Re Aberdeen All Farm Pty Ltd (in liq)

[2020] NSWSC 770

Supreme Court

New South Wales

Medium Neutral Citation:	In the matter of Aberdeen All Farm Pty Ltd (in liquidation) [2020] NSWSC 770
Hearing dates:	26 May 2020
Decision date:	19 June 2020
Jurisdiction:	Equity - Corporations List
Before:	Black J
Decision:	Liquidator’s remuneration approved. Declaration that the trust property is charged with payment of Liquidator’s remuneration and disbursements for actions in respect of the trust property, as well as for part of the general liquidation costs and expenses. Parties to bring in short minutes of order giving effect to judgment within 7 days.
Catchwords:	CORPORATIONS — Winding up — Liquidators — Remuneration — Reasonableness of Liquidator’s remuneration   CORPORATIONS — Winding up — Liquidators — Remuneration — Whether Liquidator for corporate trustee may charge remuneration and expenses against trust property — Where Liquidator’s remuneration and disbursements for investigation, care and preservation of trust property — Where identity of trust and beneficiaries were in dispute and required Liquidator to take steps — Liquidator’s remuneration and disbursements for general liquidation activities — Where Liquidator’s remuneration for general liquidation activities could not be met from assets outside trust — Whether Liquidator appointed receiver over trust property subject to charge
Legislation Cited:	- Corporations Act 2001 (Cth) Sch 2, ss 60-5, 60-12 - Supreme Court Act 1970 (NSW), s 67 - Supreme Court (Corporations) Rules
Cases Cited:	- 13 Coromandel Place Pty Ltd v CL Custodians Pty Ltd (in liq) [1999] FCA 144; (1999) 30 ACSR 377 - ASIC v Prime Life Corporation Ltd [2007] FCA 1874 - Bastion v Gideon Investments Pty Ltd (in liq) [200] NSWSC 939; (2000) 35 ACSR 466 - Harris v Conway [1989] Ch 32 - Kerr, Re Angel’s Castle Pre-School Pty Ltd (in liq) [2010] FCA 786 - Re Banksia Securities Ltd (in liq) (recs and mgrs apptd) [2017] NSWSC 540 - Re Banksia Securities Limited (in liq) (recs and mgrs apptd) [2018] NSWSC 229 - Re Business Aptitude Pty Ltd (in liq) [2016] FCA 1438 - Re Dungowan Manly [2015] NSWSC 491; (2015) 105 ACSR 648 - Re French Caledonia Travel Service Pty Ltd (in liq) [2003] NSWSC 1008; (2003) 48 ACSR 97 - Re Gramarker Pty Ltd; Clifford Sanderson (as liquidator of Gramarker Pty Ltd) v Simon Kerr [2014] NSWSC 243 - Re Idylic Solutions Pty Ltd as trustee for Super Save Superannuation Fund [2016] NSWSC 1292 - Re Independent Contractor Services (Aust) Pty Ltd (in liq) (No 2) [2016] NSWSC 106 - Re Maureen Michael Management Pty Ltd [2005] NSWSC 1044; (2005) 55 ACSR 539 - Re National Buildplan Group Pty Ltd (subject to deed of company arrangement) [2014] NSWSC 146 - Re North Food Catering Pty Ltd [2014] NSWSC 77 - Re Primespace Property Investment Limited (in liq) [2016] NSWSC 1821 - Re Sakr Nominees Pty Ltd [2017] NSWSC 668 - Re Stansfield DIY Wealth Pty Ltd (in liq) [2014] NSWSC 1484 ; (2013) 103 ACSR 401 - Sanderson, as liquidator of Sakr Nominees Pty Ltd (in liq) v Sakr [2017] NSWCA 38; (2017) 118 ACSR 333 - Shirlaw v Taylor (1991) 31 FCR 222 - Templeton v ASIC [2015] FCAFC 137; (2015) 108 ACSR 545 - Westpac Banking Corporation v ITS Taxation Services Pty Ltd [2004] NSWSC 50; (2004) 183 FLR 273; (2004) 22 ACLC 229
Category:	Procedural and other rulings
Parties:	Michael John Morris Smith in his capacity as liquidator of Aberdeen All Farm Pty Ltd (in liquidation) (First Applicant) Aberdeen All Farm Pty Ltd (in liquidation) (Second Applicant) Barry James McWhinney (First Respondent)
Representation:	Counsel: S Golledge SC/F Tao (Applicants) M E Luitingh (First Respondent)   Solicitors: Stacks Champion (Applicants) Greystones (First Respondent)
File Number(s):	2017/279416

Judgment

Nature of the application and affidavit evidence

1. By a Further Amended Interlocutory Process filed on 21 February 2020, Mr Michael Smith (to whom I refer as “the Liquidator” or Mr Smith) in his capacity as liquidator of Aberdeen All Farm Pty Ltd (in liq) (“Company”) and the Company seek a declaration that certain properties (“Silent Grove Property”) are charged with the payment of proper costs and expenses incurred by the Company and the Liquidator in relation to specified matters, including the Liquidator’s remuneration in a specified amount for the period from 7 February 2018 to 15 October 2019; the Liquidator’s remuneration since that date; the Liquidator’s disbursements, including legal costs for the period from 7 February 2018 to 9 October 2019 in specified amounts; the Liquidator’s disbursements from 10 October 2019 until the finalisation of these proceedings; a portion of general liquidation costs and expenses incurred by the Company for the period from 7 February 2018 to 15 October 2019; and debts and expenses incurred by the Company by reason of holding the Silent Grove Property on trust for the First Respondent, Mr Barry McWhinney. The Liquidator also seeks an order that he be appointed as receiver and manager without security to the Silent Grove Property and other orders.

2. The application is supported by an affidavit of Mr Smith sworn 11 October 2018, which sets out the background to the liquidation and the application. Mr Smith was appointed as liquidator of the Company on 7 February 2018 after it failed to comply with a creditor’s statutory demand served by the Chief Commissioner of State Revenue for unpaid land tax in the amount of $41,132.92. Mr Smith refers to investigations undertaken in the period since his appointment, and to the identification of certain property held by the Company including the Silent Grove Property. He also refers to claims against the Company, including a claim by Remagen Capital Management Pty Ltd (“Remagen”) as trustee of the Remagen Lending Trust which apparently related to the provision of finance to an associated entity and to a mortgage over the Silent Grove Property in favour of the Bank of Queensland, and also identifies other debts claimed against the Company.

3. Mr Smith also refers to a claim made by Mr McWhinney, who was the previous registered proprietor of the Silent Grove Property, that the Company, which was controlled by Mr McWhinney’s former accountant, had purchased the property from a mortgagee with funds provided by Mr McWhinney and held it on trust for him. Mr McWhinney currently resides in the Silent Grove Property. Mr Smith also refers to the position in respect of two other trusts, the Grevillea Downs Trust and the Taylors Beach Unit Trust, which are no longer in issue in this application.

4. By a further affidavit dated 16 October 2019, Mr Smith refers to his experience and the experience of his staff and refers to work undertaken by him and his solicitors to secure the several properties held by the Company, including some that are no longer in issue, to identify and attend to claims made against those properties and steps taken to investigate the identity of the person to whom title to each respective property should be conveyed. He refers to his initial investigations which had suggested that the Silent Grove Property was likely to be an asset of another trust, the GDP Trust, and to a claim made by Remagen against the Company and to Remagen’s claim for a secured interest in the Silent Grove Property. He also refers to claims previously made by the Chief Commissioner of State Revenue in respect of that property and debts owing by the Company to the NSW Department of Industry Crown Land in respect of unpaid rent for the Silent Grove Property. Mr Smith also refers to other evidence that suggested that the Company held the Silent Grove Property as trustee for another trust, the Deepwater Property Trust, to which reference was made in contracts for sale of that property.

5. Mr Smith also there refers to proceedings (“RPL Proceedings”) brought by Mr McWhinney in the Real Property List of this Court, in which Mr McWhinney claimed that the Company held the Silent Grove Property on trust for him, as a result of oral agreements between him and his former accountant, the Company’s then director. Mr Smith did not take an active role in those proceedings, other than to take steps to preserve his claim to an equitable charge over the Silent Grove Property, and other persons with claims to interests in the property were joined as defendants but also did not take an active role in those proceedings. Absent any evidence led by any other party to the proceedings, the Court made orders in the RPL Proceedings, which were not opposed by the Liquidator that the Company held the Silent Grove Property on trust for Mr McWhinney, while reserving the position as to the charge claimed by the Liquidator.

6. Mr Smith also there led further evidence identifying the manner in which time is recorded by his firm. He also refers to work undertaken by his staff which he considers to be general liquidation work, not directed specifically to the Silent Grove Property, and to work carried out in respect of the Silent Grove Property, including considering its right of exoneration for debts incurred by it in the administration of the GDP Trust, for which it was at one point thought to hold the Silent Grove property on trust. Mr Smith also refers to the process that he and his staff adopted to split the cost of work in the liquidation of the Company between work referable to the Taylors Beach Unit Trust (which, as I noted above, is not the subject of this application), work referable to the Silent Grove Property and general liquidation work. Mr Smith’s affidavit exhibits a work in progress report for the period from 7 February 2018 to 15 October 2019 which identifies the tasks carried out, the staff member who carried out that task, and the allocation of work as between the Taylors Beach Unit Trust, the Silent Grove Property and general liquidation work.

7. Mr Smith there led evidence of his belief that the amount claimed with respect to the work relating to the Silent Grove Property and the general liquidation work is fair and reasonable, although that is not conclusive in an application of this character, and to his firm’s compliance with the Code of Professional Practice issued by the Australian Restructuring Insolvency and Turnaround Association (“ARITA Code”) including Parts 14 and 15 dealing with remuneration including disclosure issues. He also refers to disbursements incurred in respect of the liquidation, including legal costs and makes an estimate of the further costs that will be involved in completing the liquidation.

8. By an updating affidavit dated 14 May 2020, Mr Smith referred to additional costs and disbursements incurred since his affidavit dated 16 October 2019, and updated his estimate for the remuneration and expenses likely to be incurred to conclude the liquidation, and also referred to a settlement which had avoided the need for proceedings in respect of properties held by the Company other than in respect of the Silent Grove Property. Mr Smith also referred to communications with the Bank of Queensland as mortgagee over the Silent Grove Property, which has since indicated it neither consents to nor opposes the relief sought on the basis of information provided to it by the Liquidator, including as to the manner in which he proposes to dispose of the property if he is appointed as receiver of the property.

9. Mr McWhinney relied on his affidavit affirmed 22 May 2020 in the RPL Proceedings which related to his claim that the Company held the Silent Grove Property on trust for him. He there referred to his acquisition of the relevant properties and to his dealings with his former accountant, also the former director of the Company, who he retained to provide financial accounting advice, and to arrangements that he had reached with that accountant to bid on his behalf at an auction for the Silent Grove Property, when he had found himself in financial distress and the then mortgagee had exercised a power of sale and put the properties to public auction. He claims to have made payments towards the purchase cost of the Silent Grove Property and to have asked the former director of the Company, without success, to retransfer the property to him. Mr McWhinney was cross-examined as to the circumstances of his involvement with the former director of the Company and Mr Golledge, who appears for the Liquidator, put to him that he became involved in the arrangement with that director to seek to have the property transferred to someone else to avoid the potential that the property would become available for later claims against him. It is not necessary to determine that question in order to determine this application, and I will refer below to the limited relevance of the dealings between Mr McWhinney and the former director of the Company to the Liquidator’s claim for remuneration from trust property.

10. Mr McWhinney also refers in that affidavit to the orders made in the RPL Proceedings and fairly recognises that those orders reserved the possibility that the Company or the Liquidator would assert an equitable interest in the Silent Grove Property in respect of the Liquidator’s remuneration and expenses for identifying, preserving and transferring the properties.

The Liquidator’s claim for a charge on the Silent Grove Property in respect of remuneration

11. As I noted above, the Liquidator and the Company seek a declaration that the Silent Grove Property is charged with the payment of the Liquidator’s remuneration in a specified amount for the period from 7 February 2018 to 15 October 2019 and the liquidator’s remuneration since that date. This raises questions, first, as to the Liquidator’s entitlement to remuneration in respect of trust assets and, second, as to whether such an entitlement is properly treated as giving rise to an equitable charge over the Silent Grove Property, the asset held on trust by the Company for Mr McWhinney. The case law, which I address below, recognises that the liquidator of a trustee company may, in a proper case, be allowed payment of his or her remuneration from trust assets, and that a liquidator’s entitlement can give rise to a proprietary claim against the trust assets, or at least a claim that must be satisfied as condition of the beneficiaries’ claim to those assets.

12. Mr Golledge refers, by way of analogy, to Shirlaw v Taylor (1991) 31 FCR 222 at 230ff, where the Full Court of the Federal Court referred to Harris v Conway [1989] Ch 32 at 51 as authority that there is:

“A general principle that where a person seeks to enforce a claim to an equitable interest in property, the Court has a discretion to require as a condition of giving effect to that equitable interest that an allowance be made for costs incurred and for skill and labour expended in connection with the administration of the property.”

13. Mr Golledge refers to the observations of Finkelstein J in 13 Coromandel Place Pty Ltd v CL Custodians Pty Ltd (in liq) [1999] FCA 144; (1999) 30 ACSR 377 at 385 to the effect that a liquidator could claim indemnity out of trust assets for the work of:

“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.”

In that case, Finkelstein J also observed (at 385) that a liquidator’s work that was solely concerned with a winding up and not with the administration of trust assets could not ordinarily be charged against trust assets.

14. In Bastion v Gideon Investments Pty Ltd (in liq) [2000] NSWSC 939; (2000) 35 ACSR 466, where all of a company’s assets were trust assets and the liquidator had incurred costs and expenses in investigating the affairs of the company, Austin J similarly held (at [71]) that:

“the liquidator is entitled to be paid his reasonable remuneration, costs and expenses both for the work done to date as liquidator (including the costs of these applications), and the work done to date on behalf of the trust, out of the assets of the company … ”

15. In Re French Caledonia Travel Service Pty Ltd (in liq) [2003] NSWSC 1008; (2003) 48 ACSR 97 at [212], Campbell J noted the possibility that such costs could also be shared between the distributable property of a company and trust assets, but that possibility does not arise in this case. Mr Golledge also refers to the observations of Austin J in Westpac Banking Corporation v ITS Taxation Services Pty Ltd [2004] NSWSC 50; (2004) 183 FLR 273; (2004) 22 ACLC 229 at [26]-[27] as follows:

“Where, however, one of the claimants to priority is a court-appointed receiver seeking to recover remuneration and costs, there are some special factors in the equitable calculus. This is a case … where the principle of salvage applies. In the words of the Full Federal Court in Shirlaw, those taking the benefit of the receiver's administration should not escape bearing the burden of the proper cost of it. Mr Singleton has applied his efforts to augmenting and protecting a fund which is available (subject to his costs and expenses) for the benefit of secured and unsecured creditors of the company, including the chargeholders.

The fact that the fund is likely to be inadequate to meet the chargeholders' claims, after Mr Singleton's costs and disbursements are deducted, is not a ground for denying Mr Singleton's claim, for a receiver does not guarantee that his or her efforts will generate or preserve sufficient assets to meet all creditors' claims. The fact that Mr Singleton's claim is in an amount not very different from the value of the assets he recovered during his receivership is coincidental and beside the point. The chargeholders have had the benefit of Mr Singleton's efforts in the sense that he has preserved and augmented an asset of the company which will be available (subject to deduction of his costs and expenses) to meet all relevant claims including theirs.”

16. In ASIC v Primelife Corporation Ltd [2007] FCA 1874 at [34], Goldberg J applied the principle in 13 Coromandel Place above to the position where a liquidator had preserved assets of a trust, although the company was not the trustee of the trust in that case:

“… In circumstances where there has been confusion or difficulties in relation to the activities of the true trustee of the [t]rust and where the liquidator has filled a lacuna and acted in the absence of the ability of the true trustee to do so for the purposes of securing and preserving trust assets.”

17. Mr Golledge also relies on the observation in Re Maureen Michael Management Pty Ltd [2005] NSWC 1044; (2005) 55 ACSR 539 at [28] that:

“where a liquidator finds himself in charge of a trust fund and administers it, the Court will normally exercise its discretion to allow the liquidator remuneration and expenses out of the fund.”

18. I summarised the relevant principles in Re National Buildplan Group Pty Ltd (subject to deed of company arrangement) [2014] NSWSC 146 at [34] as follows:

“the court has an inherent jurisdiction to allow an insolvency practitioner, in his or her capacity as trustee of a fund, to receive payment of remuneration, costs and expenses out of trust assets: Re Application of Sutherland [2004] NSWSC 798; (2004) 50 ACSR 297 at [10]–[16]. [Counsel] refers to the judgment of Finkelstein J in 13 Coromandel Place Pty Ltd v CL Custodians Pty Ltd (in liq) [above] at [34], to which I referred in Re MF Global Australia Ltd (in liq) (No 2) [2012] NSWSC 1426 at [50], noting that a liquidator may, if acting reasonably, be indemnified out of trust assets for costs and expenses incurred in recovering or attempting to recover, realising or attempting to realise, or protecting or attempting to protect, trust assets and in distributing those assets to the persons beneficially entitled to them. [Counsel] also properly acknowledges that the court may decline to make such an order if a company did not act solely as trustee and has sufficient assets to meet the liquidator’s remuneration, costs and expenses, and where the work done by the liquidator in relation to trust assets may properly be treated as done in winding up the company’s affairs: Re GB Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674 at 685–689; Re MF Global Australia Ltd (in liq) (No 2) above at [55].”

19. In Re North Food Catering Pty Ltd [2014] NSWSC 77 at [9]–[17], Brereton J also undertook a comprehensive review of the authorities and held (at [17]) that the result, in that case, was that:

“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.”

20. I followed that approach in Re Primespace Property Investment Limited (in liq) [2016] NSWSC 1821 from which I have drawn part of the summary that appears above. Mr Golledge also refers to Re Independent Contractor Services (Aust) Pty Ltd (in liq) (No 2) [2016] NSWSC 106 at [25], where Brereton J observed that:

“The company, as trustee, had, and its liquidator now has, a right of indemnity from, and lien over, the trust assets, which has priority over the interest of the beneficiaries, for liabilities it incurred in acting as trustee.”

21. In this application, the evidence establishes that the remuneration and expenses claimed by the Liquidator (other than in respect of the general liquidation) relates to the identification whether the Silent Grove Property was an asset of a particular trust and the determination of who was beneficially entitled to the property, which depended on that identification. Mr Golledge also submits that the steps taken by the Liquidator preserved the Silent Grove Property for the benefit of Mr McWhinney, when documentary evidence suggested that it was held by the Company as trustee for the GDP Trust, where Mr McWhinney had failed to lodge a caveat against the Silent Grove Property. I am not persuaded that the steps taken by the Liquidator were of any particular advantage to Mr McWhinney in that respect, but it does seem to me that those steps were properly taken as liquidator of the Company where the Company was a trustee, and there were real uncertainties as to the identity of the trust in which the property was held. Subject to addressing Mr McWhinney’s submissions below, that provides a proper basis for treating that remuneration and costs incurred as charged against the Silent Grove Property. I will address the Liquidator’s claim to approval of that amount of that remuneration below.

22. I now turn to several matters raised by Mr McWhinney in submissions which are relevant to this and other aspects of the relief claimed by the Liquidator. In written submissions, the solicitors for Mr McWhinney referred to the his ownership of the Silent Grove Property from 1993 to 2013 and to the fact that he had lived there since 2004 and contended that he had been a victim of a fraud perpetrated by his former accountant who was a director of the Company in respect of that property, or at least a breach of fiduciary obligations owed to Mr McWhinney by that accountant. I left open above the question whether, if such a fraud occurred, it took place in the context of an arrangement by which that accountant was to acquire the property from its former mortgagee in a manner that sought to insulate Mr McWhinney from further claims against that property for outstanding debts. In any event, it does not seem me that the existence of any misconduct of the Company, or its former director, occurring before the Liquidator was appointed is material to the question of the Liquidator’s claim for remuneration (and disbursements) in respect of the administration of the relevant trust. Regrettably, liquidators will often have to be appointed to companies and corporate trustees of trusts in which misconduct or alleged misconduct of company officers or the trustee has occurred prior to their appointment, and the Liquidator’s entitlement to remuneration (and disbursements) is not then to be judged by an evaluation of the propriety of the former director’s misconduct.

23. Mr McWhinney also submits that it is “unreasonable” to cast the burden of costs of the liquidation incurred after the Liquidator was placed on notice of Mr McWhinney’s claim on Mr McWhinney, where Mr McWhinney had no control over the Liquidator’s decisions. It seems to me that that submission does not sufficiently recognise that the question of the Liquidator’s right to remuneration, in respect of trust assets, is to be assessed having regard to the principles and authorities to which I have referred above. Mr McWhinney also identified, in written submissions, a range of factors that he suggested would not support the exercise of a discretion to grant a charge over a trust asset, including the suggested fraud of the former director of the Company; a suggested lack of “benefit” in the Liquidator’s investigation where there was “always a probability that as a result of the fraud the property would be restored to [Mr McWhinney]”; and the existence of unresolved issues between the Liquidator, Mr McWhinney and the Company which the Court cannot resolve on a final basis. I have pointed above to the fact that the conduct of the Company’s former director does not seem to me to be material in an application of this kind; it seems to me that the Liquidator was obliged to undertake an investigation of the competing claims to the Silent Grove Property, notwithstanding that the Court ultimately made a declaration that it is held on trust for Mr McWhinney, where none of the other claimants chose to contest that declaration; and there is no reason that the Court could not have resolved, in this application, any “unresolved issues” to which Mr McWhinney refers, although Mr McWhinney did not in fact seek to have them resolved. I bear in mind, in that respect, that matters seeking final relief can be commenced by interlocutory process, under the Supreme Court (Corporations) Rules.

24. In his opening written submissions, Mr McWhinney’s solicitors submitted that the relief sought by the Liquidator would have the result that the final order made in the RPL Proceedings to restore the property to Mr McWhinney would be frustrated. I do not accept that submission, because that order was subject to an express condition which reserved the Liquidator’s position in respect of these matters, and the relief sought in these proceedings is the working out of that condition. Mr McWhinney also submits that, if that order is given effect (I interpolate, by disregarding the condition to which it was subject), then the property would be returned to Mr McWhinney’s possession, and any claim would need to be brought against him in possession. I also do not accept that submission, which fails to recognise that the Liquidator’s claim is a proprietary claim against the Silent Grove Property of which the Company was trustee, rather than a personal claim against Mr McWhinney.

25. Mr McWhinney also submits that the Liquidator is entitled to payment of reasonable remuneration from other (non-trust) assets, and the evidence is not sufficient to establish that there are no non-trust assets from which his remuneration would ultimately be paid. The evidence establishes that the Company had a minimal amount in a bank account which was also held on trust for a separate trust and no other non-trust assets, and the existence of non-trust assets available to meet the general expenses of the liquidation would not in any event have displaced the liquidator’s right to indemnity in respect of the administration of trust assets.

26. Mr McWhinney also submitted that the effect of the orders sought would be that the cost of the work or administering the GDP Trust was paid out of the Silent Grove Property, which was held on trust for him, while the Taylors Beach Unit Trust escapes liability. I do not accept that submission, where the allocation performed by Liquidator, which was not challenged by Mr McWhinney, has the result that costs referable to the administration of the trust on which the Company held the Silent Grove Property would be paid from that property, and costs referable to the Taylors Beach Unit Trust would be separately addressed by the settlement in respect of that trust. Mr McWhinney also submits that there is no basis for attributing all work relating to the Silent Grove Property to the “McWhinney Trust”, but that seems to me to be a matter of evidence, as to which Mr Smith’s detailed evidence of the work done and its relationship to the Silent Grove Property was ultimately not challenged.

27. Mr McWhinney also relies on my observation in Re Dungowan Manly Pty Ltd [2015] NSWSC 491; (2015) 105 ACSR 648 at [96] as to the circumstances in which an application for a liquidator’s remuneration to be paid from trust property may be declined, on the basis that that remuneration should first be paid from the Company’s non-trust property. I there observed that:

“A first issue arises because, as Mr Golledge [who appeared for the liquidator in that case] accepted in oral submissions, if the declarations sought by the liquidator were made, difficulties may arise as to whether the cost of particular work should be treated as costs of the winding up as distinct from costs of the administration of trust property and acknowledged the possibility, recognised in the case law, that costs may fall within both categories (T142). He also accepted that the work for which the liquidator sought to establish a lien could properly be characterised as either costs of the winding up generally, where the Company was the legal owner of lot 6 at the time of the liquidator’s appointment or, implicitly, as costs referable to the trust asset. He acknowledged that, in Re GB Nathan & Co Pty Ltd (in liq) above at 689, McLelland J declined to make an order for a liquidator’s remuneration and expenses to be paid from trust assets where the evidence suggested that there would be realisable assets available to the liquidator in the winding up generally to meet such remuneration and expenses (T143). He sought to distinguish that decision on the basis that the only property available to the liquidator in this case is presently lot 6, namely a trust asset. However, that distinction depends upon determining the position as at the date of this hearing, rather than as the winding up progresses, or as at the completion of the winding up, and takes no account of the prospect that costs orders will be made in these proceedings in favour of the liquidator or the prospect of recovery against the Shareholders by reason of this judgment or against other shareholders in any further proceedings brought by the liquidator or by Mr and Mrs McLaughlin on the Company’s behalf, by leave.”

28. It does not seem that observation assists Mr McWhinney, since there is no evidence to suggest that other assets are available to the Liquidator. I do not accept Mr McWhinney’s submission, in that regard, that the Company has substantial non-trust assets in the nature of claims against its former director, where there is no suggestion that the Liquidator is in funds to pursue such claims, or that Mr McWhinney will fund the pursuit of such claims, or that the former director has the capacity to meet any judgment against him in respect of such claims if they were brought.

29. In oral submissions Mr Luitingh, who appeared for Mr McWhinney, addressed the circumstances in which Mr McWhinney and his former accountant agreed to acquire the relevant property, and sought to displace the criticisms of Mr McWhinney’s role in that transaction that were implicit in Mr Golledge’s cross-examination. I need not address that question where, as I have noted above, that matter is of little relevance to the Liquidator’s claims in this application. Mr Luitingh also raised a question as to whether any transfer of the property to the Company was ineffective by reason of any fraud of Mr McWhinney’s former accountant, while frankly acknowledging that he had not fully investigated the implications of that question. That question does not assist Mr McWhinney, because that proposition is wholly inconsistent with the basis on which Mr McWhinney conducted the RPL Proceedings, which sought to and did establish that the Company held the Silent Grove Property on trust for him, subject to the Liquidator’s reserved claim. That result is obviously inconsistent with any suggestion that the Company had not acquired title to the Silent Grove Property so as to hold it on trust for Mr McWhinney, and Mr Luitingh fairly accepted that Mr McWhinney was bound in that regard by the manner in which he had conducted the RPL Proceedings. There is, of course, also no suggestion that the Liquidator had any involvement in any improper conduct of the Company’s former director.

30. Mr Luitingh also submitted that the Court should consider the question of “where the loss should fall” and submitted that there was not a sufficiently strong basis for a finding that Mr McWhinney rather than the Liquidator should suffer the loss. It seems to me that the question which I should address has a different character, namely whether the Liquidator, who was appointed by the Court to a company which was a trustee (albeit there was uncertainty as to the identity as to which trust and as to the identity of the beneficiaries) has established a right to remuneration from trust assets that supports an equitable charge. Regrettably, that question often arises in circumstances that the beneficiaries of the trust, whose recoveries may be postponed to the liquidator’s remuneration and costs, are innocent of any wrongdoing.

31. Mr Luitingh also invoked the finality principle in respect of the orders made in the RPL Proceedings, but that principle does not assist Mr McWhinney where those orders specifically reserved Mr Smith’s ability to bring this claim. Mr Luitingh also raised the possibility that Mr Smith could be left to bring this claim in another Court, and plead a cause of action, and allow the matter to be aired “in the course of proper litigation”. With respect, it seems to me that the application brought by the Liquidator in these proceedings is “proper litigation” where, as I noted above, the Supreme Court (Corporations) Rules permit final relief to be sought by Interlocutory Process, and there is no reason to defer the determination of the relevant issues to other proceedings. Mr Luitingh fairly also anticipated that the Court might respond to that submission that that would involve a duplication of litigation, where all of the relevant evidence was or could have been led in this application, but submitted that Mr McWhinney was at a disadvantage where relevant matters could be pleaded in other proceedings. I do not accept that Mr McWhinney was at any such disadvantage in this application, since he could have sought an order that the proceedings be conducted on pleadings, or by Points of Claim, although it is not immediately apparent that the issues had such complexity as would have warranted that course. Mr Luitingh fairly accepted that the fact that Mr McWhinney had not sought Points of Claim was potentially a difficulty for this submission (T52).

32. For these reasons, I am satisfied that the Liquidator is entitled to recover his remuneration and costs in respect of the administration of the trust against the Silent Grove Property, on the basis that that remuneration has already been apportioned by the Liquidator as between the relevant trusts. I now turn to address the quantum of that remuneration.

Liquidator’s application for approval of his remuneration

33. Next, the Liquidator seeks approval of his remuneration under s 60-5 of the Insolvency Practice Schedule (Corporations) (“IPSC”). Mr Golledge refers to s 60-12 of the IPSC which sets out matters to which the Court must have regard in making a remuneration determination. He also refers to observations of the Court of Appeal in Sanderson, as liquidator of Sakr Nominees Pty Ltd (in liq) v Sakr [2017] NSWCA 38; (2017) 118 ACSR 333, referring to the relevance of “proportionality” in fixing a practitioner’s remuneration, and to the recognition by the Full Court of Federal Court in Templeton v SIC [2015] FCAFC 137; (2015) 108 ACSR 545 that proportionality is to be judged having regard to the complexity of the issues with which an insolvency practitioner had to deal. The Full Court there observed at [52] that:

“More generally, in considering the question of proportionality one also has to bear in mind two other points that may be overlooked. First, in performing some work, it may not be entirely clear ex ante what the precise benefit might be. A situation where work was being performed to preserve property of known value is quite different to the situation where work was being performed to achieve a return to creditors that was unclear. In the latter case, it might be inappropriate to use a hindsight analysis of known returns after the event to assess whether the work performed was proportional to the task; in such a situation one would look at the expected realistic return at the time the work was performed rather than actual outcomes. Second, some work may be sufficiently complex and labour intensive such as to justify a cost/benefit ratio of 6/10. After all, if the duty of the Receivers is to maximise returns and it is necessary to spend $0.60 to achieve $1.00, then proportionality is satisfied even if the ratio might be high.”

34. In Re Banksia Securities Ltd (in liq) (recs and mgrs apptd) [2017] NSWSC 540, Gleeson JA, in dealing with a receiver’s claim for remuneration, noted that common bases for calculation of remuneration included time-based charging and a commission based on percentage of recoveries, and that the approach to be adopted is directed to securing reasonable remuneration in the circumstances. Gleeson JA there also referred to the Court of Appeal’s decision in Sanderson, as liquidator ofSakr Nominees Pty Ltd (in liq) v Sakr above and summarised the principles which arose from Bathurst CJ’s judgment in that case (at [44]-[46]) as follows:

“First, the onus is on the special purpose receivers to establish that the remuneration claimed is reasonable. It is the function of the Court … to determine the remuneration by considering the material provided and bringing an independent mind to bear on the relevant issues: Sakr at [54].

Second, many of the factors in s 425(8), in particular, pars (d)-(e) and (g)-(h) can be seen to have as their unifying theme the concept of proportionality. The question of proportionality in terms of work done as compared with the size of the property the subject of the insolvency administration or the benefit to be obtained from the work, is an important consideration in determining reasonableness: Templeton v Australian Securities and Investments Commission (2015) 108 ACSR 545; (2015) FCAFC 137. The work done must be proportionate to the difficulty and 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: Sakr at [55].

Third, the mere fact that the work performed does not lead to augmentation of the funds available for distribution does not mean that the special purpose receivers are not entitled to be remunerated for it. In the present case, the Trustee fee application and the time spent consulting with the committee of creditors on various issues, including obtaining approval of the special purpose receivers’ remuneration will not result in the augmentation of the funds available for distribution. Provided it was reasonable to carry out the work and the amount charged is reasonable, there is no reason a liquidator should not recover remuneration for undertaking the work: Sakr at [57]–[58].

35. Mr Golledge also refers to my decision in Re Sakr Nominees Pty Ltd [2017] NSWSC 668 at [23]-[25], where I referred to the position as it had developed following the Court of Appeal's decision in Sanderson, as Liquidator of Sakr Nominees Pty Ltd (in liq) v Sakr above. I there noted the relevance of proportionality in an application of this kind, and also noted that the majority of decisions had accepted that, at least in some circumstances, time costing may be an appropriate starting point for a calculation of remuneration, although the assessment of proportionality is important in testing the reasonableness of time-based remuneration. I noted that several cases had recognised the significance of the percentage that a liquidator's remuneration bears to the level of asset realisations achieved, but that is less relevant in a provisional liquidation, where the provisional liquidator would not be expected to, and indeed generally does not have power to, realise the company's assets. I also noted the recognition in the case law that work may be necessary, including in order to comply with a liquidator's or provisional liquidator's obligations, although it does not in fact generate any positive return to creditors.

35. In Re Idylic Solutions Pty Ltd as trustee for Super Save Superannuation Fund [2016] NSWSC 1292 at [58], I also observed that it is not the Court’s role, as constituted by a judge, to undertake a line by line review of the relevant narratives in an insolvency practitioner’s billing record, but I there reviewed the relevant narratives in a broad way in order to satisfy myself that they supported the other evidence led in respect of the claimed remuneration. Gleeson JA adopted the same approach in Banksia above at [48] and I also adopted that approach in Re Banksia Securities Limited (in liq) (recs and mgrs apptd) [2018] NSWSC 229. I have also taken that approach in this application.

36. Mr Golledge points out that Mr Smith’s affidavit evidence provides a detailed explanation of the work that he and his staff have done, and explains the basis on which he has calculated the claim for remuneration, and the WIP records which are in evidence in turn establish the identity and seniority of those within his firm who carried out the relevant work, their respective charge-out rates and the time spent on that work. He also refers to the split of work between the Taylors Beach Unit Trust (which is not in issue in this application), the Silent Grove Property and general liquidation work. Mr Golledge submits that the Court should be satisfied, having regard to the evidence, that the amount claimed represents reasonable remuneration for the work done in investigating, caring for or preserving the Silent Grove Property. In oral submissions, Mr Golledge also drew attention to the fact that the Liquidator’s costs were, not surprisingly, much less at earlier stages of the liquidation. It is, of course, unfortunate that Mr McWhinney and the Liquidator were not able to reach agreement as to an arrangement for those costs to be met at an earlier point, and avoid the delays and additional costs which have been associated with this application.

37. In written opening submissions, Mr McWhinney’s solicitors disputed that the Liquidator’s fees were “either reasonable or were necessary” and submitted that that question could not be resolved on this application. Mr Luitingh, who appeared for Mr McWhinney at the hearing, did not press any specific criticism of the quantum of Mr Smith’s fees, and there is no reason that such an issue could not have been resolved on this application, had it been pressed. Mr Luitingh, fairly, accepted Mr Golledge’s analysis of the applicable legal principles (T48) and made clear that Mr McWhinney’s submission that the Liquidator’s remuneration was unreasonable was not based upon any review of the specific tasks performed or the rates that were charged, and that Mr McWhinney did not seek to challenge the detail of the Liquidator’s work, and acknowledged that Mr Smith had shown with considerable clarity how the relevant costs had been incurred (T48).

38. Mr Luitingh indicated that Mr McWhinney instead contended that the costs incurred by the Liquidator were unreasonable because the Liquidator should at an earlier stage have conducted reasonable inquiries to establish that Mr McWhinney was involved, implicitly as the beneficiary of a previously unknown trust. I am unable to accept that proposition. Mr McWhinney did not draw his claim to the property to the Liquidator’s attention until several months after the Liquidator’s appointment, and, as Mr Golledge points out, there is no reason to think that the Liquidator should have realised, without assistance from Mr McWhinney, that a former owner of the property might have a claim to it, by reason of dealings between him and his former accountant, rather than the property being held on trust in the manner recorded in contemporaneous documentation, or for the other parties who then contended that it was held on trust for them.

39. Mr Luitingh alternatively submitted that the Liquidator could have registered a caveat over the property and allowed the dispute regarding the ownership of the property to take place without incurring further expenses of inquiries on his part. I am also unable to accept that proposition. It does not seem to me that the Liquidator could have taken the essentially passive role of registering a caveat, and leaving other parties to contest the ownership of the property, without at least making the inquiries that were incumbent upon him as a liquidator of a company that held trust property. As Mr Golledge points out, once Mr McWhinney commenced proceedings to establish the trust for which he contended, Mr Smith did seek to minimise his involvement in the proceedings, and did not take an active role in opposition to Mr McWhinney’s claims over the property.

40. Mr Luitingh also made clear that Mr McWhinney did not seek to have the Court review the remuneration claimed by Mr Smith on a line by line basis, but limited his challenge to those costs to the proposition that there was an earlier “watershed event” (possibly the identification of Mr McWhinney’s claim) that might have reasonably driven the Liquidator not to incur the relevant costs. I do not accept the latter proposition, but I have reviewed the costs incurred by the Liquidator, in a broad brush manner consistent with the approach adopted in the case law in respect of a remuneration application. Mr Luitingh also raised a question whether there was sufficient evidence to allow the Court to address the question of proportionality, and raised a concern that the costs of dealing with other properties could be visited upon the Silent Grove Property. It seems to me that the detailed evidence led by the Liquidator to support his claim for remuneration is sufficient to address the question of proportionality, and the evidence led as to the process of allocation of costs between the two trusts and to the general expenses of the liquidation displaces any risk that costs of the administration of other properties would be borne by the Silent Grove Property.

41. I am satisfied that the Liquidator’s claim for remuneration should be approved in the amounts claimed, and his claim for estimated future remuneration should also be approved in the amount claimed where that estimate is reasonably founded and the costs of a further application for that approval which otherwise would further erode the assets of the trust.

The Liquidator’s claim for a charge on the Silent Grove Property in respect of disbursements and other expenses

43. The Liquidator and the Company also seek a declaration that the Silent Grove Property is charged with the payment of disbursements, including legal costs for the period from 7 February 2018 to 9 October 2019 in specified amounts and from 10 October 2019 until the finalisation of these proceedings. I am satisfied, for the reasons I have indicated above, that the Liquidator should recover proper disbursements against the Silent Grove Property, but I do not propose to undertake a costs assessment in respect of the amount of legal costs or other disbursements and it will be a matter for the Liquidator to satisfy himself as to the amounts that are properly paid in that respect.

The Liquidator’s claim in respect of costs and disbursements of the liquidation generally and other costs

44. The Liquidator and the Company also seek a declaration that the Silent Grove Property is charged with the payment of half of the general liquidation costs and expenses incurred by the Company for the period from 7 February 2018 to 15 October 2019, reflecting an attribution of those costs and expenses to the two trusts. I consider that I should follow the approach taken by Brereton J in Re North Food Catering Pty Ltd above and I am satisfied that the Liquidator is entitled to recover those costs and expenses against the Silent Grove Property.

45. The Liquidator and the Company also seek a declaration that the Silent Grove Property is charged with debts and expenses which are not specifically identified, incurred by the Company by reason of holding the Silent Grove Property on trust for Mr McWhinney. I am not satisfied that such a declaration can be made without a clear identification of the debts and expenses or why that are properly attributable to the trust.

The Liquidator’s application that he be appointed as receiver and manager to the Silent Grove Property

46. The Liquidator also seeks an order that he be appointed as receiver and manager without security to the Silent Grove Property and be granted specified powers in order to effect its sale. Mr Golledge refers to the Court’s power under s 67 of the Supreme Court Act 1970 (NSW) to appoint a receiver to the Company.

47. In Re Stansfield DIY Wealth Pty Ltd (in liq) [2014] NSWSC 1484; (2014) 103 ACSR 401, Brereton J noted that, even if the company in liquidation had ceased to be a trustee, the outgoing trustee would retain a right of indemnity from the trust assets secured by an equitable charge over them, for liabilities incurred by reason of its acting as trustee. After a careful review of the authorities, his Honour noted that it was open to a liquidator of a corporate trustee (or former trustee) to seek appointment as a receiver of the trust, by way of enforcement of the lien over the trust’s assets for liabilities incurred by a corporate trustee in that capacity, and referred to earlier authorities where such an order had been made: Kerr, Re Angel’s Castle Pre-School Pty Ltd (in liq) [2010] FCA 786; Re Gramarker Pty Ltd; Clifford Sanderson (as liquidator of Gramarker Pty Ltd) v Simon Kerr [2014] NSWSC 243. His Honour noted that the appropriate remedy for the liquidator in that case was to seek appointment as a receiver of the trust assets, by way of enforcement of the (former) trustee’s right of indemnity.

48. Mr Golledge also refers to the observations of Gleeson J in Hosking, Re Business Aptitude Pty Ltd (in liq) [2016] FCA 1438 at [17]-[19] and [21], where her Honour noted that “[t]he general ground upon which the Court appoints a receiver is the protection or preservation of property for the benefit of persons who have an interest in it; that, where a trustee is removed, it retains a right of indemnity from the trust assets secured by an equitable charge over them for its liabilities incurred by reason of acting as trustee”; and that:

“… it is well-established that a receiver and manager can be appointed over trust property to secure the trustee’s right of indemnity out of the assets of the trust.”

49. I am satisfied that, having regard to these principles and the findings I have reached above, I should make the order sought by the Liquidator under s 67 of the Supreme Court Act for Mr Smith’s appointment as receiver and manager without security over the property, and as to the powers which he should have in that capacity. It seems to me that that order is properly made, first, because it is just and equitable so as to allow the liquidator to realise the Company’s rights of indemnity as trustee of the trust and second, because it will also place the liquidator in a position that his entitlement to deal with any surplus which becomes available on sale of the Silent Grove Property, whether initiated by the Liquidator or the mortgagee, is made clear.

The Liquidator’s application for an order for possession and application of the sale proceeds

50. The Liquidator also seeks an order that Mr McWhinney give vacant possession of the Silent Grove Property to the Liquidator and seeks directions as to the proper application of the proceeds from the sale of the relevant properties. Mr Golledge did not further address these orders in written submissions. I will defer making such orders, where these issues were not the subject of specific submissions, and reserve liberty for further written submissions if the application for these orders is pressed.

Orders

51. I direct the parties to bring in agreed short minutes of order to give effect to this judgment within 7 days or, if there is no agreement between them, their respective short minutes of order and submissions not exceeding 6 pages in one and a half spacing as to the differences between them. The orders should, as the parties accepted, provide for a stay for a period of 21 days to allow Mr McWhinney an opportunity to explore any possible refinancing of the Silent Grove Property to meet the relevant costs and avoid the need for a sale of the property.

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Decision last updated: 23 June 2020