Re Australian Property Custodian Holdings Ltd (in liq)
[2021] VSC 51
•15 February 2021
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL DIVISION
CORPORATIONS LIST
S ECI 2019 03009
| IN THE MATTER OF AUSTRALIAN PROPERTY CUSTODIAN HOLDINGS LIMITED (ACN 095 474 736) | |
| STIRLING LINDLEY HORNE and PETR VRSECKY as joint and several liquidator of AUSTRALIAN PROPERTY CUSTODIAN HOLDINGS LIMITED (IN LIQ) (ACN 095 474 436) | Plaintiffs |
| - and - | |
| KIDDER COMMUNITIES PTY LTD (ACN 130 631 891) (RECS AND MGRS APPT) & ORS (as set out in the attached Schedule) | First Interested Party |
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JUDGE: | SLOSS J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 22 July 2020 |
DATE OF JUDGMENT: | 15 February 2021 |
CASE MAY BE CITED AS: | Re Australian Property Custodian Holdings Ltd (in liq) |
MEDIUM NEUTRAL CITATION: | [2021] VSC 51 |
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CORPORATIONS — Winding up — Where joint and several liquidators were appointed to company —Where predominant operational capacity of company was as Responsible Entity of listed trust — Where assets of company are dwarfed by its liabilities —Where company holds assets and has liabilities both in its capacity as trustee and in its personal capacity — Where unitholders may have a claim available to them for damages for misleading and deceptive conduct — Whether liquidators are justified in adopting a global proof of debt procedure for dealing with claims made (or to be made) by unitholders in their capacity as unitholders — Where questions have arisen as to the proper and reasonable approach to be adopted by the liquidators in assessing unitholder claims and their value and in making a final distribution to creditors from assets held in its capacity as trustee and in its personal capacity — Application for directions by liquidators — Whether directions should be made — Corporations Act 2001 (Cth) s 553 — Corporations Regulations 2001 (Cth) regs 5.6.40, 5.6.45, 5.6.47 —Insolvency Practice Schedule (Corporations) ss 90-15, 90-20.
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APPEARANCES: | Counsel | Solicitors |
| For the plaintiffs | Mr J L Evans QC and Mr N Kaskani of counsel | Cornwalls |
| For the first to third interested parties | Mr L Glick QC and Mr J Tomlinson of counsel | SBA Law |
| For the fourth interested party | Mr A Muller of counsel | Mackay Lawyers & Advisors |
TABLE OF CONTENTS
Introduction........................................................................................................................................ 1
APCHL........................................................................................................................................... 1
The external administration of APCHL..................................................................................... 2
Joinder of interested parties and position adopted by each of them.................................... 3
PTAG (Prime Action Support Group Inc)....................................................................... 3
KCDA parties....................................................................................................................... 6
The central issue in the case and summary of conclusions.................................................... 7
The Court’s jurisdiction.................................................................................................................. 11
The liquidators’ application.......................................................................................................... 12
The relief sought in the FAOP................................................................................................... 15
The material relied on by the parties at the hearing................................................................. 17
Objections to evidence................................................................................................................ 18
Paragraph 1of the FAOP: treating ‘Eligible Unitholder Claims’ as unsecured claims and valuing them on the basis each unit held is worth $1....................................................................... 20
The liquidators adopted a ‘neutral position’ save in respect of direction 1(c)................... 20
Directions 1(a) and 1(b) concerning Eligible Unitholder Claims......................................... 22
The FOS determinations................................................................................................... 23
The position advanced by PTAG.............................................................................................. 26
The KCDA parties’ response..................................................................................................... 33
Paragraph 1(c) of the FAOP: direction sought concerning the ‘global proof of debt’ to be lodged by PTAG on behalf of ‘Eligible Unitholders’................................................................. 39
The ‘global proof of debt’ proposal.......................................................................................... 39
The reasons advanced by the liquidators in support of a ‘global proof of debt’............... 42
The liquidators revised their Table 2 (individual proof cost) and Table 3 (group proof of debt cost) following consensus reached between the parties concerning the payment of dividends to creditors of APCHL and from what asset pools (directions 2(b) and 2(c)).................................................................................................................................. 44
PTAG did not file written submissions concerning a ‘global proof of debt’..................... 46
The KCDA parties oppose the making of directions for the lodgment of a global proof of debt by PTAG on behalf of ‘Eligible Unitholders’...................................................................... 46
The Court’s power to make direction 1(c)..................................................................... 47
The Court’s discretion to make direction 1(c)............................................................... 49
The liquidators’ response........................................................................................................... 50
Consideration and disposition in respect of the directions sought in paragraphs 1(a), 1(b) and 1(c) of the FAOP................................................................................................................................. 51
Are the unitholders’ claims for misleading and deceptive conduct under s 1041H of the Corporations Act provable debts under s 553?............................................................. 52
Is the ‘global proof of debt’ mechanism available?................................................................ 61
Even if the global proof of debt mechanism were available, the proposal set out in the suite of directions sought in paragraphs 1(a) to (c) is unsatisfactory and falls short of discharging the liquidator’s adjudicatory function.................................................................................. 64
The role of a liquidator in deciding upon proofs of debt............................................ 64
The pragmatic expedient proposed to be adopted....................................................... 67
Direction 2(a): assessing the claims of the Excluded Unitholders in their capacity as unitholders as nil................................................................................................................................................... 69
The liquidators’ position............................................................................................................ 69
PTAG supports the exclusion of the Excluded Unitholders................................................. 75
The KCDA parties oppose the directions sought in paragraph 2(a) concerning the proposed exclusion of certain unitholders...................................................................................... 76
The liquidators’ response........................................................................................................... 76
Consideration and disposition in respect of the direction sought in paragraph 2(a)......... 77
Paragraphs 2(b) and 2(c) of the FAOP: Whether the General Creditors are entitled to share in the assets of the Prime Trust or are they confined to the assets of APCHL (in its own right)? and Whether the Trust Creditors are entitled to share in the Personal Assets of APCHL or are they confined to the Trust Assets only?......................................................................................... 80
The approach taken by the liquidators.................................................................................... 80
PTAG agrees with the approach taken by the liquidators.................................................... 87
The KCDA parties agree generally with the approach taken by the liquidators.............. 87
The liquidators’ response - consensus reached in relation to the directions sought in paragraphs 2(b) and 2(c)........................................................................................................................ 88
Consideration and disposition in respect of the directions sought in paragraphs 2(b) and 2(c) of the FAOP...................................................................................................................................... 89
Conclusion......................................................................................................................................... 89
ANNEXURE A – CORPORATE STRUCTURE CHART.......................................................... 90
ANNEXURE B – EXCLUDED UNITHOLDERS........................................................................ 91
HER HONOUR:
Introduction
The plaintiffs, Mr Stirling Horne and Mr Petr Vrsecky, are the joint and several liquidators (liquidators) of Australian Property Custodian Holdings Limited (APCHL), having been the external administrators of APCHL since 2010.[1] By application brought pursuant to ss 90-15 and 90-20 of the Insolvency Practice Schedule (Corporations) (Insolvency Practice Schedule) set out in Schedule 2 to the Corporations Act 2001 (Cth), the liquidators seek directions from the Court in relation to the liquidation of APCHL.
[1]APCHL was placed into voluntary administration on 18 October 2010 and, by resolution of its creditors, into liquidation on 23 November 2011, with the plaintiffs being appointed as liquidators.
APCHL
APCHL is, and all material times has been, the Responsible Entity (RE) of the Prime Retirement and Aged Care Property Trust (Prime Trust). APCHL as RE for the Prime Trust:
(a)was the parent of 18 wholly owned subsidiaries;[2]
(b)floated and listed the Prime Trust on the Australian Stock Exchange as a registered managed investment scheme in August 2007; and
(c)by 2008 owned and operated approximately 47 retirement villages and one rental village.
[2]A Corporate Structure Chart showing the relationship between the various entities within the Prime Group (which appeared as exhibit SLH-4 to the affidavit of Stirling Lindley Horne sworn 28 June 2019 (Horne 28.06.19 affidavit) ) is set out as Annexure A to these reasons.
APCHL’s predominant operational capacity was as the RE of the Prime Trust, however, it also conducted some ‘minor and incidental operations’[3] in its own capacity and APCHL (in its personal capacity) ‘held all of the issued share capital in APCH Administrators Pty Ltd’.[4]
[3]Plaintiffs’ submissions filed 24 December 2019, at [3] (liquidators’ submissions).
[4]Liquidators’ submissions, at [3].
The external administration of APCHL
The external administration of APCHL has had a long and storied history, APCHL having been involved in protracted litigation both in this Court and in the Federal Court of Australia, arising from the collapse of APCHL and the Prime Trust. After more than nine years, the position has now been reached whereby the external administration is nearing completion − all of the assets of the Prime Trust (and its subsidiaries) have been realised, save for a potential claim by a subsidiary, APCH Investments Pty Ltd, against Orchard Australia Pty Ltd (in liquidation).
Currently, APCHL holds total assets of approximately $4.7 million, comprising:[5]
(a) approximately $2.96 million of cash at bank held in its personal capacity; and
(b) approximately $1.79 million of cash at bank held in its capacity as RE for the Prime Trust.
[5]Liquidators’ submissions at [5].
However, the liquidators have informed the Court that APCHL's assets are dwarfed by its liabilities, in that the total liabilities of APCHL (both in its personal capacity and as RE for the Prime Trust) exceed $948 million. And while approximately $570 million is comprised of inter-company loans within the Prime Group, the balance of approximately $378 million is owed to parties outside the Prime Group as follows:[6]
(a)approximately $35.4 million is owed by APCHL (in its personal capacity); and
(b)approximately $342.6 million is owed by APCHL (as RE for the Prime Trust).
[6]Supplementary Affidavit of Stirling Lindley Horne sworn 15 August 2019 (Horne 15.08.19 affidavit), at [9]–[10].
In addition to the above liabilities, the liquidators recognise that there are additional potential claims that may be available to unitholders of the Prime Trust and these potential claims (which are the subject of the directions sought in paragraphs 1(a), (b), (c) and 2(a) of the further amended originating process dated 22 July 2020[7] (FAOP)) would increase the total creditors of APCHL.
[7]This version of the FAOP was filed on 23 July 2020, following the hearing.
As a consequence of APCHL holding assets and having liabilities both in its capacity as trustee and in its personal capacity, questions have arisen as to the proper and reasonable approach to be adopted by the liquidators in the application of the modest assets remaining to make a final distribution (or at least a final distribution of any material amount) to the creditors (and potential creditors) of APCHL.
Joinder of interested parties and position adopted by each of them
At the first return of the proceeding on 2 August 2019, Efthim AsJ granted the following entities leave to intervene and make submissions as ‘interested parties’ pursuant to rule 2.13 of the Supreme Court (Corporations) Rules 2013 (Vic):
(a)Kidder Communities Pty Ltd (ACN 130 631 891) (recs and mgrs appt) (Kidder Communities) (the first interested party);
(b)Daytree Pty Ltd (ACN 054 304 755) (Daytree) (the second interested party);
(c)Australian Property Administrators Pty Ltd (ACN 067 857 425) (APA) (the third interested party); and
(d)Prime Trust Action Group (Prime Action Support Group IARN A1015519W) (PTAG) (the fourth interested party).
In these reasons, I will refer to the first to third interested parties (who were jointly represented) as the ‘KCDA parties’, the fourth interested party as ‘PTAG’, and to the KCDA parties and PTAG collectively, as the ‘interested parties’.
PTAG (Prime Action Support Group Inc)
The group known as ‘PTAG’ is an incorporated association, having been incorporated in Western Australian under the name ‘Prime Action Support Group Inc’ on 21 September 2011.[8]
[8] Exhibit PTAG-1: affidavit of Stephen O’Reilly sworn 14 November 2019 (O’Reilly affidavit), at [17].
Currently, there are five members of PTAG[9] being:
[9]Wendy Hertzog, an investor in Prime Trust, was an independent member until her death in April 2016.
(a) John O’Brien, President and an investor in Prime Trust;
(b) Don Steel, Vice-President and an investor in Prime Trust;
(c) Roger Pratt, Treasurer, whose father invested in Prime Trust;
(d) Keith Wenban, independent member and an investor in Prime Trust;
(e) Stephen O’Reilly, the Secretary and an investor in Prime Trust.
Mr O’Reilly, who was a founding member of PTAG, filed an affidavit in this proceeding to provide evidence in support of PTAG’s intervention.[10] Mr O’Reilly deposes that since its incorporation, PTAG has been an advocate on behalf of unitholders in Prime Trust and keeps abreast of developments in the liquidation of APCHL.[11] In particular, he says PTAG has:[12]
[10]Exhibit PTAG-1: O’Reilly affidavit, at [3].
[11]Exhibit PTAG-1: O’Reilly affidavit, at [1].
[12]Exhibit PTAG-1: O’Reilly affidavit, at [23].
(a) advocated for unitholders in various fora including with the liquidators and the Australian Securities and Investments Commission (ASIC);
(b) distributed information and notices to investors in the Prime Trust;
(c) liaised with the liquidators;
(d) participated on the creditors’ committee established by the liquidators;
(e) attended meetings convened by the liquidators;
(f) investigated potential claims and avenues of recovery for unitholders;
(g) maintained the website (PTAG website) with regular updates to unitholders; and
(h) provided commentary to various media outlets.
Mr O’Reilly also deposes that to the best of his knowledge, PTAG is the only association established to represent unitholders’ interests in the external administration of Prime Trust.[13] PTAG has kept a register of unitholders which includes information about the dates on which they placed investments in Prime Trust.[14] He says that as at 14 August 2019, PTAG has received statements of support from 6,402 unitholders in Prime Trust[15] and that the unitholders who have given these statements of support represent approximately:[16]
(a) $409.9 million of the $576 million in funds subscribed for units in Prime Trust; or
(b) 71% of the units subscribed in Prime Trust.
[13]Exhibit PTAG-1: O’Reilly affidavit, at [22].
[14]Exhibit PTAG-1: O’Reilly affidavit, at [52].
[15]Exhibit PTAG-1: O’Reilly affidavit, at [24].
[16]Exhibit PTAG-1: O’Reilly affidavit, at [25].
In addition, Mr O’Reilly deposes that PTAG has advocated more widely and has sought to ensure, wherever possible, that information about its activities is publicly available on its website and is distributed as widely as possible among all unitholders.[17]
[17]Exhibit PTAG-1: O’Reilly affidavit, at [26].
In July 2019, the liquidators wrote to PTAG and provided information about this application, following which PTAG informed the Court that it wished to be heard. In mid-August 2019, PTAG updated members about the liquidators’ application for directions and PTAG’s support for the proposal contained therein. Mr O’Reilly deposes that PTAG has not received correspondence from any unitholders stating that they object to PTAG’s support for the liquidators’ proposal.[18]
[18]Exhibit PTAG-1: O’Reilly affidavit, at [48].
PTAG has informed the Court that the O’Reilly affidavit was filed to give the Court some ‘comfort’[19] that PTAG is the appropriate entity to:
[19]Submissions of the Prime Trust Action Group dated 3 March 2020 (PTAG’s submissions), at [5].
(a) make submissions on behalf of unitholders;
(b) file a global proof of debt if so ordered by the Court; and
(c) provide evidence to support the proposition that unitholders have potentially viable claims against APCHL in its own capacity and in its capacity as the RE for the Prime Trust.
PTAG submits that s 90-21 of the Insolvency Practice Schedule allows the Court to receive this affidavit as evidence of the wishes of unitholders.[20]
[20]PTAG’s submissions, at [6]. Section 90-21(1) of the Insolvency Practice Schedule provides that ‘[t]he Court may, as to all matters relating to the external administration of a company, have regard to the wishes of the creditors or contributories as proved to it by any sufficient evidence.’
In essence, PTAG supports the making of the directions sought in the liquidators’ FAOP.
KCDA parties
Each of the KCDA parties is included within the list of persons the liquidators have identified in the Annexure to the FAOP as ‘Excluded Unitholders’ (see below). Relevantly, each of Kidder Communities, Daytree and APA has submitted a proof of debt (other than in their capacity as unitholders) and received confirmation from the liquidators that it would be admitted, as follows:
(a) On 4 May 2018 Kidder Communities submitted a proof of debt with the liquidators. On 29 June 2018 the liquidators wrote to the receiver and manager of Kidder Communities and confirmed that they would admit the Kidder Communities’ proof of debt in the sum of $7,773,311.50. [21]
[21]Exhibit KCDA-1: Affidavit of Kelly Powers sworn 3 March 2020 (Powers affidavit), at [8]–[9] and exhibit KP-2 thereto.
(b)On 27 July 2018 each of Daytree and APA submitted proofs of debt to the liquidators. On 24 August 2018, the liquidators wrote to the solicitor for the KCDA parties and notified that they would admit the proofs of debt submitted by Daytree and APA to the following extent: [22]
[22]Exhibit KCDA-1: Powers affidavit, at [12] and exhibit KP-4 thereto.
(i) Daytree − in the sum of $21,914,416.28;[23] and
(ii) APA — in the sum of $5,699,922.82.[24]
[23]The Form 537: Notice as to Partial Rejection of Formal Proof of Debt (contained in exhibit KP-4) records that the formal proof of debt for $67,011,587.57 was admitted to the extent of $28,264,416.28 less $6,350,000 (already received) and rejected to the extent of $38,747,171.29.
[24]The Form 537: Notice as to Rejection of Partial Formal Proof of Debt (contained in exhibit KP-4) records that the formal proof of debt for $58,855,885.00 was admitted to the extent of $5,699,822.82 [sic] and rejected to the extent of $53,156,062.18. A total of $5,699,922.82 (comprised of a Base Fee of $2,255,000 and a Bonus fee of $3,444,922.82) was admitted to rank for dividend in the liquidation.
On 16 August 2019, the solicitor for the KCDA parties received a letter from the liquidators’ solicitors noting that the liquidators had not yet formally called for proofs of debt.[25] On 15 November 2019, the solicitor for the KCDA parties wrote to the liquidators’ solicitors informing them that the KCDA parties ‘will take an active role in advocating their position in the proceeding to the effect that the proposed directions should not be made and the proceeding should be dismissed.’[26]
[25]Exhibit KCDA-1: Powers affidavit, at [11] and exhibit KP-3 thereto.
[26]Exhibit KCDA-1: Powers affidavit, at [15] and exhibit KP-7 thereto.
The central issue in the case and summary of conclusions
As will be discussed in greater detail below, the central issue raised by the liquidators’ application concerns the proof of debt procedure to be adopted in relation to claims (or potential claims) by unitholders of Prime Trust.
In essence, the liquidators are of the view that if the traditional proof of debt procedure provided for by the Corporations Regulations is followed, it is likely the assets of APCHL that are available for distribution will be significantly diminished by the associated costs and expenses. Accordingly, in the FAOP the liquidators seek advice as to whether they would be justified and acting reasonably in the interests of creditors if they were to adopt an alternative regime whereby those costs and expenses would not be incurred.[27]
[27]Transcript, 22.07.20, at p 78.14-78.23 (Mr Evans QC).
The proposal embodied in the FAOP is something of a ‘pragmatic expedient’ – in that it seeks to provide a mechanism or process by which ‘Eligible Unitholders’ in Prime Trust who assert a claim under s 1041H for misleading and deceptive conduct arising in relation to the relevant product disclosure statements can bring forward their claims under a global proof of debt, and have them assessed and dealt with by the liquidators in an efficient and cost-effective way – such that the costs and expenses involved in the proof of debt process do not deplete APCHL/Prime Trust’s assets with the real possibility that no dividend is paid to creditors. The proposal also entails that any claims of the ‘Excluded Unitholders’, under s 1041H for misleading and deceptive conduct arising in relation to the relevant product disclosure statements, be assessed as nil.
Counsel for the liquidators submit that the Court clearly has the power to make each of the directions sought in the FAOP, and they contend that there is nothing in the ‘pragmatic’ proposal embodied in the FAOP that, if adopted, would be contrary to any provision of the Corporations Regulations or the Insolvency Practice Schedule.[28] They acknowledge, however, that ultimately it is a matter for the Court to determine whether to exercise its discretion to make the orders sought.
[28]Transcript, 22.07.20, at p 78.14-78.23 (Mr Evans QC).
For the reasons which follow I have determined that it is not appropriate for the Court, in the exercise of its discretion, to make the directions sought in paragraphs 1(a), (b) and (c) or 2(a) of the FAOP concerning the claims of unitholders in the Prime Trust. In summary, the views I have reached are as follows.
First, in my view, the application suffers from a lack of articulation of precisely what the liquidators’ global proof of debt proposal involves and how the process is to be conducted and administered by the liquidators.
Secondly, while I am satisfied there is some justification for the view advanced by PTAG and the liquidators that unitholders who purchased or subscribed for units in Prime Trust relying upon misleading or deceptive information from APCHL or were misled as to the entity’s worth by its failure to make disclosures required by law, and thus may have a claim available to them for damages against the company under s 1041H that would be within s 553 of the Corporations Act, the liquidators’ global proof of debt proposal fails to require unitholders to adduce the information necessary to support such a claim. The liquidators acknowledge that reliance by unitholders on the alleged misleading product disclosure statements is the foundational basis for the economic loss suffered by them yet their global proof of debt proposal seemingly does not require unitholders to provide details capable of supporting such a claim. In my view, each unitholder must demonstrate reliance and it is not appropriate for the Court to accede to (asserted) ‘pragmatic’ considerations and ‘infer’ reliance simply because it would not be cost-effective to obtain statements from individual claimants.
Thirdly, I am not satisfied that a ‘global proof of debt’ mechanism of the kind contended for is available to a collective of claimants with severally held rights, such as the ‘Eligible Unitholders’ in the present case, enabling them to submit a global proof of debt.
Fourthly, even if the global proof of debt mechanism were available, in my view the proposal set out in the suite of directions sought in paragraphs 1(a) to 1(c) is unsatisfactory— it does not provide for any real assessment of the unitholders’ claims on their merits and falls short of demonstrating the rigour required to be exercised by the liquidators in discharging their duty to adjudicate upon claims and distribute the assets in their hands or under their control to the persons truly entitled.
Fifthly, in the case of the ‘Excluded Unitholders’ the subject of the direction sought in paragraph 2(a), the liquidators are effectively leaving it to the Court to undertake the task of assessing the (potential) claims of each of the Excluded Unitholders and their value (if any) on an individual basis, separately from and in advance of the liquidators having embarked upon the proof of debt process. In my view, it is unsatisfactory position for the Court to be placed in that position. Furthermore, notwithstanding the apparent breadth of the power conferred by s 90-15, I share the cautionary note expressed by McLelland J in Re Magic Aust Pty Ltd (in liq)[29] that an application for directions is not an appropriate vehicle for a direction to be given to the effect that a liquidator admit or reject a particular proof of debt, which would not determine the validity or otherwise of the claim or prevent a subsequent appeal from a decision made by the liquidator in accordance with that direction.
[29](1992) 7 ACSR 742 at 745.
Turning to the remaining directions sought in paragraph 2 of the FAOP, concerning payment of dividends to creditors of APCHL and from what asset pools, both the liquidators and the interested parties are agreed that it is appropriate that the directions sought in paragraphs 2(b) and 2(c) be made. No submission to the contrary has been filed by any of the relevant financiers listed in subparagraphs 2(b)(i)–(iii). In those circumstances, in my view it is appropriate for the Court to make:
(a) a direction in the form set out in paragraph 2(b) of the FAOP thereby confirming that the liquidators may treat the creditors of the Prime Trust as being entitled to dividends from the assets of APCHL in its personal capacity and in the assets of the Prime Trust, other than the named creditors (being the relevant financiers[30]); and
(b) a direction in the form set out in paragraph 2(c) of the FAOP in the negative, thereby confirming that creditors of APCHL in its personal capacity are confined to the assets of APCHL in its personal capacity and are not entitled to any dividend from the assets of the Prime Trust.
[30]Named in directions 2(b)(i), (ii) and (iii) as being Capital Finance Australia Limited, Suncorp Metway Limited and Industry Funds Management (Nominees 2) Pty Ltd.
The Court’s jurisdiction
The liquidators’ application for directions and orders in relation to the treatment of claims of unitholders of the Prime Trust is made under ss 90-15 and 90-20 of the Insolvency Practice Schedule.
Relevantly, s 90-15(1) of the Insolvency Practice Schedule confers power on the Court to make ‘such orders as it thinks fit in relation to the external administration of a company.’ Section 90-15(3) sets out ‘[e]xamples of orders that may be made’, and includes ‘an order determining any question arising in the external administration of the company’.[31]
[31]Section 90-15(3)(a).
Following the introduction of the new provisions contained in the Insolvency Practice Schedule, courts have generally accepted that on applications for judicial advice, s 90‑15 now permits the courts to take a broader view of their power to determine substantive rights and is probably more extensive than the powers formerly available to the court under ss 479(3) and 511 of the Corporations Act. In Re Hawden Property Group Pty Ltd (in liq), Gleeson JA described the position stating:[32]
[7]The ambit of s 90-15 has not yet been fully considered in the authorities. In Reidy, In the Matter of eChoice Limited (Admin Apptd) [2017] FCA 1582, Yates J at [27] accepted that an application by an administrator for directions, that formerly would have been made under s 447D(1) of the Corporations Act (now repealed), would fall within the purview of the statutory power in s 90-15 to make an order that determines a question arising in the external administration of a company.
[8]In Walley, In the Matter of Poles & Underground Pty Ltd (Admin Apptd) [2017] FCA 486 at [41], Gleeson J remarked that the question of whether to exercise the power in s 90-15 was “to be answered by reference to the principles applied to the exercise of the discretions previously contained in s 479(3) and s 511 of the Act”. That may be accepted insofar as the external administrator seeks the directions of the Court, but the power under s 90-15 to “make such orders as it thinks fit in relation to the external administration of a company” (s 90-15(1)) including “an order determining any question arising in the external administration of a company” (s 90-15(3)(a)), is wider and accommodates the determination of substantive rights. Of course, the Court would not do so without affording potentially affected parties an opportunity to be heard: Meadow Springs Fairway Resort Ltd (in liq) v Balance Securities Ltd [2007] FCA 1443, at [49]-[51] (French J, referring to Australian Securities Commission v Melbourne Asset Management Nominees Pty Ltd (1994) 49 FCR 334 at 352 (Northrop J)); Re Willmott Forests Ltd (No 2) [2012] VSC 125; (2012) 88 ACSR 18 at [45]-[46] (Davies J); In the Matter of ICS Real Estate Pty Ltd (in liq) [2014] NSWSC 479 at [25] (Brereton J).
[32][2018] NSWSC 481, at [7]–[8]. See also Re Courtenay House Capital Trading Group Pty Limited (in liq) (2020) 147 ACSR 1, at [12]–[14] (per Rees J); Re Krejci (as liquidator of Community Work Pty Ltd) (in liq) [2018] FCA 425, at [46]–[47] (per Gleeson J); Re Buddy Management Pty Ltd (in liq) [2019] FCA 566, at [40] (per Gleeson J).
The liquidators’ application
The liquidators’ application was initiated by an originating process filed on 4 July 2019 in which they sought directions and orders in relation to the treatment of claims of the unitholders of the Prime Trust, as follows:
1.A direction pursuant to section 90-15 of the Insolvency Practice Schedule that the Liquidators are justified and otherwise acting properly and reasonably in:
(a)treating the claims by unitholders of the Prime Trust, save for those unitholders that are set out in the Annexure, (Eligible Unitholder) as unsecured claims in the liquidation of APCHL in its own capacity and in its capacity as Responsible Entity for the Prime Trust; and
(b)valuing the claim of each Eligible Unitholder on the basis that each unit is worth $1; and
(c)calling for and adjudicating on a global proof of debt in respect of all Eligible Unitholder claims, to be lodged by the Prime Trust Action Group.
2.Such further or other order or direction as the Court sees fit to make.
The ‘Eligible Unitholder’ claims referred to above are essentially claims (or potential claims) by unitholders of the Prime Trust (other than the ‘Excluded Unitholders’) for compensation under s 1041H of the Corporations Act in respect of alleged non-disclosures made in Product Disclosure Statement documents for the Prime Trust. As described by the liquidators,[33] the foundational basis for the Eligible Unitholder claims are findings made by the Financial Ombudsman Service[34] (FOS) to the effect that APCHL, in issuing the various ‘financial products’ from at least 2003 to 2007 (inclusive), engaged in conduct that was misleading or deceptive.
[33]Liquidators’ submissions at [54]–[58]. Those claims for misleading and deceptive conduct include references to an alleged failure to ‘disclose that the management rights to Prime Trust properties (Management Rights) had value…’ and that APCHL’s ‘…divesting of valuable Trust rights without accounting to the Prime Trust and its unitholders was a matter that a reasonable investor would consider relevant to the decision whether or not to invest.’
[34]FOS is now known as the ‘Australian Financial Complaints Authority’ or ‘AFCA’.
Generally speaking, the unitholders set out in the Annexure to the originating process (whom the liquidators refer to as ‘Excluded Unitholders’) are persons or entities whom the liquidators consider are ineligible to pursue claims in their capacity as unitholders either because they are individuals who were directors of APCHL prior to it being placed in administration, or because they have some link or association with the directors of APCHL. It is by reason of that link or association that the liquidators contend the Excluded Unitholders were aware or ought to have been aware of the true position concerning APCHL, such that it can reasonably be concluded that their investments were not affected by the alleged contravening conduct of APCHL when they subscribed for units in the Prime Trust. (The list of ‘Excluded Unitholders’ set out in the annexure to the FAOP has been reproduced as Annexure B to these reasons.)
When the proceeding commenced, the liquidators’ application was supported by the evidence set out in the affidavit of Mr Horne sworn on 28 June 2019 (Horne 28.06.19 affidavit).
Subsequently, in August 2019, the liquidators provided a supplementary affidavit of Mr Horne sworn on 15 August 2019 (Horne 15.08.19 affidavit), and an amended originating process, articulating further directions sought in relation to the assessment of claims and the payment of dividends, as follows:[35]
[35]Amended originating process dated 15 August 2019, filed on 13 December 2019 (underlining and strikethrough in original to show amendments).
1.A direction pursuant to section 90-15 of the Insolvency Practice Schedule that the Liquidators are justified and otherwise acting properly and reasonably in:
(a)treating the claims by unitholders of the Prime Trust, save for those unitholders that are set out in the Annexure,
(Eligible Unitholder)as unsecured claims in the liquidation of APCHL in its own capacity and in its capacity as Responsible Entity for the Prime Trust (Eligible Unitholder Claims); and(b)valuing
the claim ofeach Eligible Unitholder Claim on the basis that each unit is worth $1; and(c)calling for and adjudicating on a global proof of debt in respect of all Eligible Unitholder
cClaims, to be lodged by the Prime Trust Action Group.
2.Directions pursuant to section 90-15 of the Insolvency Practice Schedule as to whether or not the Liquidators are justified and otherwise acting properly and reasonably in:
(a)assessing the claims of those unitholders that are set out in the Annexure (and referred to as Excluded Unitholders) as nil;
(b)paying a dividend to those persons accepted by the Liquidators as creditors of APCHL, where their rights as creditors arose in respect of dealings with APCHL in its capacity as Responsible Entity of the Prime Trust, from the net proceeds available for distribution derived from the assets of APCHL not held by it as Responsible Entity of the Prime Trust; and
(c)paying a dividend to those persons accepted by the Liquidators as creditors of APCHL, where their rights as creditors arose in respect of dealings with APCHL in its own right, from the net proceeds available for distribution derived from the assets of APCHL held by it as Responsible Entity of the Prime Trust.
3.Such further or other order or direction as the Court sees fit to make.
Thereafter, the liquidators filed two further affidavits of Mr Horne in support of their application, being his:
(a) second supplementary affidavit sworn on 26 September 2019 (Horne 26.09.19affidavit) ; and
(b) third supplementary affidavit sworn on 17 July 2020 (Horne 17.07.20 affidavit).[36]
[36]Senior counsel for the plaintiffs informed the Court at the hearing that this affidavit replaced an earlier unsworn affidavit of Mr Horne that circulated amongst the parties on or about 27 March 2020. Due to the impacts of COVID‑19 on the plaintiffs’ solicitor’s ability to witness the earlier affidavit it remained unsworn until it was withdrawn and replaced by the third supplementary affidavit: Transcript, 22.07.20, at p 3.02-3.22.
The relief sought in the FAOP
In the course of the hearing on 22 July 2020, the liquidators sought leave to further amend their amended originating process. There being no opposition by the interested parties, the Court granted leave to do so, but subject to the creditors identified in subparagraphs 2(b)(i) to (iii) of the FAOP being notified of the amendments (as mentioned below).
Accordingly, by way of their FAOP (filed on 23 July 2020 following the hearing), the liquidators applied under s 90-20 of the Insolvency Practice Schedule for the following specific directions pursuant to s 90‑15 of the Insolvency Practice Schedule:[37]
[37]FAOP dated 22 July 2020, filed on 23 July 2020 (underlining and strikethrough in original to show amendments).
1.…that the Liquidators are justified and otherwise acting properly and reasonably in:
(a)treating the claims by unitholders of the Prime Trust, save for those unitholders that are set out in the Annexure, as unsecured claims in the liquidation of APCHL in its own capacity and in its capacity as Responsible Entity for the Prime Trust (Eligible Unitholder Claims); and
(b)valuing each Eligible Unitholder Claim on the basis that each unit is worth $1, or such other amount as the Court determines; and
(c)calling for and adjudicating on a global proof of debt in respect of all Eligible Unitholder Claims, to be lodged by the Prime Trust Action Group.
2.…that the Liquidators are justified and otherwise acting properly and reasonably in:
(a)assessing the claims of those unitholders that are set out in the Annexure (and referred to as Excluded Unitholders), in their capacity as unitholders as nil;
(b)paying a dividend to those persons accepted by the Liquidators as creditors of APCHL, where their rights as creditors arose only in respect of dealings with APCHL in its capacity as Responsible Entity of the Prime Trust, from the net proceeds available for distribution derived from the assets of APCHL not held by it as Responsible Entity of the Prime Trust other than the following creditors:
(i)Capital Finance Australia Limited (and any entity to which Capital Finance Australia Limited has assigned its debt, including but not limited to AET SPV Management Pty Ltd as trustee for the Lawson Trust);
(ii)Suncorp Metway Limited; and
(iii)Industry Funds Management (Nominees 2) Pty Ltd (a subsidiary of Members Equity Bank); and
(c)not paying a dividend to those persons accepted by the Liquidators as creditors of APCHL, where their rights as creditors arose in respect of dealings with APCHL in its own right, from the net proceeds available for distribution derived from the assets of APCHL held by it as Responsible Entity of the Prime Trust.
The recent amendments made to paragraph 2(a) of the FAOP reflect the confirmation given by senior counsel for the liquidators at the hearing to the effect that the direction sought in that paragraph was not intended to disturb the position of Excluded Unitholders whose proof(s) of debt had already been admitted (or rejected) in a capacity other than as a unitholder of the Prime Trust.[38] This amendment was not opposed by the KCDA parties.[39]
[38]Transcript, 22.07.20, at p 13.03–16.15 (Mr Evans QC).
[39]Transcript, 22.07.20, at p 15.09–15.18 (Mr Glick QC). Counsel for PTAG submitted that whether the direction in paragraph 2(a) should be made (and implicitly, the form of that direction) was a matter for the liquidators, not PTAG: Transcript, 22.07.20, at p 49.07–49.09 (Mr Muller).
Further, the direction sought in paragraph 2(b) of the FAOP, the effect of which is to entitle ‘trust creditors’ to share in the ‘personal assets’ of APCHL (which arises due to the dual capacities in which APCHL operated), was also amended to include a carve‑out for creditors of APCHL in its capacity as RE of the Prime Trust that had limited ‘their recourse to Prime Trust assets only (and therefore are not entitled to share in the assets of APCHL in its personal capacity).’[40] There was no opposition to the proposed amendments and at the hearing the direction sought in paragraph 2(b) was not opposed by the interested parties.[41]
[40]Liquidators’ reply submissions dated 27 March 2020 and filed on 21 July 2020 [15]–[18(a)], [53(b)] (liquidators’ reply submissions); Transcript, 22.07.20, at p 16.26–16.30 (Mr Evans QC).
[41]PTAG’s submissions, at [34]; KCDA parties’ submissions filed on 3 March 2020, at [46] (KCDA submissions).
At the hearing, senior counsel for the liquidators, Mr Evans QC, informed the Court that although the (proposed amended) direction sought in paragraph 2(b) was expressed such that it did not apply to the creditor entities identified in subparagraphs (i) to (iii), those entities had not been served with the originating process (as amended) or the totality of the affidavit material relied on by the plaintiffs.[42] In those circumstances, the Court ordered that the FAOP and the Horne 17.07.20 affidavit be served on those entities together with a letter setting out the statements made by the liquidators’ senior counsel at the hearing as to the proposed effect of the direction sought in paragraph 2(b) of the FAOP.[43] (The Court has not been informed of any response or correspondence received from any of those entities).
[42]Transcript, 22.07.20, at p 17.22–18.08 (Mr Evans QC).
[43]See generally, orders made on 22 July 2020 (22 July orders).
The material relied on by the parties at the hearing
In support of their application, the liquidators (formally) read and relied on four affidavits sworn by Mr Horne,[44] being the Horne 28.06.19 affidavit, the Horne 15.08.19 affidavit, the Horne 26.09.19 affidavit and the Horne 17.07.20 affidavit, together with certain of the exhibits thereto as identified in the tender list provided to the Court by the liquidators’ solicitor via email on 23 July 2020.[45]
[44]FAOP; Transcript, at p 3.23–3.31 (Mr Evans QC).
[45]The email from the liquidators’ solicitor dated 23 July 2020 noted that counsel for the KCDA parties had not responded to the request.
The liquidators also relied on their outline of submissions filed on 24 December 2019 (liquidators’ submissions) and their reply submissions dated 31 March 2020 (filed on 21 July 2020) (liquidators’ reply submissions) responding to the submissions filed by the respective interested parties.
The KCDA parties relied on the affidavit of Ms Kelly Ann Powers, a solicitor employed by SBA Law, the solicitor for the KCDA parties, sworn on 2 March 2020 and the exhibits thereto (Powers affidavit).[46]
[46]Exhibit KCDA-1.
The KCDA parties also relied on their outline of submissions filed on 3 March 2020 (KCDA submissions) and their submissions filed on 31 March 2020 (KCDA reply submissions) in reply to the submissions by PTAG.
PTAG relied on the affidavit of Mr Stephen Richard O'Reilly sworn on 14 November 2019 and certain exhibits thereto (O’Reilly affidavit). (PTAG’s submissions also state that PTAG relied on the first three of Mr Horne’s affidavits.[47])
[47]PTAG’s submissions, at [7].
PTAG also relied on its submissions filed on 3 March 2020 (PTAG’s submissions) and its submissions in reply filed on 31 March 2020 (PTAG reply submissions) in reply to the submissions filed by KCDA.
Objections to evidence
At the outset of the hearing, senior counsel for the KCDA parties, Mr Glick QC, indicated that he objected to certain passages of the evidence relied on by the liquidators and PTAG. However, as these objections had not been notified to the liquidators or PTAG in advance,[48] the matter was stood down briefly to allow the parties an opportunity to resolve any objections.[49]
[48]Transcript, 22.07.20, at p 4.11–4.15, 5.09–5.18 (Mr Glick QC).
[49]Transcript, 22.07.20, at p 5.31–6.07.
When the hearing resumed, the parties indicated that they had resolved the objections as follows:
(a)In relation to the Horne 28.06.19 affidavit:
(i)paragraph 34 be subject to a limitation to be imposed by an order made pursuant to s 136 of the Evidence Act 2008 (Vic)[50] that it is ‘inadmissible to prove the existence of a fact about which the existence of which any opinion [in that paragraph] was expressed’[51] and ‘admissible only to prove, as to any opinion contained within it, the state of mind of the author of the opinion’; and[52]
[50]The Court made such an order on 22 July 2020.
[51]22 July orders, [3(a)]; Transcript, 22.07.20, at p 7.06–7.07 (Mr Evans QC).
[52]22 July orders, [3(b)].
(ii)paragraph 38 be deleted in its entirety and not admitted into evidence,
with the balance admitted into evidence (together with the eight exhibits thereto) as exhibit P-1.[53]
[53]Transcript, 22.07.20, at p 6.18–7.25 (Mr Evans QC)..
(b)In relation to the O’Reilly affidavit:
(i)paragraph 51 be deleted in its entirety; and
(ii)the first sentence of paragraph 52 be deleted,
with the balance admitted into evidence as exhibit PTAG-1.[54]
[54]Transcript, 22.07.20, at p 19.25–19.28, 8.2–-9.12 (Mr Muller).
Save for the objections identified above, the balance of the affidavits and exhibits thereto were admitted into evidence as follows:[55]
[55]Transcript, 22.07.20, at p 7.31–8.14, 50.22–50.23.
(a) the Horne 15.08.19 affidavit — as exhibit P-2;
(b) the Horne 26.09.19 affidavit — as exhibit P-3;
(c) the Horne 17.07.20 affidavit — as exhibit P-4; and
(d) the Powers affidavit — as exhibit KCDA-1.
Certain other documents relied on by PTAG were admitted as business records of the liquidators and/or of the FOS, without objection by the KCDA parties or the liquidators, as follows:
(a) email from Mr O'Reilly to Mr John Fish dated 7 December 2012 — as exhibit PTAG-2;[56]
[56]CB1493.
(b) acceptance of determination executed by Mr and Mrs O'Reilly to FOS dated 6 December 2012 — as exhibit PTAG-3;[57]
(c) letter from FOS to Mr and Mrs O'Reilly dated 11 December 2012 — as exhibit PTAG-4;[58] and
(d) letter from Lawler Draper Dillon dated 12 October 2011 ‘to the creditor/unit holder as addressed’ — as exhibit PTAG-5.[59]
[57]CB1494.
[58]CB1495.
[59]CB1280-1299 and see Transcript, 22.07.20, at p 94–95.
At the hearing, none of the deponents was cross-examined and counsel for the liquidators and counsel for each of the interested parties informed the Court that they relied on their respective written submissions and proposed making only brief oral submissions.
Paragraph 1of the FAOP: treating ‘Eligible Unitholder Claims’ as unsecured claims and valuing them on the basis each unit held is worth $1
The liquidators adopted a ‘neutral position’ save in respect of direction 1(c)
At the outset of the hearing, senior counsel for the liquidators informed the Court that the directions sought in paragraphs 1(a) and 1(b) of the FAOP, concerning the claims of Eligible Unitholders and their valuation, would not be the subject of submissions by the liquidators as to whether or not those directions should be made. Rather, he said, the contest is essentially between the PTAG on the one hand, which seeks to support the making of the directions sought in paragraphs 1(a) and 1(b), and the KCDA parties on the other, who contend those directions should not be made.[60]
[60]Transcript, 22.07.20, at p 11.19–11.25 (Mr Evans QC).
The direction sought in paragraph 1(c), concerning the lodgment of and adjudication upon a global proof of debt, also arises in the context of the Eligible Unitholder claims. In circumstances where there are more than 9,000 individual unitholders of the Prime Trust, the liquidators are seeking to identify an efficient means of dealing with all claims that all Eligible Unitholders have against APCHL. In essence, by direction 1(c) the liquidators propose that all such claims be captured in a ‘global proof of debt’ (being a single proof of debt document which identifies severally the eligible unitholders and contains the relevant details of each individual unitholder’s claim),[61] with a view to reducing the liquidators’ costs that would otherwise be incurred if the traditional procedure were followed, and thereby preserving the maximum value of assets available for distribution to creditors.
[61]Transcript, 22.07.20, at p 12.16–2.19 (Mr Evans QC).
Senior counsel for the liquidators submitted that if the Court makes the direction in paragraph 1(a), then the liquidators contend the Court should proceed to make the direction sought in paragraph 1(c) with respect to a global proof of debt being lodged by PTAG identifying severally the identity of each of the eligible unitholders.[62] He confirmed that the liquidators do seek to be heard on the direction sought in paragraph 1(c), which self-evidently is contingent on the determination made in respect of paragraph 1(a).[63] He added that if the directions sought in paragraphs 1(a) and 1(b) are not made, then it would still be open to the unitholders of the Prime Trust to lodge proofs of debt in the liquidation of APCHL.[64]
[62]Transcript, 22.07.20, at p 12.11–12.19 (Mr Evans QC).
[63]Transcript, 22.07.20, at p 12.23–12.26 (Mr Evans QC).
[64]Transcript, 22.07.20, at p 12.02–12.05 (Mr Evans QC).
As direction 1(c) is only enlivened if the Court makes direction 1(a), I shall deal with this aspect separately below. For present purposes it is sufficient to note that both the liquidators and PTAG contend that the Court should make direction 1(c) and the KCDA parties contend against the making of direction 1(c).
Notwithstanding that the liquidators now adopt a neutral stance, and are leaving it to PTAG and the KCDA parties to advocate for the rival positions in respect of the directions sought in paragraphs 1(a) and 1(b) of the FAOP, they have filed a substantial body of evidence in advance of the hearing addressing the contextual background and describing the claims that were brought and successfully prosecuted by unitholders of the Prime Trust against APCHL, together with an outline of submissions which encapsulates the views formed by the liquidators. As PTAG effectively relies upon the evidence filed by the liquidators and has expressly adopted Section A (Introduction) and Section B.1 (concerning directions 1(a) and (b) and direction 2(a)) of the liquidators’ submissions, the substance of that evidence and those submissions is set out below.
Directions 1(a) and 1(b) concerning Eligible Unitholder Claims
The directions sought in paragraphs 1(a) and 1(b) of the FAOP concern what the liquidators describe as ‘potential claims that may be available to unitholders of the Prime Trust’.[65] Subject to the exclusion of certain unitholders (being the ‘Excluded Unitholders’ discussed further below), these (potential) claims are the ‘Eligible Unitholder Claims’ referred to in paragraph 1(a) of the FAOP.[66]
[65]Liquidators’ submissions, [7].
[66]Liquidators’ submissions, [14(b)]
In essence, the Eligible Unitholder Claims arise for consideration because some years ago three unitholders of the Prime Trust[67] (the FOS claimants) successfully prosecuted claims against APCHL with the FOS, FOS being a dispute resolution service for determining disputes between consumers and financial service providers.
[67]Horne 28.09.19 affidavit, at [25].
The FOS determinations
In 2011 and 2012, three proceedings were brought against APCHL,[68] with the relevant unitholders alleging in each case that APCHL engaged in conduct, in relation to a financial product or a financial service, that is misleading or deceptive (or is likely to mislead or deceive) in contravention of s 1041H of the Corporations Act. [69]
[68]The three unitholder complaints were made by the following unitholders:
(a)Mr Donald Steel and Associates Pty Limited as trustee for the Salignus Superannuation Fund;
(b)Mr Steve O'Reilly and Mrs Joanna O'Reilly; and
(c)Mr Hans Desler (now deceased) and Mrs Irma Desler and as trustees for Desler Pension Fund.
[69]Liquidators’ submissions, at [12]
The FOS issued determinations in each of the matters in late November 2012 and late May 2013 respectively.[70] Relevantly, FOS concluded in each case that APCHL, in issuing the various ‘financial products’ from at least 2003 to 2007 (inclusive), being Product Disclosure Statements (PDS) (and Supplementary Product Disclosure Statements (SPDS), engaged in conduct that was misleading or deceptive. The FOS determined that disclosures made and omissions from the financial products issued by APCHL were in breach of s 1041H of the Corporations Act, that the unitholders in question relied on these financial products to subscribe for units in the Prime Trust, and as a consequence the unitholders suffered loss and damage. The unitholders were awarded damages for economic loss.[71] However, the FOS determinations did not specify whether the compensation awarded was liable to be paid by APCHL in its own right or in its capacity as RE of the Prime Trust, or both.
[70]A copy of the FOS Determinations appears as exhibit SLH-6 to the Horne 28.06.19 affidavit. The three determinations are:
(a)FOS Determination dated 26 November 2012 – Steve and Joanna O’Reilly (Case No. 212722) (O’Reilly FOS Determination);
(b)FOS Determination dated 26 November 2012 - Hans and Irmgard Desler (Case No. 223013) (Desler FOS Determination), and
(c)FOS Determination dated 29 May 2013 – Donald Steel and Associates ATF Salignus Superannuation Fund (Case No. 245241) (Steel FOS Determination).
[71]The FOS determinations determined that the unitholders were entitled to compensation in the following amounts:
The liquidators have informed the Court that, having read the FOS determinations and sought legal advice, they:[72]
have formed the view that all the unit holders are likely to have a claim for misleading and deceptive non-disclosure in respect of the Prime Trust where they were not advised of:
(a) adverse action by ASIC;
(b) conflicts of interest;
(c) the value of the management rights; and/or
(d)the transfer of the management rights without sufficient consideration.
[72]Horne 28.06.19 affidavit, at [34].
However, as noted above, at the hearing, the KCDA parties took objection to the liquidators’ evidence quoted above (being paragraph 34 of the Horne 28.06.19 affidavit) being admitted. Relevantly, the objection was resolved between the parties on the basis of the Court ruling[73] that the evidence of the liquidators’ view quoted above be admitted into evidence subject to a limitation pursuant to s 136 of the Evidence Act 2008 (Vic) that it is:
(a) inadmissible to prove the existence of a fact about the existence of which any opinion contained within paragraph 34 was expressed; and
(b) admissible only to prove, as to any opinion contained within it, the state of mind of the author of the opinion.
[73]Orders made on 22 July 2020.
While the claims brought before FOS concerned only the financial products issued by APCHL between 2003 and 2007 (inclusive), the liquidators also informed the Court that they have had regard to all of the financial products issued by APCHL between 2002 and 2007 (inclusive) and have formed the view that the contravening conduct identified by FOS was common to all of the documents issued by APCHL during this period of time.[74]
[74]Liquidators’ submissions, at [14].
In those circumstances, the liquidators have formed the view that:[75]
[75]Liquidators’ submissions, at [14].
(a)all (or almost all) unitholders of the Prime Trust have a claim against APCHL for contraventions of s 1041H of the Corporations Act;
(b)provided a unitholder established causation of loss arising from the contraventions of s 1041H, the unitholders' claims (save for and except for the Excluded Unitholders) would sound in damages against APCHL for the amount of their investments less dividends actually received, as identified in the determinations by FOS (Eligible Unitholder Claims);
(c)they consider the Excluded Unitholders (named in the Annexure to the originating process) are ineligible because they are:
(i)individuals who were directors of APCHL prior to APCHL being put into administration, i.e. were directors during the period from 2003 to early 2010 – namely, Philip Powell, Kim Jaques and Michael Woolridge; or
(ii)associates of directors of APCHL (during the period from 2003 to early 2010) – namely, Julie Jaques (spouse of Kim Jaques); Daytree Pty Ltd, Kidder Williams Ltd, Moggs Creek Pty Ltd, Kidder Peabody Pty Ltd and Kalosu Pty Ltd;
(iii) a 99.9% shareholder in APCHL, namely Daytree Pty Ltd,
and therefore were aware or at least ought to have been aware of the true position with respect to APCHL (contrary to the disclosures and omissions referred to in the FOS Determinations) and so it can reasonably be concluded that their investments were not affected by the contravening conduct of APCHL when they subscribed for units in the Prime Trust; and
(d)while it is acknowledged the economic loss of each unitholder may vary, because the FOS determinations had regard to what each unitholder would have done with its funds if it had not invested them with APCHL, in recognition of the modest assets remaining and the relatively small distribution which may follow:
(i)it is not worthwhile or efficient for the unitholders to issue proceedings against APCHL, or lodge individual proofs of debt in the winding up of APCHL in order to establish the precise quantum of their economic loss; and
(ii)it is proper and reasonable for the liquidators to:
(A)treat the Eligible Unitholder Claims as unsecured claims in the liquidation of APCHL in its own capacity and in its capacity as RE for the Prime Trust; and
(B)value each Eligible Unitholder Claim on the basis that each unit is worth $1, and admit the claim for a dollar amount equivalent to the number of units held by the unitholder; and
(C)assess the claims of the Excluded Unitholders as nil.
The position advanced by PTAG
Counsel for PTAG relied for the most part upon the O’Reilly affidavit and PTAG’s outline of submissions, which in turn relies upon the affidavits filed by the liquidators[76] and expressly adopts relevant paragraphs of the liquidators’ submissions[77] summarised above.
[76]PTAG relies upon the views expressed by the liquidators in the Horne 28.06.19 affidavit, in particular at paragraphs 24 to 30, 33, 34 and 36.
[77]Being Section A (Introduction) and Section B.1 (concerning directions 1(a) and (b) and direction 2(a)) of the liquidators’ submissions and their submissions in respect of proposed direction 1(c) (concerning the global proof of debt) of the liquidators’ submissions.
Counsel for PTAG identified the first issue for the Court to consider in respect of the directions proposed in paragraph 1 of the FAOP, as being whether it is appropriate for the liquidators to admit the Eligible Unitholder Claims as unsecured claims.
PTAG refers to the views expressed by the liquidators in the Horne 28.06.19 affidavit, as outlined above, and submits that the liquidators, having formed the view that most, if not all, of the unitholders may lodge a proof of debt in the winding up of APCHL, ‘it is probable that, if called upon to adjudicate on a proof of debt lodged by a unitholder, the liquidators will admit the claim, save for the proposed excluded unitholders’.[78]
[78]PTAG’s submissions, at [28].
In those circumstances, counsel for PTAG submits that ‘taking a pragmatic and cost-effective approach, the Court should order that the liquidators are justified in admitting the Eligible Unitholder Claims as unsecured claims without having to adjudicate on each individual claim made by a unitholder’,[79] noting that such an approach ‘will also relieve unitholders of the need to, and time and trouble of completing, a detailed proof of debt in circumstances where they are likely to receive only a fraction of any amount claimed and admitted.’[80]
[79]PTAG’s submissions, at [29].
[80]PTAG’s submissions, at [29].
In oral submissions, counsel for PTAG emphasised the need for the Court to take a pragmatic approach when considering the directions sought by the liquidators, submitting that:[81]
the court has both the power and, in my submission, the purpose to take a pragmatic approach so that the rights of the unit holders or the potential rights of the unit holders are assessed in a pragmatic and practical way that does not place a burden on the liquidator that is disproportionate with the likely returns for each of those unit holders if those claims are accepted.
And, in essence, that falls to the assessment of whether or not the eligible unit holders have claims that are based on the decisions made by the Financial Ombudsman Service in respect of three of those unit holders and whether it is appropriate in the circumstances to extrapolate that to the remaining unit holders on the basis that there is commonality with the underlying claims that (indistinct) loss found in favour of the unit holders.
[81]Transcript, 22.07.20, at p 21.16–22.01 (Mr Muller).
Further, counsel said, the Court can do that because the role of the liquidators in assessing the proofs of debt is essentially a ‘quasi-judicial’ one which requires them to act independently and to assess them properly, but ‘it does not require them to assess at the level that a court would have to assess if these were claims that were being run in a trial.’[82]
[82]Transcript, 22.07.20, at p 22.06–22.09 (Mr Muller).
Counsel for PTAG confirmed that what PTAG relies on in the present case are ‘the determinations that FOS made as being a basis for the liquidator being able to form a view that the eligible unitholder [claims] should be admitted as unsecured claims, and by extension in this proceeding, for the court to be satisfied that there is a basis for those unitholders to be admitted as unsecured claims by extrapolation from what FOS determined.’[83]
[83]Transcript, 22.07.20, at p 25.17–25.23 (Mr Muller).
Counsel for PTAG acknowledged that there is no ‘direct evidence’ about what any other unitholders (i.e., unitholders other than the three FOS claimants) would have done vis-à-vis making complaints to FOS, but he submitted that there is ‘indirect evidence’ from which the Court could infer that when APCHL went into administration ‘unitholders then took the view that there was limited utility in pursuing a claim at that point in time’ given the ‘significant improbability that they would get returns.’[84]
[84]Transcript, 22.07.20, at p 23.29–24.02 (Mr Muller).
When responding to questions from the Court about whether it is appropriate for, and if so the means by which, the FOS claims made in respect of three of the unitholders are to be ‘extrapolate[d] … to the remaining unit holders’[85], counsel for PTAG adverted to (what he submitted was) ‘the tension’ between the relevant principle that applies when courts are asked by liquidators and administrators to give directions, as summarised by Goldberg J in Re Ansett Australia Ltd (No 3),[86] and the more recent ‘broader’ approach endorsed by Gordon J in ASIC v Letten (No 7)[87] in the specific context of an unregistered managed investment scheme.
[85]Transcript, 22.07.20, at p 21.29–21.30 (Mr Muller).
[86](2002) 115 FCR 409; 40 ACSR 433.
[87](2010) 190 FCR 59; 80 ACSR 401.
In Re Ansett Australia Ltd (No 3), in dealing with a liquidator’s application under the former s 479 of the Corporations Act, Goldberg J summarised the relevant principle by stating:[88]
… the prevailing principle adopted by the courts, when asked by liquidators and administrators to give directions, is to refrain from doing so where the direction sought relates to the making and implementation of a business or commercial decision, either committed specifically to the liquidator or administrator or well within his or her discretion, in circumstances where there is no particular legal issue raised for consideration or attack on the propriety or reasonableness of the decision in respect of which the directions are sought. There must be something more than the making of a business or commercial decision before a court will give directions in relation to, or approving of, the decision. It may be a legal issue of substance or procedure, it may be an issue of power, propriety or reasonableness, but some issue of this nature is required to be raised. It is insufficient to attract an order giving directions that the liquidator or administrator has a feeling of apprehension or unease about the business decision made and wants reassurance. …
[88](2002) 115 FCR 409, at [65]; 40 ACSR 433, at [65].
PTAG acknowledges[89] that there is a substantial body of case law supporting the proposition that an application for directions under the predecessor sections to Div 90 of Subdiv B of the Insolvency Practice Schedule is not an appropriate procedure to determine substantive rights and liabilities arising from transactions prior to the liquidation, or if factual matters are in dispute.[90] However, counsel for PTAG submits that, in more recent times, the courts have taken a broader view of their power to determine substantive rights in applications under the predecessor sections.[91] Reference was made, by way of example, to:
[89]PTAG’s submissions, at [14(a)].
[90]See for example Re GB Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674; 5 ACSR 673 at ACSR 678–9; Re Magic Aust Pty Ltd (in liq) (1992) 7 ACSR 742, at 745; 10 ACLC 429 (holding that it is not appropriate for direction to be given that a liquidator admit or reject a particular proof of debt, which would not determine the validity or otherwise of the claim or prevent a subsequent appeal from the liquidator's decision made in accordance with that direction).
[91]See for example Re Mento Developments (Aust) Pty Ltd; Rambaldi v Wixart Pty Ltd (2009) 73 ACSR 622; [2009] VSC 343; Sports Alive Pty Ltd (in liq) v ACT Gambling and Racing Commission [2013] VSC 69.
(a) Re Willmott Forests Ltd (recs and mgrs apptd) (in liq),[92] where Davies J expressed the view that the question is not one of a limitation on the court's power but on the appropriateness of the use of the procedure under s 479(3) for such a determination;
[92](2012) 88 ACSR 18; [2012] VSC 125, at [44].
(b) Meadow Springs Fairway Resort Ltd (in liq) v Balanced Securities,[93] where French J held that it was ‘a matter of discretion’ whether the court should determine competing claims in an application brought by a liquidator under s 511(1); and
[93](2007) 25 ACLC 1433; [2007] FCA 1443, at [50].
(c) ASIC v Melbourne Asset Management Nominees Pty Ltd (receiver and manager appointed),[94] where Northrop J held, in relation to s 479(3) that:[95]
It has been accepted that Courts have power to make final orders in preference claims on an application by a liquidator under sections similar to subsection 479(3) of the Corporations Law. There is no logical reason why final orders binding on other persons cannot be made on applications under subsection 479(3) with respect to other subject matters… In proceedings brought by a liquidator under subsection 479(3), I can see no reason why binding orders cannot be made where the parties affected have been given the opportunity to be heard.
[94](1994) 49 FCR 334; 121 ALR 626.
[95](1994) 49 FCR 334, at 352 [60]; 121 ALR 626, at [60].
More recently, in ASIC v Letten (No 7),[96] in the specific context of an unregistered managed investment scheme, Gordon J held that:
(a) the court’s power to make directions in relation to the winding-up of an unregistered managed investment scheme includes the power to make directions in relation to persons whose property includes scheme property;[97]
(b) the power (both statutory and inherent) does not generally permit it to make orders that depart from the proprietary rights of the scheme participants.[98]
[96](2010) 190 FCR 59; 80 ACSR 401.
[97](2010) 190 FCR 59; 80 ACSR 401, at [273].
[98](2010) 190 FCR 59; 80 ACSR 401, at [268].
However, counsel submitted,[99] Gordon J held that this general principle will be set aside in ‘exceptional cases’ where it is not pragmatic to ascertain the proprietary rights of the scheme participants[100] and that in cases where it is practically impossible to distribute scheme property in a particular scheme according to the proprietary rights of the scheme participants, the appropriate method of distribution is to pool the surplus from all of the schemes and distribute the surplus rateably—proportionally to the claims assessed.[101]
[99]PTAG’s submissions, at [19].
[100](2010) 190 FCR 59; 80 ACSR 401, at [259], [332] quoting Re TVSN Ltd [2005] NSWSC 692; Australian Securities and Investments Commission v Nelson (2003) 44 ACSR 719; [2003] NSWSC 129; Australian Securities and Investments Commission v Enterprise Solutions 2000 Pty Ltd (1999) 33 ACSR 403; [1999] QSC 387; Australian Securities Investments Commission v Tasman Investment Management Ltd (2006) 59 ACSR 113; 202 FLR 343; [2006] NSWSC 943, followed.
[101](2010) 190 FCR 59; 80 ACSR 401, at [336].
Against that background, PTAG contends that the approach taken by Gordon J in ASIC v Letten (No 7) can be extrapolated to the winding up of registered as well as unregistered managed investment schemes, such that the general principle as described by Goldberg J in Re Ansett Australia Ltd (No 3) ‘must yield in exceptional cases where it is not pragmatic to ascertain the proprietary rights of those persons’.[102]
[102]PTAG’s submissions, at [21].
Counsel for PTAG submitted that the present case is relevantly ‘an exceptional case’, in essence because:[103]
. . . there is a very large number of unitholders who are not making a claim in contract or a claim just for the return of the – their investment because there's a surplus of funds, but are making a claim that, I think, as my learned friend points out, is based on the misleading or deceptive conduct provisions.
And so that is what lifts it to the extraordinary or exceptional case – not extraordinary, the exceptional case, and that also then explains why the procedure for it is not found in the Act, that the Act has dealt with what is common. Employee claims are common in winding ups, and winding ups of large companies, there would be often thousands of employees.
And so it's logical and consistent that those – that Parliament turned its mind to how to deal with that sort of claim which is presented on a regular basis. But, in my submission, this sort of claim is not presented on a regular basis.
[103]Transcript, 22.07.20, at p 33.02–33.20 (Mr Muller).
Counsel for PTAG pointed out that if APCHL were not insolvent, unitholders could bring their claims by way of a class action. But, he submitted, in circumstances where that is not an available option, and particularly where there is only a limited pool of money available to the liquidator, another mechanism needs to be fashioned to allow those unitholders to assert their right to claim compensation because they were misled.[104] He explained that the claims would all be made on the basis ‘that there were statements that were made that were false or misleading and that those statements [were] relied on by the unitholders and that caused them loss.’[105]
[104]Transcript, 22.07.20, at p 33.23–34.05 (Mr Muller).
[105]Transcript, 22.07.20, at p 34.27–34.30 (Mr Muller).
When addressing reliance, counsel for PTAG acknowledged that while ordinarily what a liquidator assessing a claim might look for is a statement of reliance, he submitted that here the Court could ‘infer reliance’ because the three FOS determinations were all based on the same non-disclosure and ‘it would be a hugely costly exercise’ to obtain those sort of statements ‘from between six and 9,000 people’ and ‘that has to yield to the pragmatic, in this situation.’[106]
[106]Transcript, 22.07.20, at p 35.05–35.12 (Mr Muller).
He contended the present case is ‘exceptional’ primarily because the cost of assessing the potential misleading and deceptive conduct claims of unitholders on an individual basis would be disproportionate both to the funds available to the liquidator for distribution to all creditors and to the likely return to unitholders.[107] And in referring to ‘potential claims’ of unitholders, counsel for PTAG emphasised that the Court does not need to make a finding that each of the unitholders would have made a claim to FOS; rather, he submitted, it is enough for the Court to find that they have a claim available to them, and that would enliven the proof provisions of the Corporations Act.[108]
[107]Transcript, 22.07.20, at p 41.12–41.19 (Mr Muller).
[108]Transcript, 22.07.20, at p 42.20–42.28 (Mr Muller).
Turning to direction 1(b), the valuation of Eligible Unitholders’ claims, counsel for PTAG identified the relevant question as being whether it is appropriate for the liquidators to value each Eligible Unitholder claim on the basis that each unit is worth $1 even though unitholders may have purchased their units in Prime Trust at different prices.
As PTAG observes,[109] the difficulty presented by the valuation task is that the liquidators have no information or records by which they can accurately determine how many unitholders purchased their units for less than $1. Through Mr Horne, the liquidators depose to a belief, based on investigations, that most unitholders purchased their units for $1 per unit, but they acknowledge that a limited number of unitholders may have purchased units for less than $1 per unit via the stock exchange after the listing of the Prime Trust in 2007.[110] And while individual unitholders may have information or records that show the actual purchase price of their units, PTAG submits that ‘obtaining and collating such information would further deplete the funds available and not provide any guarantee of, or means of assessing, what units were purchased for what price.’[111]
[109]PTAG’s submissions, at [36].
[110]Horne 28.06.19 affidavit, at [43]–[44].
[111]PTAG’s submissions, at [37].
Accordingly, in those circumstances, PTAG submits the Court ‘should not hesitate to order that the liquidators are justified in adopting a practical and pragmatic approach.’[112]
[112]PTAG’s submissions, at [38].
The KCDA parties’ response
The KCDA parties contend that the directions sought in paragraphs 1(a) to (c) of the FAOP should not be made. A number of grounds were advanced.
First, they take issue with the formulation of the suite of directions sought in paragraph 1. They observe that none of the directions set out in paragraphs 1(a), (b) or (c) seek judicial direction or approval to ‘admit’ certain claims. The KCDA parties submit that it is axiomatic that in order for a claim to be considered in the admission of proofs under s 553(1) of the Corporations Act, there must be an actual claim, made by an actual claimant, not a merely hypothetical one. They point out that here, there is no evidence that the purported ‘Eligible Unitholder Claims’ identified by the liquidators, concerning claims for compensation under s 1041H of the Corporations Act, are anything more than ‘mere hypothetical possibilities’.[113] They contend that the Court’s power, and exercise of its discretion, is ‘to make directions concerning actual claims and claimants, not hypothetical ones’[114], and in circumstances where ‘the gravamen of the liquidators’ application is to gain approval for a pre-emptive “admitting” of hypothetical claims, the application is inappropriate and lacks utility.’[115]
[113]KCDA parties’ submissions, at [2.1].
[114]Ibid.
[115]KCDA parties’ submissions, at [5].
Secondly, the KCDA parties take issue with the liquidators having founded the purported ‘Eligible Unitholder Claims’ on the FOS Determinations made in 2012 and 2013.[116] They observe that other than the PDS and SPDS exhibited to the Horne 15.08.19 affidavit, there is no evidence to support the alleged facts underlying the three FOS Determinations relied on by the liquidators as defining the ‘Eligible Unitholder Claims’, and the KCDA parties submit that the liquidators’ application ‘contends for conclusions, based on FOS Determinations, which do not identify the essential elements of the unitholders’ individual causes of action and do not put up any claim capable of sensibly being challenged.’[117] And insofar as the FOS complaints concern allegations now relied upon by the liquidators as being relevant to the application (being the Non-Disclosure matters described in paragraph 54 of the liquidators’ submission[118]), the KCDA parties contend that ‘controversy exists’.[119]
[116]Exhibit SLH-6: O’Reilly FOS Determination, at [49]–[50]; Desler FOS Determination, at [58]–[59]; Steel Determination, at [57]–[60].
[117]KCDA parties’ submissions, at [19].
[118]Reproduced at [185] below.
[119]KCDA parties’ submissions, at [19].
A determination by the court on any such appeal would be binding as between the parties to the appeal on the issue of the validity or otherwise of the claim the subject of the proof of debt in question. However no such binding determination can arise from a direction given in a liquidator’s application for directions, and such an application is not an appropriate vehicle for the determination of substantive issues: see generally Re G B Nathan & Co Pty Ltd (in liq) [citation omitted] as to the nature, scope and incidents of an application for directions.
[293](1959) 101 CLR 298.
[294](1992) 7 ACSR 742, at 745.
As framed in the FAOP, if the direction sought in paragraph 2(a) were made, it would operate such that the claims of each of the Excluded Unitholders would be assessed as nil. Yet the liquidators have acknowledged that the position of each of the Excluded Unitholders needs to be assessed individually and they are not seeking to say ‘it’s an all or nothing bundle.’ In effect, it seems the liquidators are now leaving it to the Court to undertake the task of assessing the (potential) claims of each of the Excluded Unitholders and their value (if any) separately from and in advance of the liquidators having embarked upon the process to be conducted by them when calling for and adjudicating upon proofs of debt. In my view it is unsatisfactory for the Court to be placed in that position.
In the circumstances, notwithstanding the apparent breadth of the power conferred by s 90-15, I share the cautionary note expressed by McLelland J in Re Magic Aust Pty Ltd (in liq)[295] that an application for directions is not an appropriate vehicle for a direction to be given that a liquidator admit or reject a particular proof of debt, which would not determine the validity or otherwise of the claim or prevent a subsequent appeal from the liquidator's decision made in accordance with that direction.
[295](1992) 7 ACSR 742, at 745.
Even if s 90-15 does permit the Court to take a broader view of the powers available to the Court when making orders in relation to the external administration of a company, and does accommodate the determination of substantive rights, I am not satisfied that it is appropriate to do so in the present case.
Accordingly, in the exercise of the Court’s discretion, I do not propose to make the direction sought in paragraph 2(a) of the FAOP.
Paragraphs 2(b) and 2(c) of the FAOP: Whether the General Creditors are entitled to share in the assets of the Prime Trust or are they confined to the assets of APCHL (in its own right)? and Whether the Trust Creditors are entitled to share in the Personal Assets of APCHL or are they confined to the Trust Assets only?
The approach taken by the liquidators
In broad terms, in paragraphs 2(b) and 2(c) of the FAOP the liquidators seek directions about the assets available for distribution to, or non‑payment of dividends to, certain classes of creditors of APCHL, referable to where their status as creditors arose in respect of dealings with APCHL either in its capacity as RE of the Prime Trust or in its own right.
As the liquidators observe, the directions sought in paragraphs 2(b) and 2(c) of the FAOP arise because APCHL:
(a) has Trust Creditors (and depending on direction 1(a), may include the Unitholder Claims); and
(b) has General Creditors (and depending on direction 1(a), may include the Unitholder Claims);
(c) holds Trust Assets; and
(d) holds Personal Assets.
The liquidators’ Table 4 (reproduced below) identifies the value of:
(a) APCHL’s Personal Assets;
(b) APCHL’s Trust Assets;
(c) APCHL’s Total Assets (i.e. an aggregate of the Personal Assets and Trust Assets);
(d) APCHL’s General Creditors (excluding the value of the Unitholder Claims);
(e) APCHL’s Trust Creditors (excluding the value of the Unitholder Claims and inter- company loans); and
(f) APCHL’s Total Creditors (i.e. an aggregate of the General Creditors and the Trust Creditors),
as follows:[296]
[296]Liquidators’ submissions, at [81].
Table 4
Balance of Assets Available for Distribution
(from Table 1)Creditors
Shortfall
APCHL (in its own right)
$2,838,017.80
$35,408,750.60
($32,570,732.80)
APCHL ATF Prime Trust
$1,474,731.48
$342,639,097.00
($341,164,365.52)
TOTAL
$4,312,749.28
$378,047,847.60
($373,735,098.32)
The liquidators observe that, as is evident from the table:[297]
[297]Liquidators’ submissions, at [82].
(a) the Personal Assets of APCHL are insufficient to meet in full the General Creditors of APCHL;
(b) the Trust Assets of APCHL are insufficient to meet in full the Trust Creditors of APCHL; and
(c) the Total Assets of APCHL are insufficient to meet the Total Creditors of APCHL.
In those circumstances, due to the patent insufficiency of APCHL’s assets to meet its creditors in full, the liquidators are obliged, pursuant to s 555 of the Corporations Act, to pay creditors of APCHL proportionately. Accordingly, the liquidators seek directions from the Court regarding the payment of its ‘final’ distribution to APCHL’s creditors.
The directions sought in paragraphs 2(b) and 2(c) call for an answer to the following questions:
(a) Question 1: Are the General Creditors entitled to share in the Trust Assets or are they confined to APCHL's Personal Assets only?
(b) Question 2: Are the Trust Creditors entitled to share in the Personal Assets of APCHL or are they confined to the Trust Assets only?
The recent decision of the High Court in Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth (but generally referred to as Re Amerind),[298] which considered similar questions in the context of a receiver exercising its powers under s 433 of the Corporations Act, laid down principles that apply equally to liquidations and s 555 of the Corporations Act. Relevantly for present purposes, the High Court in Re Amerind confirmed the following principles:[299]
[298](2019) 368 ALR 390; [2019] HCA 20 (Re Amerind).
[299]Liquidators’ submissions, at [86(a)]–[86(h)].
(a) A trustee who enters into business transactions as trustee is personally liable for debts incurred in the course of those transactions: Re Amerind per Bell, Gageler and Nettle JJ at [80] and Gordon J at [129] citing the plurality in Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 at 367 (per Stephen, Mason, Aickin and Wilson JJ); see also Vacuum Oil Co Pty Ltd v Wiltshire (1945) 72 CLR 319 at 324.
(b) Where a trustee acting within its powers incurs a liability in the course of the administration of the trust, although the trustee is ordinarily personally liable in relation to the debt, the trustee is entitled to indemnity out of the trust estate: Re Amerind per Gordon J at [130] citing Chief Commissioner of Stamp Duties (NSW) v Buckle (1998) 192 CLR 226 at 245 [47]; [1998] HCA 4, quoting Scott on Trusts, 4th ed (1988), vol 3A, §246.
(c) If the trustee discharges the trust liabilities from the trustee's personal assets, the trustee is entitled to recoup out of the trust property. This is referred to as the (right of reimbursement or right of recoupment): Re Amerind per Bell, Gageler and Nettle JJ at [92] citing Re Suco Gold; Gordon J at [155].
(d) If the trust liabilities have not been discharged, the trustee may, by reason of the right of indemnity which vests in him, apply the trust property to the payment of the trust liabilities, thereby exonerating the bankrupt estate to the extent of the value of the available trust assets (right of exoneration): Re Amerind per Bell, Gageler and Nettle JJ at [92] citing Re Suco Gold.
(e) By the right of exoneration and the right of reimbursement (collectively known as the right of indemnity) the trustee obtains a beneficial interest in the trust property: Re Amerind per Bell, Gageler and Nettle JJ at [80] citing the plurality in Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 at 367 (per Stephen, Mason, Aickin and Wilson JJ); Gordon J at [132-133].
(f) The right of indemnity becomes part of the property of the trustee (and forms part of its personal assets). These assets fall into the trustee's general estate and are divisible among the creditors of the trustee generally: Re Amerind per Bell, Gageler and Nettle JJ at [92] citing Re Suco Gold; Gordon J at [155].
(g) However, the proceeds from an exercise of a corporate trustee's right of exoneration in respect of trust liabilities may be applied only in satisfaction of the trust liabilities to which that right relates: Re Amerind per Bell, Gageler and Nettle JJ at [92]; at [153] per Gordon J, citing Re Suco Gold at 105, 107-110 and Allsop CJ in Jones (Liquidator) v Matrix Partners Pty Ltd, in the matter of Killarnee Civil & Concrete Contractors Pty Ltd (in liq) (2018) 260 FCR 310 at 336-337 [101].
(h) While the right of indemnity permits the proceeds of the trust assets to be applied to creditors of the trustee generally, the right of exoneration is not available for distribution among the creditors of the trustee generally: Re Amerind per Bell, Gageler and Nettle JJ at [92] citing Re Suco Gold; Gordon J at [156] (where her Honour emphasised that assets of the trust “which are the subject of the right of exoneration can only be applied to satisfy trust debts and are not available for distribution to creditors generally”).
(i) Finally, in Re Amerind Gordon J at [159-166] discussed the application of the principles in circumstances of multiple trusts and noted the following:
(i) a liquidator of an insolvent corporate trustee of multiple trusts should be viewed as holding multiple funds, each directed to different groups of creditors;
(ii) there is an inherent limitation on the proprietary rights of the trustee in a trust fund. The funds can only be applied to satisfy debts incurred to creditors of the relevant trust; and
(iii) this approach may lead to practical difficulties and expense. In such a case, equity may need to fill the vacuum left by the failure of the statute to deal expressly with multiple trust funds. An available mechanism is for the liquidator to apply under s 90-15 of the Insolvency Practice Schedule for directions from the court to seek to resolve any issues in relation to allocation between multiple trusts. What will be appropriate will vary from case to case. Hotchpot (like marshalling) is one possibility; an illustration of the maxim that equity is equality.
However, as the liquidators note,[300] the mechanisms raised by her Honour above, such as hotchpot or the application of equitable maxims, are not relevant in the context of the present case.
[300]Liquidators’ submissions, at [87].
The liquidators submit that the relevant principles in Re Amerind apply to the facts and circumstances of APCHL, as follows:
(a) APCHL is personally liable for the debts it incurred in the course of operating the Prime Trust, i.e. APCHL is personally liable for the Trust Creditors.
(b) If APCHL discharges liabilities of the Prime Trust from its Personal Assets, then it would be entitled to recoup this amount out of the Trust Assets – APCHL would have a right of recoupment in respect of (and to the extent of) the trust liabilities which it has discharged.
(c) However, to date, APCHL has not discharged Prime Trust liabilities using its Personal Assets and so, to date, the right of recoupment has no application to the circumstances of APCHL.
(d) If, as is the case here, the Prime Trust liabilities have not been discharged, the liquidators may apply the Trust Assets to the payment of the Trust Creditors, thereby exonerating the trust estate to the extent of the value of the available Trust Assets.
(e) This right of exoneration grants the liquidators a beneficial interest and proprietary right in the Trust Assets.
(f) However, the proceeds from an exercise of the right of exoneration in respect of the Trust Creditors may be applied only in satisfaction of the Trust Creditors to which that right relates.
Accordingly, the liquidators contend that the answer to the two questions posed above are as follows:
(a) Answer to Question 1: The General Creditors are confined to the assets of APCHL (in its own right).[301]
(b) Answer to Question 2: The Trust Creditors are entitled to share in the Personal Assets of APCHL and in the Trust Assets.[302]
[301]Liquidators’ submissions, at [91].
[302]Liquidators’ submissions, at [93].
As was noted earlier, at the hearing the direction sought in paragraph 2(b) of the amended originating process, the effect of which is to entitle ‘trust creditors’ to share in the ‘personal assets’ of APCHL (which arises due to the dual capacities in which APCHL operated), was amended so as to include a carve‑out in the case of creditors of APCHL in its capacity as RE of the Prime Trust that had limited ‘their recourse to Prime Trust assets only (and therefore are not entitled to share in the assets of APCHL in its personal capacity).’[303]
[303]Liquidators’ reply submissions at [15]–[18(a)], [53(b)]; Transcript, 22.07.20, at p 16.26–16.30 (Mr Evans QC).
It follows that the liquidators seek:[304]
(a) the making of a direction in the form set out in paragraph 2(b) of the FAOP thereby confirming that the liquidators may treat the creditors of the Prime Trust as being entitled to dividends from the assets of APCHL in its personal capacity and in the assets of the Prime Trust, other than the named creditors (being the relevant financiers[305]);
(b) the making of a direction in the form set out in paragraph 2(c) of the FAOP in the negative, thereby confirming that creditors of APCHL in its personal capacity are confined to the assets of APCHL in its personal capacity and are not entitled to any dividend from the assets of the Prime Trust.
[304]Liquidators’ reply submissions, at [53(b)], [53(c)].
[305]Named in directions 2(b)(i), (ii) and (iii) as being Capital Finance Australia Limited, Suncorp Metway Limited and Industry Funds Management (Nominees 2) Pty Ltd.
PTAG agrees with the approach taken by the liquidators
When addressing the issue of the capacity in which APCHL is liable for any loss caused to unitholders, PTAG submitted that ‘[t]he only viable or pragmatic way of dealing with the issue is to admit the unitholders claims in the liquidation of APCHL in its own capacity and in its capacity as Responsible Entity for the Prime Trust’, adding that ‘[t]o do otherwise will result in the significant depletion of the assets remaining for distribution.’[306]
[306]PTAG’s submissions, at [34].
The KCDA parties agree generally with the approach taken by the liquidators
The KCDA parties agree[307] that the questions the subject of directions 2(b) and 2(c), being questions 1 and 2 in the liquidators’ submissions above, should be answered generally in the manner set out in the liquidators’ submissions,[308] relying upon the conclusions reached by the High Court in Re Amerind.
[307]KCDA submissions, at [3], [46].
[308]Referring to the liquidators’ submissions, at [90]-[93].
Earlier, in their written submissions, the KCDA parties had drawn attention to the fact that in the present case, certain of the trust creditors have expressly limited their entitlement to be repaid to seeking recourse only to trust assets. Relevantly, the KCDA parties observed, ‘nothing in Re Amerind would entitle a trust creditor to share in the personal assets of APCHL where such a creditor had expressly limited (by their contractual arrangements with APCHL) their entitlement to be repaid to seeking recourse only to trust assets.’[309] Accordingly, they submitted, because certain of the trust creditors in the present case (being the financiers described in the Horne 15.8.19 affidavit at paras [9(h)] – [9(j)]) had agreements where APCHL limited its indebtedness ‘only in its capacity as trustee of the Trust’, those financiers are prevented from getting to the personal fund of the company.[310]
[309]KCDA submissions, at [46].
[310]See exhibit KP-3 to the Powers affidavit.
Save for that important caveat, the KCDA parties submitted that:[311]
[311]KCDA submissions, at [46.1]–[46.2].
(a) unless a particular creditor has agreed to restrict its ability to recover to a specific fund (i.e., a trust fund or personal fund) then the personal assets of APCHL can be used rateably to pay out the creditors under the Corporations Act, irrespective of whether the liability was incurred as a trustee or personally; and
(b) the situation is different regarding funds held by APCHL on trust, which may only be used to satisfy trust liabilities (including in support of providing a trustee a right of exoneration).[312] The trustee’s right of indemnity cannot be used to satisfy debts other than those incurred with authority for the conduct of the trust business.[313]
The liquidators’ response - consensus reached in relation to the directions sought in paragraphs 2(b) and 2(c)
[312]Re Amerind, at [29]–[44].
[313]Re Amerind, at [44].
Against that background, following consultation between counsel for the respective parties, and with the modifications the liquidators proposed be made to the directions sought in paragraphs 2(b) of the FAOP to address the position of the financiers who had expressly limited (by their contractual arrangements with APCHL) their entitlement to be repaid to seeking recourse only to trust assets, senior counsel for the liquidators informed the Court that:[314]
I've clarified with Mr Glick that the position taken by the KCDA parties, and also the position, I should say, taken by PTAG is that they do not oppose the making of the directions in paragraphs 2(b) and 2(c) in the form which is now put forward by the further amended originating process.
[314]Transcript, 22.07.20, at p 107.07–107.13 (Mr Evans QC);
Accordingly, the liquidators seek orders that those directions be made, and the interested parties do not oppose them.
Consideration and disposition in respect of the directions sought in paragraphs 2(b) and 2(c) of the FAOP
The liquidators’ submissions have identified a proper basis for the Court to make the directions sought in paragraphs 2(b) and 2(c) of the FAOP. The interested parties have indicated that they do not oppose the making of those directions in the form sought. I am satisfied that it is appropriate for the Court to make those directions.
Conclusion
For the reasons set out above, I am not satisfied that it is appropriate for the Court to make directions 1(a), 1(b) or 1(c) concerning the Eligible Unitholders claims and the lodgment of a global proof of debt by PTAG, or direction 2(a) concerning the claims of the Excluded Unitholders. In those circumstances, it remains open to the unitholders of the Prime Trust to lodge proofs of debt in the liquidation of APCHL to be dealt with by the liquidators in the ordinary course.
In the case of directions 2(b) and 2(c), concerning the payment of dividends to creditors of APCHL and from what assets, both the liquidators and the interested parties are agreed that it is appropriate that the directions sought in paragraphs 2(b) and 2(c) be made. No submission to the contrary has been filed by any of the relevant financiers listed in subparagraphs 2(b)(i)-(iii). I am satisfied that it is appropriate for the Court to make those directions in the form sought in the FAOP.
I will hear counsel as to the appropriate form of the orders and directions to be made to give effect to these reasons.
ANNEXURE A – CORPORATE STRUCTURE CHART
ANNEXURE B – EXCLUDED UNITHOLDERS
| Daytree Pty Ltd | |
| Kidder Williams Ltd | |
| Moggs Creek Pty Ltd ATF Super Fund A/c | |
| Kidder Peabody Pty Ltd | |
| Philip & Glennys Powell ATF Prime Numbers Super Fund | |
| Kim & Julie Jaques ATF K&J Jaques Super Fund | |
| Julie Jaques | |
| Michael Wooldridge | |
| Kalosu Pty Ltd ATF The Clarke Family Trust A/c | |
SCHEDULE OF PARTIES
| STIRLING LINDLEY HORNE and PETR VRSECKY as joint and several liquidator of AUSTRALIAN PROPERTY CUSTODIAN HOLDINGS LIMITED (IN LIQ) (ACN 095 474 436) | Plaintiffs |
| -and- | |
| KIDDER COMMUNITIES PTY LTD (ACN 130 631 891) (RECS AND MGRS APPT) | First interested party |
| DAYTREE PTY LTD (ACN 054 304 755) | Second interested party |
| AUSTRALIAN PROPERTY ADMINISTRATORS PTY LTD (ACN 067 857 425) | Third interested party |
| PRIME TRUST ACTION GROUP (PRIME ACTION SUPPORT GROUP IARN A1015519W) | Fourth interested party |
(a)in respect of the Salignus Superannuation Fund, $30,108.37;
(b)in respect of Mr Steve O'Reilly and Mrs Joanna O'Reilly, $91,603;
(c)in respect of Mr Hans Desler and Mrs Irmgard Desler, $92,923; and
(d)in respect of the Desler Pension Fund, $54,571.
The liquidators were subsequently informed by FOS that the Salignus Superannuation Fund did not accept the FOS determination made in respect of its complaint.
At the hearing, the Court was informed by senior counsel for the liquidators that the insurer under APCHL’s directors and officers policy accepted the Desler’s claim but no money was paid under it either to Mr or Mrs Desler or the Desler Pension Fund because the policy was liquidated in other litigation funding: Transcript 22.07.20, at p 27.31-28.08.
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