Re Great Southern Managers (Australia) Limited (No 1)

IN THE SUPREME COURT OF VICTORIA	Not Restricted
AT MELBOURNE COMMERCIAL AND EQUITY DIVISION

COMMERCIAL COURT CORPORATIONS LIST

No 8169 of 2009

List E

RE GREAT SOUTHERN MANAGERS
AUSTRALIA LIMITED (ACN 083 825 405)
(RECEIVERS AND MANAGERS APPOINTED)

(ADMINSTRATORS APPOINTED)

JAMES GERARD THACKRAY, SIMON	First to fourth Plaintiffs
ANDREW READ, COLIN MCINTOSH NICOL AND ANTHONY GREGORY MCGRATH IN THEIR CAPACITY AS RECEIVERS AND MANAGERS OF GREAT SOUTHERN MANAGERS AUSTRALIA LIMITED (ACN 088 825 405) (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED)
GREAT SOUTHERN MANAGERS AUSTRALIA	Fifth Plaintiff
LIMITED (ACN 083 825 405) (RECEIVERSAND MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED)

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JUDGE:	ROBSON J
WHERE HELD:	Melbourne
DATE OF HEARING:	17 August 2009
DATE OF JUDGMENT:	19 August 2009
CASE MAY BE CITED AS:	Re Great Southern Managers (Australia) Limited (No 1)
MEDIUM NEUTRAL CITATION:	[2009] VSC 642 ---

CORPORATIONS – request for directions by receivers and mangers on expenditure to care for, protect and preserve assets of management investment scheme – s 424 Corporations Act 2001 - scheme assets subject of trust - duty of receivers and managers towards trust property - indemnity for expenses incurred in caring for, protecting and preserving trust property - entitlement to lien over trust property - extent to which expenditure is supported by lien - whether duty and lien extends to expenditure on enhancing trust property

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Mr N J O’Bryan SC and	Minter Ellison
Mr H N G Austin of counsel for the plaintiffs
For Australian Securities and	Mr D Star	Australian Securities and
Investments Commission	Investments Commission
For Robert Burns	Mr G T Bigmore QC and	Clarendon Lawyers
Mr M Galvin
For the Administrators of the	Ms E J Stevens	Ms E J Stevens
Fifth Plaintiff
For the Bendigo and	Mr P D Crutchfield
Adelaide Bank Ltd

Cases cited
Berkeley Applegate (Investment Consultants) Ltd (in liq) [1989] Ch 32
Crest Realty Pty Ltd (in liq) (No 2) [1977] 1 NSWLR 664
Dean-Willcocks v Nothintoohard Pty Ltd [2005] NSWSC 357
Dean-Willcocks v Nothintoohard Pty Ltd (in liq) [2006] NSWCA 311
GB Nathan and Co Pty Ltd (in liq) (1991) 24 NSWLR 674
Irvine v Australian Sharetrading & Underwriting Ltd (in liq) (1996) 22 ACSR 765
Universal Distributing Co Ltd (in liq) (1933) 48 CLR 171
HIS HONOUR:

On 18 May 2009, the first to fourth plaintiffs were appointed by a group of banks described as the “Club Banks” as joint and several receivers and managers of ten companies within the Great Southern Group of companies including Great Southern Managers Australia Ltd (GSMAL). Previously, on 16 May 2009, the directors of GSMAL and Great Southern Limited appointed four members of Ferrier Hodgson to be joint and several administrators of the 36 companies which comprise the Great Southern Group of companies.
The Great Southern Group promoted and conducted several managed investment schemes. GSMAL is the responsible entity for a number of registered Managed Investment Schemes dealing with investments in forestry, horticulture, viticulture and cattle on behalf of investors.
The failure of the Great Southern Group has left many of the MIS members in a difficult position. In particular, GSMAL is no longer able to carry out its management responsibilities under the various MIS.
This application concerns the MIS involved in forestry, olive orchards, almond orchards and vineyards. The ventures are in need of protection, preservation and maintenance. Unless work is carried out for their protection and preservation, their value will be reduced, if not lost entirely.
By an amended originating process of 17 August 2009, the receivers seek directions under s 424(1) of the Corporations Act 2001 (“the Act”), relating to the protection and preservation of the MIS, and under s 1322(4) of the Act for an extension of time for carrying out certain duties under the Act. I reserve my decision on the extension of time applications.
DIRECTIONS IN RELATION TO THE MIS
Under the Act, the function of the manager of a MIS and the trustee are vested in one entity, the responsible entity. GSMAL is the responsible entity of the MIS the subject of the application. GSMAL holds the property of the MIS on trust for its members. GSMAL also holds property on its own behalf, not the least of which is the management contract it has with the members to manage the MIS.
GSMAL has charged its own property to the Club Banks in support of advances made to the Great Southern Group of some $320 million. The charged property does not include the property of the various MIS, but as mentioned above, would include its management rights. The appointment of the receivers acknowledges that the functions, powers and authorities of the receivers and managers extend to GSMAL acting in its capacity as responsible entity of the schemes.[1]
[1] JGT-4.
GSMAL is in possession of the trust property and also holds the property on trust. The receivers have not taken possession of the trust property as property secured by the securities of the Club Banks, but the receivers have taken possession of the trust property as manager of the business conducted by GSMAL including GSMAL’s management rights under the MIS. GSMAL remains the trustee and the trust property still lies in its name.
What is the obligation of the receivers and managers towards the trust assets? In Re Crest Realty Pty Ltd (in liq) (No 2)[2] and Re GB Nathan and Co Pty Ltd (in liq)[3] it was held that a liquidator of a company that has trust assets is under a duty to act in a responsible way in the administration of the trust in the name of the company. In Re GB Nathan and Co Pty Ltd (in liq),[4] McLelland J said that:
What the duty to ‘act in a responsible way’ will involve and what degree of ‘administration’ of the trust is necessary must depend upon the particular circumstances. In some cases an application to the court for the appointment of a new trustee may be appropriate course; in other cases an application for the appointment of a receiver and manager of the trust assets may be
warranted [citation omitted].[5]
[2] [1977] 1 NSWLR 664.
[3] (1991) 24 NSWLR 674.
[4] Ibid.
[5] Ibid 688.
In Irvine v Australian Sharetrading & Underwriting Ltd (in liq),[6] Mandie J considered the obligations of a liquidator of a corporation under the Industrial and Provident Societies Act 1958 where the company was acting as a trustee. He had before him an application to remove the company in liquidation as trustee and to restrain the liquidator from recovering his fees and expenses from trust assets. After considering Re Crest Realty Pty Ltd (in liq) (No 2)[7] and Re GB Nathan and Co Pty Ltd (in liq),[8] Mandie J held:
The duty of a liquidator is to wind up the affairs of the company and distribute its property (s495(1) and s499(1) Corporations Law cf s477(1)(a), (2)(m) Corporations Law). In the light of the cases to which I have referred, the affairs of the company, for this purpose, include the affairs of the trust to the extent that the liquidator may need to administer the trust in a particular case to identify the trust's assets and liabilities and their value and protect the same and also to ascertain the company's rights and liabilities as trustee in relation thereto.
In my view, in a case where a company has acted as trustee, the liquidator's duty will include in an appropriate case, such matters as the identification of the trust's constituent document, the ascertainment of the nature and value of the trust assets and trust liabilities, the investigation of the financial relationship between the trustee and the trust, the identification of the trust's creditors and beneficiaries and any matters necessary to determine appropriate action to be taken in relation to the trust on behalf of the trustee including action to preserve and protect assets or to wind up the trust where appropriate and there is express power to do so. However in this regard it must be noted that a liquidator's "duty" is not absolute because he is not liable to incur any expense in relation to the winding up of a company unless there is sufficient available property (s545(1) Corporations Law).[9]
[6] (1996) 22 ACSR 765.
[7] [1977] 1 NSWLR 664.
[8] (1991) 24 NSWLR 674.
[9] Irvine v Australian Sharetrading & Underwriting Ltd (in liq) (1996) 22 ACSR 765, 783.
In my view, the obligations of the receivers and managers of a company that holds trust assets should be guided by similar considerations. In this case there are also statutory obligations imposed on the receivers and managers as officers of GSMAL. Under s 601FD of the Act, an officer of a responsible entity must act in the best interests of members and, if there is a conflict between the members’ interests and the interests of the responsible entity, give priority to the members’ interests.[10] An officer must also exercise the degree of care and diligence that a reasonable person would exercise if they were in the officer’s position.[11]
[10] Corporations Act 2001 (Cth) s 601FD(1)(c).
[11] Corporations Act 2001 (Cth) s 601FD(1)(b).
It is not appropriate that I define the full extent of the duties and obligations of the receivers and managers in relation to the trust assets. It is sufficient to say that until another responsible entity is appointed or some other action is taken to relieve GSMAL of its obligation to manage the MIS, the receivers have a duty to act in a responsible way in the administration of the trust in the name of GSMAL. This duty includes taking action to protect and preserve the assets until such steps are taken to relieve GSMAL of its obligation to act as the responsible entity. Of course, the receivers are under no obligation to incur expenses in doing so, unless they are able to. In this case, they may be able to incur such expenses by borrowing moneys and indemnifying themselves from the lien that they will have if they spend the moneys borrowed on protecting and preserving the trust assets.
The receivers also seek a direction pursuant to s 424 of the Act that the receivers are authorised or otherwise entitled to contribute to and/or effect payment of rent and water payments due under certain leases. Further, the receivers seek a direction that the receivers are authorised or otherwise entitled to be indemnified in respect of any contribution to and/or payments made out of:
(a)        the trees and almonds situated on the land the subject of the leases;
(b)        the proceeds of sale of any trees and almonds situated on the land the subject of the said leases, should a sale be effected by the receivers or any person; and
(c)         the proceeds of any insurance claim in respect to any trees and almonds situated on the land the subject of the leases
and that such indemnity be supported by an equitable charge or equitable lien over
the trees and almonds, any resultant sale proceeds or insurance claim proceeds.
Similar directions are sought in relation to other expenditure incurred in protecting and preserving the trust property of the MIS.
As indicated above, in my opinion, the receivers are duty bound to act in a responsible way in relation to the trust assets. Accordingly, in my opinion, I should direct that the receivers are justified, insofar as they are able, to preserve and protect the property of the MIS until GSMAL is relieved of its position as responsible entity of the MIS. I will direct also, that they are not obliged to incur any such expenditure unless they are able to be fully indemnified from the property they preserve and protect.
As to the lien direction, in my view, I am not in a position to “authorise” that the receivers be indemnified out of the trust assets and that such indemnity be supported by an equitable lien over the trust property. The lien arises as a matter of law. In my view, the law is clear on this issue. By operation of equitable principles, the receivers will be entitled to a lien in priority to all other charges and securities in respect of the expenditure they reasonably incur in protecting and preserving the trust assets. This right is not governed by any direction I may give. It simply arises from the expenditure.
In my view, the appropriate direction is that the receivers are justified in carrying out their duties as receivers and managers and proceeding on the basis that they will be entitled to a lien over the trust property preserved or protected by their reasonable expenditure including their reasonable remuneration.
I have limited the direction to the trust property. The issue was raised that the expenditure may also have the effect of preserving and protecting the property of others, such as the landlords and the security of the Club Banks. In some cases, the expenditure may preserve and protect the property of another Great Southern Group company. In other cases, it may be a third party.
In my opinion, this issue is resolved by one of the factors upon which the lien is given. In particular, the lien is given because the expenditure has enabled the beneficiary to avoid incurring the expenditure himself and has thus benefited the beneficiary. In Re Berkeley Applegate (Investment Consultants) Ltd (in liq),[12] Edward Nugee QC, sitting as a deputy High Court judge, considered the right of a liquidator to obtain his remuneration from trust assets held by the company he was liquidating. In referring to the ‘salvage’ lien he said:
It is a discretion which will be sparingly exercised; but factors which will operate in favour of its being exercised include the fact that, if the work had not been done by the person to whom the allowance is sought to be made, it would have had to be done either by the person entitled to the equitable interest (as in In re Marine Mansions Co LR 4 Eq 601 and similar cases) or by a receiver appointed by the court whose fees would have been borne by the trust property (as in Scott v Nesbitt, 14 Ves Jun 438); and the fact that the work has been of substantial benefit to the trust property and to the persons interested in it in equity (as in Phipps v Boardman [1964] 1 WLR 993).[13]
[12] [1989] Ch 32.
[13] Ibid 50-51.
In this case, the expenditure which the receivers and managers propose to incur is merely expenditure that would have had to been borne by the members, if the schemes had continued as envisaged. It may be said that that expenditure may also indirectly benefit the landlords and other interested parties. That would have been the case in any event if the moneys had been spent by the responsible entity. Those factors would have been taken into account in the establishment of the contractual relations between the responsible entity, on behalf of the members, and the third parties. At this stage, I can see no basis for the lien to attach to anything other than the trust property.
I should sound a note of caution at this point. I am only giving judicial advice by direction at this stage. My advice will not bind third parties. Someone may wish to establish that the lien goes further than the trust property. If that happens, my decision will not have determined that issue.
The plaintiffs have sought to include the words “enhance the value of” along with “care for, preserve, protect and where necessary realise” in my proposed direction as referred to below. The plaintiffs submit that these words were used by Beazley JA in Dean-Willcocks v Nothintoohard Pty Ltd (in liq).[14] Beazley JA quoted from the decision of Barrett J at first instance.[15] Barrett J canvassed the basis upon which the receivers for the second mortgagee sought to claim priority for their expenditure over the first mortgagee. After referring to Re Berkeley Applegate (Investment Consultants) Ltd (in liq)[16] and in particular the passage I have quoted above, he said:
Key words, in this statement of principle, are: “ … where a person seeks to enforce a claim to an equitable interest in property“. The person with whom the principle is concerned is thus one who asserts an equitable interest — in other words, “he who seeks equity”. The principle decrees, in effect, that that person “must do equity”. Here, of course, the second defendant does not assert any equitable claim. It does not seek to enforce an equitable interest in property. It relies upon its legal interest. The equitable principle requiring that the enjoyment of benefit be accompanied by an appropriate shouldering of burden — that he who seeks equity must do equity — therefore does not apply.
But there may be a wider basis for the plaintiffs’ “salvage” claim, namely, that it is necessary to impose an equitable lien, as in Hewett v Court (above), to ensure that the second defendant, in relying upon its rights at law to sell the property as a means of obtaining satisfaction of moneys owing to it in priority to moneys owing to others, does not unconscientiously reap the reward of outlays by the plaintiff productive of “incontrovertible benefit” to the property and therefore to the second defendant as the holder of a legal interest in it. Such an approach — characterised as an aspect of the law of restitution — has been recognised in somewhat analogous circumstances: see, for example, Monks v Poynice Pty Ltd (1987) 11 ACLR 637; Young v ACN 081 162 512 Pty Ltd [2005] NSWSC 139. Such a “salvage” claim, if properly available as a matter of principle, would be an example of the intervention of equity to prevent unconscientious reliance on common law rights and would operate as a qualification upon such rights.
It is unnecessary, however, to come to any firm conclusion whether such a claim is properly available as a matter of principle. This is because I am satisfied that none of the outlays to which the plaintiffs point can be said to have protected or preserved the property or enhanced its value in a way that produced “incontrovertible benefit” that ultimately enured to the advantage
of the second defendant and the sale it effected.[17]
[14] [2006] NSWCA 311 at [109].
[15] Dean-Willcocks v Nothintoohard Pty Ltd [2005] NSWSC 357.
[16] [1989] Ch 32.
[17] [2005] NSWSC 357 at [21]-[23].
As it was, Barrett J and the Court of Appeal rejected the plaintiff’s claim to a lien. There was no examination by Barrett J or the Court of Appeal whether or not a lien would extend to expenditure on enhancing property rather than preserving or protecting it.
The lien may extend to moneys expended to enhance the value of the trust assets. In my opinion, however, enhancement is a different concept to preserving or protecting. In one case, one is seeking to preserve what is already there. In the other, one is seeking to add to what is already there. A member can be taken to want their property preserved. But it is another thing to infer that a member would want their investment increased through enhancement or that equity would think it fair and just to impose such expenditure onto the trust property.
I would prefer to limit my direction to the concepts approved by Dixon J in Re Universal Distributing Co Ltd (in liq).[18] In this case, the receivers and managers were undertaking emergency steps to preserve and protect the scheme property while the future of the schemes were being resolved. In those circumstances, I consider it appropriate that the receivers do not undertake any enhancement of the scheme property unless it is incidental to the care, preservation or protection of the scheme property. It is important to keep in mind the limitations on the duty of the receivers and managers: that it is the duty to act in a responsible way towards the trust property.
[18] (1933) 48 CLR 171.

I propose to make orders to the following effect:
• The plaintiffs have leave to file and serve an amended originating process
substantially in the form of the proposed amended originating process handed
up to the court on 17 August 2009.
• Pursuant to s 424 of the Act, the first to fourth plaintiffs as receivers and
managers of the fifth plaintiff are justified in seeking to care for, protect, preserve and where necessary realise the scheme property of the schemes listed in schedule A hereto and held on trust by the fifth plaintiff.

• Pursuant to s 424 of the Act, the first to fourth plaintiffs are justified in carrying on their duties as receivers and mangers of the fifth plaintiff and proceeding on the basis that if they incur reasonable expenditure and reasonable remuneration in the care, preservation, protection, and/or realisation of the scheme property referred to in the paragraph above, they will be entitled to indemnify themselves for their expenditure out of the scheme property and the product thereof and be entitled to a lien over the scheme property and the product thereof to secure the same in priority to all other charges thereon.
• The plaintiffs’ costs of this proceeding are costs properly incurred in the first to
fourth plaintiff’s conduct of the receivership of the fifth plaintiff.
• Liberty is reserved to the first to fourth plaintiffs to apply for an order that the costs referred to in the paragraph above be paid out of the relevant assets on an indemnity basis.
• The further hearing of paragraphs 1 and 8 of the amended originating process is
adjourned to a date to be fixed.

•	Pursuant to s 424 of the Act, the first to fourth plaintiffs are justified in carrying on their duties as receivers and mangers of the fifth plaintiff and proceeding on the basis that if they incur reasonable expenditure and reasonable remuneration in the care, preservation, protection, and/or realisation of the scheme property referred to in the paragraph above, they will be entitled to indemnify themselves for their expenditure out of the scheme property and the product thereof and be entitled to a lien over the scheme property and the product thereof to secure the same in priority to all other charges thereon.
•	The plaintiffs’ costs of this proceeding are costs properly incurred in the first to fourth plaintiff’s conduct of the receivership of the fifth plaintiff.
•	Liberty is reserved to the first to fourth plaintiffs to apply for an order that the costs referred to in the paragraph above be paid out of the relevant assets on an indemnity basis.
•	The further hearing of paragraphs 1 and 8 of the amended originating process is adjourned to a date to be fixed.

[2009] VSC 642

19 August 2009