments Commission v AGM Markets Pty Ltd (in liq) (No 3) (2020) 275 FCR 57
Australian Securities and Investments Commission v AGM Markets Pty Ltd (in liq) (No 4) (2020) 148 ACSR 511
Australian Securities and Investments Commission v Rowena Nominees Pty Ltd (2003) 45 ACSR 424
Black v S Freedman & Co (1910) 12 CLR 105
Brisconnections Management Company Ltd v Dalewon Pty Ltd (in liq) (2010) 79 ACSR 530
Canehire Pty Ltd v Themis Holdings Pty Ltd [2016] 1 Qd R 296
Freelance Global Ltd (in liq) v Bensted [2016] VSC 181
Georges, in the matter of Sonray Capital Markets Pty Ltd (in liq) [2010] FCA 1371
Giumelli v Giumelli (1999) 196 CLR 101
Gollant, in the matter of OT Markets Pty Ltd (in liq) [2020] FCA 207
Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41
In re Berkeley Applegate (Investment Consultants) Ltd (in liq); Harris v Conway [1989] 1 Ch 32
In re MF Global Limited (in liq) (No 2) [2012] NSWSC 1426
In re Universal Distributing Company Ltd (in liq) (1933) 48 CLR 171
In the matter of AAA Financial Intelligence Ltd (in liq) [2014] NSWSC 1004
In the matter of Aberdeen All Farm Pty Ltd (in liq) [2020] NSWSC 770
In the matter of BBY Limited (rec & mgrs apptd) (in liq) (No 3) [2018] NSWSC 1718
In the matter of Glenvine Pty Ltd (in liq) [2020] NSWSC 866
In the matter of Houben Marine Pty Ltd (in liq) [2018] NSWSC 745
In the matter of JML Property Services Pty Ltd (in liq) [2018] NSWSC 1069
In the matter of M & J Super Fund Pty Ltd (in liq) [2021] NSWSC 279
In the matter of North Food Catering Pty Ltd [2014] NSWSC 77
In the matter of Primespace Property Investment Ltd (in liq) [2016] NSWSC 1821
Kelly, in the matter of Halifax Investment Services Pty Ltd (in liq) (No 6) [2019] FCA 2111
McNab v Graham (2017) 53 VR 311
Muschinski v Dodds (1985) 160 CLR 583
Nolan v Nolan [2004] VSCA 109
Paragon Finance Plc v DB Thakerar & Co (a firm) [1999] 1 All ER 400
Park v Whyte (No 4) (2019) 2 Qd R 412
Parsons v McBain (2001) 109 FCR 120
Re application of Sutherland (2004) 50 ACSR 297
Re Courtenay House Capital Trading Group Pty Ltd (in liq) (2018) 125 ACSR 149
Re Courtenay House Capital Trading Group Pty Ltd (in liq) (2019) 139 ACSR 469
Re G B Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674
Re Greater West Insurance Brokers Pty Ltd (2001) 39 ACSR 301
Re Independent Contractor Services (Aust) Pty Ltd (in liq) (No 2) (2016) 305 FLR 222
Re MF Global Australia Ltd (in liq) (2012) 267 FLR 27
Re Owen (2014) 225 FCR 541
Re Sutherland; French Caledonia Travel Service Pty Ltd (in liq) (2003) 59 NSWLR 361
Shannon v JMA Accounting Pty Ltd [2005] QSC 240
Staatz v Berry (No 3) (2019) 138 ACSR 231
Templeton v Australian Securities and Investments Commission (2015) 108 ACSR 545
Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669
Division: General Division Registry: Victoria National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 275 Date of last submissions: 14 March 2022 Date of hearing: 28 February 2022 VID 313 of 2021 Counsel for the Plaintiffs: Mr J Evans KC Solicitor for the Plaintiffs: O’Loughlin Westhoff Counsel for the Defendant: Mr SJ Maiden KC Solicitor for the Defendant: Maddocks Counsel for OT Markets Pty Ltd (in liquidation): Mr MGR Gronow KC Solicitor for OT Markets Pty Ltd (in liquidation): Piper Alderman Counsel for ASIC: Mr JP Moore KC and Mr T Chalke Solicitor for ASIC: Norton Rose Fulbright VID 235 of 2021 Counsel for the Plaintiffs: Mr SJ Maiden KC Solicitor for the Plaintiffs: Maddocks Counsel for OT Markets Pty Ltd (in liquidation): Mr MGR Gronow KC Solicitor for OT Markets Pty Ltd (in liquidation): Piper Alderman Counsel for Ozifin Tech Pty Ltd (in liquidation): Mr J Evans KC Solicitor for Ozifin Tech Pty Ltd (in liquidation): O’Loughlin Westhoff Counsel for ASIC: Mr JP Moore KC and Mr T Chalke Solicitor for ASIC: Norton Rose Fulbright VID 211 of 2021 Counsel for the Plaintiffs: Mr MGR Gronow KC Solicitor for the Plaintiffs: Piper Alderman Counsel for the First Defendant: Mr SJ Maiden KC Solicitor for the First Defendant: Maddocks Counsel for Ozifin Tech Pty Ltd (in liquidation): Mr J Evans KC Solicitor for Ozifin Tech Pty Ltd (in liquidation): O’Loughlin Westhoff Counsel for ASIC: Mr JP Moore KC and Mr T Chalke Solicitor for ASIC: Norton Rose Fulbright ORDERS
VID 313 of 2021 IN THE MATTER OF OZIFIN TECH PTY LTD (IN LIQUIDATION)
BETWEEN: RICHARD LAWRENCE, BRENT KIJURINA AND RICHARD ALBARRAN IN THEIR CAPACITY AS LIQUIDATORS OF OZIFIN TECH PTY LTD (IN LIQUIDATION)
First Plaintiffs
OZIFIN TECH PTY LTD (IN LIQUIDATION)
Second Plaintiff
AND: AGM MARKETS PTY LTD (IN LIQUIDATION)
Defendant
ORDER MADE BY:
BEACH J
DATE OF ORDER:
9 DECEMBER 2022
THE COURT ORDERS THAT:
1.Within 7 days of the date of these orders the parties file and serve proposed minutes of orders to give effect to these reasons.
2.Costs reserved.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
ORDERS
VID 235 of 2021 IN THE MATTER OF AGM MARKETS PTY LTD (IN LIQUIDATION)
BETWEEN: JOHN ROSS LINDHOLM AND GEORGE GEORGES IN THEIR CAPACITY AS THE JOINT AND SEVERAL LIQUIDATORS OF AGM MARKETS PTY LTD (IN LIQUIDATION)
First Plaintiffs
AGM MARKETS PTY LTD (IN LIQUIDATION)
Second Plaintiff
ORDER MADE BY:
BEACH J
DATE OF ORDER:
9 DECEMBER 2022
THE COURT ORDERS THAT:
1.Within 7 days of the date of these orders the parties file and serve proposed minutes of orders to give effect to these reasons.
2.Costs reserved.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
ORDERS
VID 211 of 2021 IN THE MATTER OF OT MARKETS PTY LTD (IN LIQUIDATION)
BETWEEN: MATHEW TERENCE GOLLANT IN HIS CAPACITY AS LIQUIDATOR OF OT MARKETS PTY LTD (IN LIQUIDATION)
First Plaintiff
OT MARKETS PTY LTD (IN LIQUIDATION)
Second Plaintiff
AND: AGM MARKETS PTY LTD (IN LIQUIDATION)
First Defendant
AUTHENTICATE PTY LTD
Second Defendant
ORDER MADE BY:
BEACH J
DATE OF ORDER:
9 DECEMBER 2022
THE COURT ORDERS THAT:
1.Within 7 days of the date of these orders the parties file and serve proposed minutes of orders to give effect to these reasons.
2.Costs reserved.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
BEACH J:
The present applications arise from related proceedings brought by the Australian Securities and Investments Commission against three corporations who were engaged in promoting derivative instruments to Australian investors. Various contraventions of the Corporations Act 2001 (Cth) were established against those entities and each are now in liquidation.
The various sets of liquidators have now applied for directions and declarations concerning the allocation and distribution of the statutory trust funds and other trust funds that are said to be held under various constructive trusts for the investors.
ASIC has intervened in each of these applications and is principally concerned with the disposition of the non-statutory trust funds. It has taken an opposing view to the liquidators in terms of the characterisation of the constructive trust funds and whether the liquidators can take out their general liquidation costs and expenses in priority to the investors who are the beneficiaries of such non-statutory trusts. For that purpose, ASIC has asserted that each of the relevant trusts involves an institutional constructive trust rather than a remedial constructive trust, a distinction which is both inelegant and imprecise yet seems to be favoured by some. So characterised, ASIC says that the liquidators can only take out in priority to the investors from the constructive trust funds the costs and expenses involved in getting in and dealing with the trust property, but not general liquidation costs and expenses. ASIC has also opposed other aspects of the orders sought by the various liquidators.
For the reasons that follow, I have essentially agreed with the various liquidators’ positions. The plasticity of the principles of equity permit me to impress remedial constructive trusts without more. Doctrinal rigidity is to be eschewed.
Let me turn then to the detail of the various applications and some of the more non-contentious matters before I come to ASIC’s points.
The liquidators of AGM Markets Pty Ltd (in liquidation) (AGM) have applied for orders inter-alia:
(a)declaring that the funds held in the AGM accounts are funds subject to a statutory trust pursuant to s 981H of the Act and reg 7.8.03 of the Corporations Regulations 2001 (Cth) and directing that they distribute such funds in accordance with a stipulated method;
(b)fixing their remuneration as joint and several liquidators of AGM from 11 October 2019 to 30 April 2021 in the sum of $379,460.50 plus GST and approving their future remuneration; and
(c)declaring that they are entitled to be indemnified in relation to certain legal costs.
Now as I have observed elsewhere, the affairs of AGM were complex and intertwined with those of OT Markets Pty Ltd (in liquidation) (OT) and Ozifin Tech Pty Ltd (in liquidation) (Ozifin), particularly through the operation of the OT and Ozifin corporate authorised representative (CAR) agreements.
The liquidator of OT has also applied for analogous directions. AGM and Authenticate Pty Ltd have also been joined to his application because their interests may be affected by the directions, save that whilst the liquidator seeks orders for the transfer of funds from AGM, he does not seek any relief directly against Authenticate Pty Ltd.
Further, the liquidators of Ozifin have applied for, inter alia:
(a)a declaration that funds in two identified bank accounts in the name of AGM (the AGM (Ozifin) CM accounts) are funds subject to a statutory trust pursuant to s 981H and reg 7.8.03 in favour of clients of Ozifin, and a direction that AGM, by its liquidators, pay to the Ozifin liquidators the statutory trust funds to be distributed by the Ozifin liquidators in accordance with the orders sought;
(b)a declaration that pursuant to s 90-15 of the Insolvency Practice Schedule (IPS), Schedule 2 to the Act and/or s 63 of the Trustee Act 1958 (Vic), the Ozifin liquidators are entitled to be paid out of the statutory trust funds, prior to their being distributed in accordance with the orders sought in the Ozifin liquidators’ originating process, their reasonable remuneration, costs and expenses insofar as the same was incurred in investigating, gathering in, dealing with and distributing the statutory trust funds;
(c)a direction that the Ozifin liquidators are justified in distributing the statutory trust funds received from the AGM liquidators after payment of their statutory trust remuneration and expenses to those clients of Ozifin entitled to receive a payment under reg 7.8.03 in accordance with their entitlements calculated on a claims basis, and pari passu in the event that there are insufficient remaining statutory trust funds to satisfy the entitlements of all statutory trust claimants; and
(d)a declaration that the funds in another bank account (the liquidation account), being an account held in the name of the Ozifin liquidators, are funds held for and on behalf of Ozifin, and a declaration that pursuant to s 90-15 of the IPS, the Ozifin liquidators are justified in applying the surplus funds in accordance with Subdivision D of Division 6 of Part 5.6 of the Act.
Now I should say at this point that it is common ground as between the Ozifin liquidators and the AGM liquidators that the funds in the AGM (Ozifin) CM accounts are held by AGM on trust for the clients of Ozifin and therefore should be returned to those clients, subject to appropriate deductions for remuneration and costs.
It is also common ground as between these sets of liquidators that the most efficient way to distribute statutory trust funds is for AGM to transfer these funds to the Ozifin liquidators, for on-distribution to Ozifin clients. It is then said that the distribution of the statutory trust funds so transferred should be subject to the payment of the Ozifin liquidators’ reasonably incurred remuneration, costs and expenses incurred in relation to the statutory trust funds.
Further, it is the Ozifin liquidators’ position that the funds in the liquidation account, which I will identify later, are surplus funds, which has the consequence that the funds in the liquidation account are not funds subject to the statutory trust provided for by s 981H and reg 7.8.03.
Now before dealing with some of the legal questions, let me set out a little more of the background.
From 2 October 2012 to 5 November 2018, AGM was the holder of an Australian Financial Services Licence (AFSL) which permitted AGM to provide general financial product advice in deposit products, derivatives, contracts for differences (CFDs) and foreign exchange (FX) products, deal in deposit products, non-cash payment products, derivatives and FX products and make a market in derivatives and FX products to wholesale and retail clients.
Now AGM did not trade in any capacity other than as an issuer of financial products and custodian of client funds. In fact, by virtue of the operation of the OT and Ozifin CAR agreements, AGM to a significant extent only operated as the custodian of client funds, as OT and Ozifin had the vast majority of dealings with clients and there was limited commonality of clients. Clients of OT and Ozifin amount to 91.3% by number and 94.9% by value of the funds held in the AGM accounts. I have previously proceeded in related proceedings on the basis that even in light of AGM being the holder of the AFSL, each of AGM, OT and Ozifin could from time to time be taken to have issued CFDs and FX contracts.
Now each of AGM, OT and Ozifin provided a web-based trading platform to retail clients. Clients used the trading platforms to open and close margin FX contracts and CFD positions. AGM, OT and Ozifin used various means to attract clients, including web sites, and advertising on the internet and social media.
And as I have indicated, OT and Ozifin operated as authorised representatives of AGM pursuant to CAR agreements. The effect of this relationship was that OT and Ozifin were authorised to provide certain financial services on behalf of AGM, and did not need to hold an AFSL of their own. They carried on the business of offering various leveraged derivatives in the form of CFDs, margin FX contracts and binary options.
Let me now jump forward to say something about the prior litigation that has occurred. Now I have already mentioned the ASIC proceedings.
On 14 January 2020, the various sets of liquidators for the three entities commenced proceedings seeking directions in relation to the sharing of information between them, and a release from certain notice requirements imposed on the liquidators (the co-operation proceedings).
On 26 February 2020, I handed down judgment in the trial of the ASIC proceedings concerning the three entities (Australian Securities and Investments Commission v AGM Markets Pty Ltd (in liq) (No 3) (2020) 275 FCR 57 (the liability judgment)) and my judgment in the co-operation proceedings (Gollant, in the matter of OT Markets Pty Ltd (in liq) [2020] FCA 207 (the co-operation judgment)).
In the liability judgment, I found that AGM, OT and Ozifin had committed various breaches of the Act and the Australian Securities and Investments Commission Act 2001 (Cth) including the unlicensed provision of personal advice within the meaning of s 766B(3) of the Act, and had engaged in misleading or deceptive conduct and unconscionable conduct in connection with the supply or possible supply of financial services.
On 12 October 2020, I heard submissions from the parties about the form of orders needed to give effect to the liability judgment. I made orders and delivered reasons on 16 October 2020 in Australian Securities and Investments Commission v AGM Markets Pty Ltd (in liq) (No 4) (2020) 148 ACSR 511 (the penalty judgment).
The position of AGM
Let me now say something about AGM and matters relevant to its liquidators’ present application. In this regard I note that the AGM liquidators have not to date drawn any remuneration or paid any costs.
I should begin by saying something further about the relevant AGM accounts.
The AGM accounts are “client money accounts” and subject to the restrictions set out in Part 7.8 Division 2 of the Act and the Regulations, including the imposition of a statutory trust over funds held by AGM in accordance with s 981H and reg 7.8.03 (the statutory trust claims). As at the appointment date, AGM held the equivalent of AUD3,213,494.69 in three currencies being AUD, USD and EUR in the AGM accounts.
The funds held in the AGM accounts are held by AGM on trust for clients pursuant to the statutory trust claims. Now the statutory trust claims are relevant to the funds held by AGM on behalf of clients of all the companies in liquidation, but their application is more complex in relation to the OT client account, which I will return to later.
Now ASIC asserts that there are additional bases for impressing a trust on the funds held in the AGM accounts (the other trust claims). I will return to ASIC’s submissions later, but I should say that the liquidators of AGM accept that any funds remaining in the AGM accounts after the deduction of reasonable remuneration and costs are likely to be subject to further trust claims, but the other trust claims (as described by ASIC) so far as AGM’s liquidators are concerned are only relevant to the OT client account.
Let me say something more about the statutory trust claims. Section 981A relevantly states that Part 7.8, Division 2 applies to money paid to a financial services licensee for the provision of financial services or a financial product. Pursuant to ss 981B and 981H, the licensee is to pay any such money it receives into an account that is held on trust for clients who paid those funds.
Prior to 5 November 2018, AGM as a financial services licensee was subject to the requirements of Part 7.8, Division 2. However, on 5 November 2018, ASIC served a Notice of Cancellation of AGM’s AFSL pursuant to s 915C. AGM’s AFSL was cancelled effective from 31 December 2018.
By virtue of the fact that the AFSL was cancelled, reg 7.8.03 was enlivened. Regulation 7.8.03 (4) – (6) relevantly confirmed that the funds held in the AGM accounts were held on trust for clients entitled to those funds, with those funds to be distributed as follows:
(4)For each person who is entitled to be paid money from an account of the financial services licensee maintained for section 981B of the Act, the account is taken to be subject to a trust in favour of the person.
(5) If money in an account of the financial services licensee maintained for section 981B of the Act has been invested, for each person who is entitled to be paid money from the account, the investment is taken to be subject to a trust in favour of the person.
(6) Money in the account of the financial services licensee maintained for section 981B of the Act is to be paid as follows:
(a) the first payment is of money that has been paid into the account in error;
(b) if money has been received on behalf of insureds in accordance with a contract of insurance, the second payment is payment to each insured person who is entitled to be paid money from the account, in the following order:
(i) the amounts that the insured persons are entitled to receive from the moneys in the account in respect of claims that have been made;
(ii) the amounts that the insured persons are entitled to receive from the moneys in the account in respect of other matters;
(c) if:
(i) paragraph (b) has been complied with; or
(ii) paragraph (b) does not apply;
the next payment is payment to each person who is entitled to be paid money from the account;
(d) if the money in the account is not sufficient to be paid in accordance with paragraph (a), (b) or (c), the money in the account must be paid in proportion to the amount of each person’s entitlement;
(e) if there is money remaining in the account after payments made in accordance with paragraphs (a), (b) and (c), the remaining money is taken to be money payable to the financial services licensee.
The references to “entitled” and “entitlement” in the payment waterfall contemplated by reg 7.8.03(6) encompassed all amounts listed in the books and records of the companies as owing to each individual client, such that all funds held by AGM are to be paid to discharge these claims to the best extent possible.
Now Black J in Re MF Global Australia Ltd (in liq) (2012) 267 FLR 27 (at [106] to [108]) conveniently identified three bases for determining clients’ entitlements under reg 7.8.03, being the contributions based approach, the claims based approach and the contractual based approach.
The contributions based approach is determined by the moneys actually held in the relevant trust account. This approach requires the books and records to contain sufficient information about the net contribution of each client as such a regime would fail without the relevant client information.
The claims based approach is determined by the sum that ought to have been held in the relevant trust account had the licensee performed its obligations.
The contractual based approach determines the gross liquidation value of clients’ positions pursuant to the various client agreements. This approach has the advantage that it can be determined as at the time reg 7.8.03 first applied to the funds.
Now although there is some attraction in assessing claims on a contributions basis, in the current circumstances in my view assessing amounts owing to clients on a claims basis calculated as at the appointment date is the most cost effective approach. First, there is a significant overlap in clients’ claims against each company in that only one consolidated balance is recorded in the books and records as owing to clients. Second, the companies appear to have undertaken a process of returning client funds prior to the liquidators’ appointment. Clients’ trading positions were also finalised prior to the cancellation of the AFSL and the appointment of the liquidators. In both processes, the companies appear not to have strictly returned funds to clients from the accounts that clients contributed funds to, complicating any tracing exercise. Third, discharging all book debts owing to clients from the AGM accounts will ensure that funds are returned as soon as possible and clients can then pursue any additional claims to the funds held by OT or Ozifin respectively.
Moreover, in circumstances where it is readily apparent that there are insufficient funds to pay claims of clients, reg 7.8.03(6)(d) requires a pari passu distribution.
Now the Court has an inherent jurisdiction to assist liquidators by determining any question arising in the winding up. In addition, a liquidator may apply to the Court for directions under s 90-15 of the IPS. In addition, by s 63(1) of the Trustee Act 1958 (Vic), a trustee may apply to the Court for a direction on a question relating to the management or administration of trust property. But whilst the Court has jurisdiction to give directions under the applicable trustee legislation, it is preferable to give any directions to a liquidator under the provisions of the Act where a question concerns the respective rights of beneficiaries. Clearly in the present context, I am empowered to make the directions sought and propose to do so under s 90-15 of the IPS.
Now the liquidators of AGM seek orders that they be directed to distribute the balance of the amounts held in the AGM accounts, following payment of their remuneration and costs, to the clients of AGM identified in the books and records of AGM, whose entitlements to those funds are to be assessed based on the books and records of AGM as at the appointment date, distributed to the clients of AGM pari passu pursuant to reg 7.8.03(6)(d), and distributed using clients’ last known bank account details and contact information recorded in the books and records of AGM. I am disposed to make such orders and directions.
Now the liquidators have had limited success engaging with the clients of AGM and therefore do not anticipate that significant numbers of clients will cooperate with any further attempts to clarify their respective claims or confirm their bank account or contact details.
Further, there will be a shortfall in the amount of funds available to fully meet all client entitlements such that the liquidators are obliged to pay client entitlements pari passu. The liquidators wish to avoid further depleting the funds available for distribution. The liquidators have also previously been excused from sending a redress notice, and have been permitted to send notices, reports and communications to clients and creditors via electronic means.
In my view, in these circumstances, the amounts recorded as owing to AGM clients in AGM’s books and records appear sufficiently accurate such that a detailed proof of debt process is likely to be unnecessary or unhelpful, and the cost of a proof of debt process would also significantly erode the amounts that may be returned to AGM clients.
Further, the liquidators propose to pay any unclaimed moneys remaining in the AGM accounts at the conclusion of the liquidation to ASIC pursuant to s 544. Such a course is in my view appropriate.
Further, the liquidators also seek directions that they transfer the funds in the OT client account and the Ozifin client accounts to the liquidators of OT and Ozifin respectively for them to distribute to the clients of those two companies. Now in the ordinary course, AGM, as the former holder of the AFSL and current trustee of client funds, is the entity that would ultimately bear the responsibly for managing and distributing the client moneys it holds. But the liquidators seek directions to enable the distribution of client moneys to OT and Ozifin clients to be undertaken by the OT and Ozifin liquidators rather than AGM.
Now in my view, it is reasonable and more economically practical for the liquidators of OT and Ozifin to distribute the funds in the OT client account and Ozifin client accounts respectively and I will make the necessary directions to facilitate this.
First, the liquidators of AGM do not have the contact details for the clients of OT and Ozifin.
Second, the liquidators of OT and Ozifin are in a better position to contact clients of OT and Ozifin in a consistent manner that does not cause confusion to clients receiving circulars and updates from multiple liquidators.
Third, the books and records of AGM are deficient in material respects. I should also note that deficiencies in the books and records of all three companies were highlighted in the material filed in the co-operation proceedings and noted in my penalty judgment. Moreover, only after my orders of 17 February 2020 could all the liquidators share information between them across all entities.
Fourth, the liquidators of OT and Ozifin are willing to undertake the task of the distributions contemplated.
Let me turn to the question of the AGM liquidators’ claim for remuneration and costs. The liquidators’ position is that all of their reasonable remuneration and costs are payable from the funds held in the AGM accounts prior to any distribution being made to former clients. The liquidators submit that their remuneration and costs including estimated future remuneration and costs should be approved in full. I agree.
Section 60-5(1) of the IPS confirms that an external administrator of a company is entitled to receive remuneration for necessary work properly performed by the external administrator in relation to the external administration, in accordance with the remuneration determinations (if any) for the external administrator. Section 60-10(1)(c) empowers the Court to make remuneration determinations.
Section 60-12 of the IPS sets out the matters to which the Court must have regard in making a remuneration determination under s 60-10(1)(c). For present purposes it is not necessary to set these out.
Now the liquidators have undertaken various tasks in respect of the AGM accounts, including taking control of the accounts on and from the appointment date, reviewing the books and records of AGM, responding to various demands and conducting an analysis into client entitlements.
Now in circumstances where reg 7.8.03(6)(d) requires a pari passu distribution of the funds in the AGM accounts as a result of there being a shortfall of funds, the liquidators have sought to minimise costs in investigating clients’ entitlements so as to ensure that the steps taken were proportionate in relation to the funds.
In my view it is appropriate that they be paid their remuneration and costs incurred to date and future remuneration and costs up to a cap estimated by the liquidators, for work undertaken in respect of the AGM accounts as a first priority from those funds.
Moreover, I note that on 28 January 2020, the unsecured creditors of AGM approved the liquidators’ remuneration for the period 11 October 2019 to completion of the liquidation in the amount of $356,152.00. Now that approval is not of course determinative of itself, as the liquidators seek payment of their remuneration, costs and expenses from the assets of a trust. But the creditors’ approval is relevant at least to my assessment of the reasonableness of the remuneration sought.
Now the evidence discloses that a proportion of the liquidators’ remuneration and costs are unable to be allocated to any specific AGM account, as they were incurred for the benefit of all clients of AGM, OT and Ozifin with an entitlement to the funds in the AGM accounts. Those amounts include both general trust time and general liquidation time.
Now previously I specifically considered that there were several factors that justified the appointment of separate liquidators to each entity. Accordingly, and in my view, the liquidators, as custodians of the AGM accounts and appointed to investigate entitlements to the funds in the AGM accounts, are entitled to recover their reasonable remuneration for work undertaken for the benefit of all clients and not just clients of AGM. And this remuneration should be apportioned between the AGM client accounts, OT client account and Ozifin client accounts. Their remuneration should be apportioned based on the respective value of the funds held. In Re Owen (2014) 225 FCR 541 Greenwood J gave directions that an apportionment be made (at [73]):
…in proportion to the value of funds held by each trust at the moment in time when the liquidators exercise a right of direct indemnity. This approach brings about the result that each trust shares the burden of the costs, expenses and remuneration of the liquidators in pursuing the interests of each trust in proportion to the available assets of each trust.
On the application of these principles, I accept the liquidators’ proposal as to the apportionment as to 5.12% to the AGM client accounts, 64.09% to the OT client account, and 30.79% to the Ozifin client accounts.
Now it is necessary at this point to say something more specific about the OT client account.
In this regard the liquidators have taken control of the OT client account on and from the appointment date, reviewed the books and records of OT, dealt with additional direct correspondence from other clients of OT and conducted an analysis into client entitlements in accordance with the statutory trust claims and the other trust claims, including working cooperatively with the liquidator of OT. Now those investigations were necessarily more detailed and complicated because of the number of clients, value of claims and the funds held by AGM and the existence of the other trust claims.
The liquidator of OT accepts that the liquidators of AGM are entitled to be paid from the AGM accounts held for the benefit of OT clients, as a first priority, such remuneration and costs as the liquidators have reasonably and appropriately incurred in dealing with those funds. But the following should be noted.
First, there will need to be an apportionment of the liquidators’ remuneration such that moneys held for the benefit of OT clients are not charged with the costs associated with dealing with Ozifin and AGM clients.
Second, a proportion of the AGM liquidators’ time based remuneration and costs are unable to be allocated to any specific AGM account as they were incurred for the benefit of all clients of AGM, OT and Ozifin. This charged time is referred to by AGM as general trust time and general liquidation time. The AGM liquidators propose that general trust time and general liquidation time be apportioned across all AGM accounts based on the respective value of the funds held in the AGM accounts and be paid in priority before the statutory trust funds are disbursed to OT. In my view this is appropriate.
Let me now say something from the AGM liquidators’ perspective concerning the Ozifin client accounts. The liquidators of AGM have taken control of the Ozifin client accounts on and from the appointment date, reviewed the books and records of Ozifin and conducted an analysis into client entitlements, including working cooperatively with the liquidator of Ozifin. In my view the evidence filed by the AGM liquidators more than adequately demonstrates that the deduction proposed by the AGM liquidators of remuneration and costs is appropriate concerning the Ozifin client accounts.
Let me now say something more relevant to the quantum sought. It is pertinent to make the following general observations in relation to the work undertaken by the liquidators of AGM.
First, the evidence before me sets out in detail the work for which the liquidators seek remuneration. Mr Lindholm has deposed that he has reviewed the narrations setting out the work undertaken and that he intends to write-off a relatively modest amount to ensure the amounts claimed are reasonable and necessary.
Second, the evidence supports a finding that the work which has been performed has been necessary and properly performed. In no sense has any of the work travelled beyond the object of the liquidators’ appointment, namely, to wind down the affairs of AGM, separately investigate AGM’s affairs and determine clients’ claims. Of course, as I have indicated, this has also necessitated a consideration of OT’s position, Ozifin’s position and their affairs and clients.
Third, there is no need for me to undertake a line by line analysis of the liquidators’ claim for remuneration. The evidence before me contains a detailed explanation of the work performed and annexes extracts from KPMG’s billing system including narrations for the work performed.
Fourth, the remuneration sought has been calculated using time-based charging which is the most appropriate method of calculation in the present circumstances, and is reasonable and has been properly and necessarily incurred.
Fifth, and pertinent to the present context, it is generally accepted that the net position realised by a liquidator for creditors does not necessarily represent the value of their services. Instead, the value is determined by the services provided by the liquidator in view of the time reasonably expended in the circumstances of the particular liquidation. In addition, the quantum of any return to creditors is not the single determinative factor in the reasonableness of time-based costing. Rather, weight is to be given to the quality of the work performed and the complexity of the liquidation.
Sixth, my observations made in the co-operation judgment confirm the complexity of the work required to be undertaken. Moreover, the tasks undertaken by the liquidators and their staff have been performed by staff with appropriate seniority and skill.
Seventh, the liquidators’ work has related to establishing the entitlement of some 5,680 clients to the AUD3,213,494.69 held in the AGM accounts over a period from October 2019 to April 2021. The work done was proportionate to the difficulty and importance of the task in the context in which it needed to be performed. In that regard, I note that in Templeton v Australian Securities and Investments Commission (2015) 108 ACSR 545, Besanko, Middleton and Beach JJ said at (at [30] to [34]):
... Indeed, the question of proportionality is an anterior question to consider in order to determine whether time was reasonably spent. If the relevant work plan underpinning the actual time spent and the allocation of personnel at the requisite level of seniority was disproportionate to the nature, importance and complexity of the task and the benefit to be achieved from the task, then it might be said that the time spent on the task was not time reasonably spent.
The question of proportionality is a well recognised factor in considering the question of reasonableness. As the analogue of s 425(8) and like provisions expressly state, in having “regard to whether the remuneration is reasonable”, the court can take into account, inter alia, the quality and complexity of the work and the value and nature of any property dealt with as well as the question of time reasonably spent. Generally, an amalgam of the factors in s 425(8)(d)–(e) and (g)–(h) have as their unifying theme the concept of proportionality.
The question of proportionality in terms of the work done as compared with the size of the property or activity the subject of the insolvency administration or the benefit or gain to be obtained from the work is an important consideration in determining overall reasonableness: see Re AAA Financial Intelligence Ltd (in liq) [2014] NSWSC 1004 at [18] and [19] per Brereton J, Re AAA Financial Intelligence Ltd(in liq) (No 2) [2014] NSWSC 1270 at [35], [36], [43] and [45] per Brereton J, Mirror Group Newspapers plc v Maxwell (No 2) [1998] 1 BCLC 638 at 645 and 651–2 per Ferris J (also reported at [1998] BCC 324), Re On Q Group Ltd (in liq) (2014) 104 ACSR 470; [2014] NSWSC 1428 at [20] per Brereton J, Bank of Nova Scotia v Diemer [2014] ONCA 851 at [33], [45], [55] and [56] per Pepall JA, Re Roslea Path Ltd (in liq) [2013] 1 NZLR 207 at [108], [115] and [121] per Heath and Venning JJ, Brook v Reed [2012] 1 WLR 419 at [51], [86] and [87]; [2011] 3 All ER 743 per Richards J, referring to the relevant 2004 UK Practice Statement [2004] BCC 912, Re Korda; Re Stockford Ltd (2004) 140 FCR 424; 52 ACSR 279; [2004] FCA 1682 at [47] per Finkelstein J, although we do not endorse his Honour’s obiter observations on the “lodestar” methodology as being the required approach as distinct from merely one practical way to proceed in a particular case.
Generally, in looking at proportionality, the value of the services rendered must be considered. We would endorse the observations of McLure JA in Conlan as liquidator of Rowena Nominees Pty Ltd (rec and mngr apptd) (in liq) v Adams (2008) 65 ACSR 521; [2008] WASCA 61 at [47] where her Honour observed:
[47] As to the performance of a task reasonably embarked upon, the work done must be proportionate to the difficulty or importance of the task in the context in which it needs to be performed. This is what is encompassed in assessing the value of the services rendered. Using an example from the law, the time spent by an appropriately qualified and experienced practitioner in drafting a statement of claim should be proportionate to the amount in issue.
Finally, even if one was not to address proportionality as an express factor, nevertheless its absence may have forensic significance in determining reasonableness. Another way to look at proportionality can be to conclude from a lack of proportionality between the cost of the work done relative to the value of the services provided that there has been overcharging or excessive remuneration claimed: see Thackray v Gunns Plantations Ltd (2011) 85 ACSR 144; [2011] VSC 380 at [64] per Davies J.
(emphasis in original)
Eighth, the liquidators have not drawn any amounts for their remuneration and expenses to date. So, the liquidators have taken on significant risk and responsibility in administering the affairs of AGM where for all practical purposes they have been unfunded.
Let me say something more concerning legal costs and disbursements at this point. As noted in Re Independent Contractor Services (Aust) Pty Ltd (in liq) (No 2) (2016) 305 FLR 222 by Brereton J (at [28]), ordinarily a liquidator’s claim for remuneration does not include approval of disbursements because they are a matter for the liquidator’s commercial judgment.
Now in Independent Contractor Services, the liquidators sought orders that their legal costs and disbursements be paid from trust funds. Brereton J assessed whether the amounts claimed by the liquidators were reasonably incurred and reasonable in amount. The basis upon which his Honour determined the amount incurred to be reasonable was not disclosed, but seems to have been determined on a broad brush basis as opposed to a line by line analysis of the disbursements claimed. I will consider the reasonableness of the legal costs sought to be paid from the AGM accounts at a similarly high level.
Now a number of matters are of relevance when considering the reasonableness of the liquidators’ claim for payment of their legal costs and expenses from the AGM accounts. First, to date the liquidators’ legal costs and expenses have not been paid. Second, the amounts claimed are reasonable with reference to the complexity of the matters involved and length of time that the solicitors have been engaged. Third, the legal costs incurred on behalf of the liquidators have been necessary in facilitating the liquidators’ involvement in the ASIC and co-operation proceedings, involving the preparation of affidavit material and multiple appearances at court hearings, assisting the liquidators in determining client entitlements to the funds held in the AGM accounts, and otherwise assisting the liquidators in responding to client claims. Moreover, whilst the amount of legal costs incurred is significant, it is not out of proportion to the amount of funds held in the AGM accounts.
For these reasons, in my view it is appropriate that the liquidators’ legal costs and disbursements as sought be paid from the funds in the AGM accounts and be apportioned in the manner proposed in respect of their remuneration.
Let me for completeness deal with one other matter concerning inter-company claims.
Now if all funds in the AGM accounts are to be returned to clients, the need for directions in relation to any inter-company claims does not arise. But to the extent that it is relevant, I should note that any claims against the AGM accounts in accordance with the OT and Ozifin CAR agreements would fall behind all client claims in order of priority as those claims are unsecured claims. Similarly, in accordance with the OT and Ozifin CAR agreements and AGM’s position as the holder of the AFSL, all funds were required to be held by AGM so that it could meet its obligations as issuer, meaning that AGM may have claims against moneys held by the other companies. However, those claims would also fall behind all client claims in order of priority. But in circumstances where clients’ claims will not be paid in full, it would serve no practical utility for the liquidators to take steps in relation to any such claims.
Now the liquidators for AGM and the liquidators for OT and Ozifin have all previously given undertakings to the Court that if they identified a claim against one of the other entities in liquidation that could not be agreed with the liquidator of that entity, they would apply for directions about how to resolve that claim before commencing any proceedings.
In light of the undertaking provided to the Court, the AGM liquidators wrote to the liquidators for Ozifin asking them to explain if AGM potentially had any claim to any of the funds in Ozifin’s liquidation account under the terms of the Ozifin CAR agreement. The liquidators’ solicitors received a response indicating that the liquidators of Ozifin did not consider AGM to have any claims over the relevant funds.
The liquidators for Ozifin say that the funds held in the liquidation account they maintain are not subject to a statutory trust for the benefit of former clients of Ozifin. The evidence before me appears to establish that the funds held in the liquidation account are effectively only those amounts owed to Ozifin pursuant to the terms of Schedule 1 of the Ozifin CAR agreement and are not client moneys.
I agree with the AGM liquidators that as a result of the response from the liquidators for Ozifin and the existence of the other trust claims, any further inquiry by the liquidators would almost certainly be arid. Further, any claim that AGM could make on Ozifin’s liquidation account would fall behind all client claims in order of priority. So, to the extent that claims on the funds held by the liquidators of Ozifin may arise, AGM making a claim on those funds serves no utility and would unnecessarily deplete the funds to be returned to Ozifin clients.
So, in my view, the AGM liquidators are justified in not pursuing any claims AGM may have had to the funds held in the liquidation account of Ozifin.
The position of OT
Let me now deal more directly with some aspects of OT’s position.
The funds of clients of OT held in the relevant bank account in the name of AGM are, as I have already discussed, subject to a statutory trust pursuant to s 981H and reg 7.8.03 because they were paid to AGM as the AFSL holder by or on behalf of clients of OT or in AGM’s capacity as a person acting on behalf of the clients. And as I have indicated, reg 7.8.03 applies because AGM has ceased to be a licensee and is being wound up: see regs 7.8.03(1) and (2)(b)(ii). In those circumstances, pursuant to reg 7.8.03(4) in respect of each person who is entitled to be paid money from the account of the financial services licensee (ie AGM) maintained for s 981B, namely, the OT clients, the account is taken to be the subject of a trust in favour of such persons. So, the money should be paid out in accordance with the priorities in reg 7.8.03(6).
Accordingly, I will order that the liquidators of AGM pay the money held in those statutory trust funds to the liquidator of OT, subject to the liquidators of AGM being permitted to pay themselves their reasonable remuneration, costs and expenses in relation to the funds. The liquidator of OT should also then be entitled to take from such statutory trust funds his reasonable remuneration, costs and expenses incurred in relation to the funds.
Now although there are some difficulties with the books and records of OT and AGM including in relation to the master/client data list, such a list would appear to be the best record available of the clients entitled to the moneys within the statutory trust funds. Accordingly, OT’s liquidator can rely upon it and I will so direct.
So, the statutory trust funds should first be applied, once received by the liquidator of OT, to the liquidator’s remuneration and expenses in respect of the statutory trust funds, and then in respect of all those clients having a positive account balance with OT as at the date of liquidation. If there are insufficient funds to pay all such claims in full they should be paid proportionately.
If after paying out all clients, there is a positive balance, it should be paid into an account maintained by the liquidator which currently includes the funds from the OT business transactions account.
Further, the liquidator should not be obliged to pay any statutory trust funds to clients with a positive balance of $25.00 or less, as the costs of paying those claims would exceed the likely benefit.
Now so far I have dealt with the statutory trust funds. Let me now deal with the non-statutory trust funds.
It is also appropriate to give to the liquidator of OT the declaration sought that the amounts from the OT business transaction account, the OT foreign account and any surplus of the funds, are held on constructive trust so that they can be paid out to investor clients who have obtained redress orders and consequent directions to apply the money first to costs and expenses, then for remuneration of the liquidator and the balance to those claimants admitted to proof, proportionally if insufficient funds are available to meet the claims in full.
Those funds ought to be held as constructive trust funds for the benefit of the investor clients of OT who are the beneficiaries of the redress orders made by me in the ASIC proceedings. I will discuss later the proper characterisation of the relevant constructive trust and the precise amount that the OT liquidator can deduct in priority for remuneration, costs and expenses.
Now in the absence of declarations and directions in the terms sought, the redress orders may be rendered fruitless in circumstances where OT is insolvent. The clients should not have to line up with other unsecured creditors given that the redress orders are for the repayment of moneys and to which they should be entitled in equity. Accordingly, the declaration and directions sought are an appropriate way of ensuring that justice is done to the OT clients and that my redress orders are properly given effect to.
Now I should note that those funds include moneys recovered by the liquidator and previously held by Authenticate Pty Ltd. The records of OT indicate that the funds received by Authenticate Pty Ltd as a payments service provider of OT comprise a mixture of client moneys and have been applied in different ways. The liquidator has been unable to trace specific client deposits to any part of the funds recovered by him from Authenticate Pty Ltd. So in those circumstances these funds are a mixed fund and it is appropriate that they be held as constructive trust funds for distribution to investor clients who have obtained redress orders.
Further, there should also be a direction that the liquidator need not pay any constructive trust claimant a dividend of $25.00 or less given that the costs of doing so would be disproportionate to the benefit gained.
Let me now deal with some other matters.
First, it is appropriate that where customers hold two or more accounts and submit either one proof of debt or multiple proofs of debt, the liquidator can treat the accounts as one account in adjudicating the proofs of debt. Since the accounts will rank equally, it will not make any difference to the amounts actually received by the OT clients. And it will save expense by simplifying the proof of debt and adjudication process.
Second, the directions sought relating to proofs of claim under settlement agreements between clients of OT and OT entered into prior to liquidation are appropriate. Those clients have agreed to accept particular amounts in relation to their claims and in many cases have been paid those amounts. So where an amount in a settlement agreement has not been paid in full, the liquidator is justified in not accepting the settlement claim to the extent that it would provide the creditor with more than the claimant would receive on a pari passu distribution. Where it has not been paid in full and the amount paid is less than the pari passu distribution, the liquidator should admit the settlement claim to the extent required to enable that claimant to receive a dividend of an amount which together with what was already received would be equal to the pari passu distribution to other trust claimants. That will ensure that settlement claimants are not treated unfairly and are no worse off than they would be under a pari passu distribution than trust claimants who have not settled. Where the settlement claimant has already been paid more than he would receive on a pari passu distribution, the liquidator in my view is justified in not disturbing that arrangement.
Third, an order should also be made under s 544 of the Act that the liquidator may pay any unclaimed payments to the ASIC in respect of statutory trust claims or constructive trust claims where they remain unclaimed at the conclusion of the liquidation of OT.
Fourth, the liquidator should also be released from earlier undertakings given in the ASIC proceedings.
Fifth, it is also appropriate that the liquidator be allowed to take his proper costs of this application from the property of OT with priority in accordance with s 556 of the Act.
The position of Ozifin
Let me set out some aspects of Ozifin’s position.
Now AGM maintained six accounts to hold client moneys belonging to Ozifin clients. But only two of those accounts (the AGM (Ozifin) CM accounts) held any funds as at the date of appointment. These accounts are what I will describe as the 3879 account and the 3887 account. At the date of appointment, the balance of the 3879 account was AUD890,316.00 and the balance of the 3887 account was USD66,975.51. The balance of the 3879 account as at 4 June 2021 was AUD890,306.00, reflecting a slight decrease due to a bank charge. The balance of the 3887 account remains at USD66,975.51.
The Ozifin liquidators seek the same relief as is sought by the AGM liquidators in their application insofar as it pertains to the nature of the funds held in the AGM (Ozifin) CM accounts. And as at the date of appointment, as I have already indicated, all of the funds held in the AGM (Ozifin) CM accounts were and continue to be funds held by AGM subject to the statutory trust imposed by s 981H and reg 7.8.03 in favour of Ozifin’s clients, that is, all of these funds are statutory trust funds.
As I have already indicated, these statutory trust funds should be transferred to the Ozifin liquidators by the AGM liquidators to allow for their distribution to those Ozifin clients who have been identified as having an entitlement to a share of these funds.
As I have indicated, I will make the necessary orders enabling the funds held by AGM in the AGM (Ozifin) CM accounts to be transferred to the Ozifin liquidators for ondistribution to the statutory trust claimants. The Ozifin liquidators are in a better position to on-distribute the statutory trust funds to Ozifin clients in circumstances where the Ozifin liquidators have received over 800 proofs of debt from Ozifin clients, who represent most of the creditors by value, and therefore have the most up-todate database of client contact information. Moreover, the Ozifin clients are familiar with the Ozifin liquidators and therefore the Ozifin liquidators are in a better position to communicate with Ozifin clients without causing confusion.
Now as I have already indicated, there are different ways of assessing a person’s entitlement under reg 7.8.03(6). The Ozifin liquidators take the same position as the AGM liquidators that the preferable approach in the circumstances of the present case in calculating entitlements is to adopt the claims basis approach. I agree.
In the present circumstances an approach based on the claims basis is the most efficient and cost effective. First, the books and records of AGM and Ozifin are deficient so that tracing of client claims is not possible and/or economically viable. Second, a majority of clients of Ozifin invested $500.00 or less with Ozifin. Third, AGM and Ozifin appear to have undertaken a process of returning client funds prior to the date of appointment. Clients’ trading positions were also finalised prior to the cancellation of the AFSL and the appointment of the liquidators. In both processes, AGM and Ozifin appear to have not strictly returned funds to clients from the accounts that clients contributed funds to, complicating any tracing exercise.
Further, based on the Ozifin liquidators’ investigations into the identity and entitlements of statutory trust claimants to the statutory trust funds calculated on a claims basis, the amount which ought to have been held on behalf of clients of Ozifin as at the date of appointment, assuming that AGM complied with its obligations as holder of the AFSL, is the sum of AUD938,640.00.
Now as I have said, the balance of the 3879 account as at 4 June 2021 was AUD890,306.00 and the balance of the 3887 account remains at USD66,975.51. Accordingly, on the basis of the existing records available to the Ozifin liquidators and as a result of their investigations, including the reconciliation of client entitlements to the statutory trust funds, it appears that the AGM (Ozifin) CM accounts contained sufficient funds, prior to the deduction of the statutory trust remuneration and expenses, to pay out all of Ozifin’s clients. But after deduction of the statutory trust remuneration and expenses there may not be sufficient money in the AGM (Ozifin) CM accounts to pay out each person entitled. If this occurs, the money in the account must be paid in proportion to the amount of each person’s entitlement, as required by reg 7.8.03(6)(d).
Now the Ozifin liquidators seek a direction that they are justified in adopting the following approach in order to achieve the distribution of the statutory trust funds to the statutory trust claimants. In my view they are so justified.
First, the Ozifin liquidators should write to all statutory trust claimants within 14 days of the receipt of the statutory trust funds from the AGM liquidators. This communication will inform the statutory trust claimants of the quantum of the distribution they will receive, request the provision of bank account details and invite any statutory trust claimants who have not yet completed a proof of debt to do so.
Second, the Ozifin liquidators should allow statutory trust claimants 14 days from the date on which such a communication was sent to respond with their bank account details and any objections.
Third, the Ozifin liquidators should record all bank details received and deal with any objections within 14 days from the date of such a 14 days response deadline. The Ozifin liquidators should subsequently distribute to each statutory trust claimant their respective entitlements via EFT into that claimant’s nominated bank account. If no response is received or no bank account is nominated from or by a statutory trust claimant, the Ozifin liquidators should distribute the statutory trust claimant’s entitlement via cheque to their last known address. Further and more generally, due to there being material deficiencies in the books and records of Ozifin available to the Ozifin liquidators, the Ozifin liquidators seek a direction that they are justified in distributing the statutory trust funds to statutory trust claimants in accordance with their last known contact details recorded in the books and records of Ozifin. I will make this direction.
Now the Ozifin liquidators also seek directions that they are justified in not paying an amount to statutory trust claimants whose claims are less than $50.00, and that any statutory trust funds remaining after distribution be paid over into the liquidation account to be dealt with in accordance with the process described below. I am content with this.
Let me now say something about the liquidation account.
Now at the date of the liquidators’ appointment, Ozifin held five bank accounts in its own name. The balances of the accounts at the date of appointment were: 0328 Account, AUD2,503,224.31; 4222 Account, AUD1,713,278.65; 4476 Account, EUR 158,017.80; 0040 Account, nil; and 2307 Account, nil. Now the current balances of the Ozifin bank accounts are nil because the Ozifin liquidators arranged for the funds in these accounts to be transferred into the liquidation account between November 2019 and March 2020. A total of AUD4,470,980.95 was transferred from the Ozifin bank accounts into the liquidation account over this period. As at 31 March 2021, the balance of the liquidation account was AUD2,206,592.15, which is net of receipts and payments in the liquidation of Ozifin for the period between 11 October 2019 and 31 March 2021.
In North Food, Brereton J said (at [17]):
[t]hose cases appear to me to establish clearly enough that in the present case the liquidators are entitled to be paid their remuneration, whether for administering the trust assets or for general liquidation work, out of the trust assets, since the company has no assets other than trust assets.
See also In re MF Global Limited (in liq) (No 2) [2012] NSWSC 1426 at [55] per Black J; In the matter of JML Property Services Pty Ltd (in liq) [2018] NSWSC 1069 at [10] per Black J; In the matter of Houben Marine Pty Ltd (in liq) [2018] NSWSC 745 at [14] to [17] per Gleeson JA; In the matter of Aberdeen All Farm Pty Ltd (in liq) [2020] NSWSC 770 at [19] and [20] per Black J; In the matter of Glenvine Pty Ltd (in liq) [2020] NSWSC 866 at [52] to [57], [120] and [121] per Black J.
Accordingly, where, as here, there are no nontrust assets from which remuneration, costs, and expenses for general liquidation work can be paid, then the trust assets may be used in order to pay these amounts, even if the constructive trusts were to be characterised as institutional.
Second, there is confusion in ASIC’s position concerning a lack of authorisation which was pointed out by Mr Stewart Maiden KC for AGM’s liquidators.
In my view, there would be no unauthorised use of trust moneys if the various liquidators were to deduct general liquidation expenses and costs from the so called trust moneys whatever the characterisation of the constructive trusts.
Now no doubt where a liquidator is seeking to invoke a trustee’s right of indemnity, there are certain limitations on what can be sought to be recouped or re-imbursed from the trust assets. But here, the various liquidators are not relying upon any rights of indemnity to recoup general liquidation costs and expenses. Rather they are relying upon the Court’s powers and orders, if made, to so authorise. If the liquidators are so authorised by me, then there cannot be any unauthorised use of trust property.
For all of these reasons, even if ASIC was correct on its institutional constructive trust argument, the liquidators should be permitted to obtain or recoup their general liquidation remuneration, expenses and costs from the trust assets.
Let me then turn specifically to the position of AGM.
First, the liquidators seek payment of their remuneration and costs from funds that are subject to the statutory trust claims, not the other trust claims. So much is clear from the distribution proposal and the directions sought by the liquidators.
Second, the liquidators seek to recover from the statutory trust funds in the OT client account remuneration and costs apportioned to that fund. Further, to the extent that general liquidation costs are sought to be applied to the OT client account, the liquidator of OT does not oppose the proposed allocation.
Third, the liquidators have approached me for directions and filed detailed material outlining their remuneration and expenses and the proposed basis for payment of those amounts. As I have already indicated, the liquidators have not drawn any remuneration or paid any legal costs since their appointment.
Fourth, ASIC has identified no specific criticisms of the amounts claimed by the liquidators, notwithstanding the liquidators’ detailed affidavits outlining their claims. In my view, the material filed by the liquidators is more than sufficient for me to make an assessment of the reasonableness of the amounts now claimed. The amounts claimed by the AGM liquidators are fair and reasonable.
In all of the circumstances I will approve the remuneration and costs sought by the liquidators of AGM.
Let me turn to the position of Ozifin. The liquidators of Ozifin wish to have me approve over $4.1 million of remuneration and expenses from out of $6.9 million of clients’ property.
I note that the creditors of Ozifin have approved $2,636,729.75 in remuneration as at 4 June 2021 in respect of the liquidation as a whole, most of which has already been drawn from the $4,470,980.95 of funds held by the Ozifin liquidators that ASIC contends ought be treated as impressed with a constructive trust.
ASIC says that the appropriate quantum of costs and remuneration should be a matter that is referred to a Registrar.
ASIC also says that in some respects, the remuneration and costs incurred by the liquidators relate to contentions that Ozifin advanced that were adverse to the interests of the beneficiaries of the constructive trust. But I do not consider this to be a complete characterisation.
The role taken by the liquidators in the ASIC proceedings against Ozifin was undertaken in circumstances where they were appointed as liquidators of Ozifin on 29 September 2019, where the trial of those proceedings was listed to start on 1 October 2019. The liquidators appeared before me by counsel on that date, did not oppose the application for leave to proceed against Ozifin as a company in liquidation, did not call evidence, and directed limited submissions as to the extent to which the Court might properly make findings in respect of the conduct of Ozifin which might have an effect as between various classes of creditors of Ozifin as to whether or not those creditors might ultimately be found to be trust creditors. Their submissions were principally addressed to the question of whether the Court should make findings of wrongful conduct in respect of investor clients of Ozifin generally including by reference to a system of conduct, or only in respect of those clients who were the subject of specific evidence adduced at the trial. This was not making submissions adverse to the interests of the beneficiaries. The liquidators were assisting the Court as a proper contradictor to determine the appropriate extent of the findings that I should make regarding investor client rights against Ozifin, which in turn was relevant to the question of the performance of the liquidators’ subsequent functions of identifying the extent to which a client of Ozifin was a creditor in the liquidation of Ozifin, and further the extent to which such clients might ultimately be found to be beneficiaries of a constructive trust, that trust being derived from findings as to the conduct of Ozifin towards them, and whether or not the liquidators would be required to undertake those processes themselves or seek directions from me as to such matters.
The liquidators, through their counsel, provided submissions in circumstances where ASIC was taking the counter position. Their submissions, even though not accepted, resulted in my determination of the identity of those clients of Ozifin who could properly now claim an interest as beneficiaries of the relevant constructive trust. There is nothing in ASIC’s point.
In summary, I will approve the Ozifin liquidators’ remuneration, costs and expenses incurred in relation to the categories of work identified. The material filed adequately justifies the quantum and there is no need for a separate reference. ASIC has not pointed to any matter raising a doubt in the evidence before me justifying the quantum. Moreover, any disparity in the amounts sought as between the three liquidations is readily explained in the material before me given the different work, investigations and complexity involved.
Let me say something about the position of OT.
Generally, the liquidator of OT should have his reasonable remuneration, fees and disbursements authorised to be paid from and allocated against the funds in his possession or to be transferred to him by the liquidators of AGM as set out in the evidence before me.
And I will not require the remuneration and expenses of the liquidator to be separately assessed. There is no basis for doing so. ASIC has not pointed to any matter concerning any deficiencies in the evidence concerning the quantum sought.
Finally, as to any allocation questions, there are two dimensions to consider. For a particular set of liquidators, namely, for each of AGM, Ozifin and OT, each set is best placed to determine their own particular allocation questions. But as between sets of liquidators, they are best placed to consider and agree upon the appropriate allocations inter se. Certainly, I am content with what is proposed. But if further directions are necessary, these can be given.
Conclusion
I will require each of the various liquidators to submit proposed orders to reflect my reasons.
I certify that the preceding two hundred and seventy-five (275) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Beach. Associate:
Dated: 9 December 2022
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