Trust Company Superannuation Services Limited, Re
[2009] QSC 13
•16 February 2009
SUPREME COURT OF QUEENSLAND
CITATION:
Re Trust Company Superannuation Services Limited [2009] QSC 13
PARTIES:
Trust Company Superannuation Services Limited
(applicant)FILE NO/S:
740 / 09
DIVISION:
Trial Division
PROCEEDING:
Application
DELIVERED ON:
16 February 2009
DELIVERED AT:
Supreme Court, Brisbane
HEARING DATE:
16 February 2009
JUDGE:
Wilson J
ORDER:
That the proposed method of distribution be permitted to proceed
CATCHWORDS:
EQUITY – TRUSTS AND TRUSTEES – APPLICATIONS TO THE COURT FOR ADVICE AND AUTHORITY – where application made pursuant to s 96 of the Trusts Act 1973 (Qld) – where directions sought concerning distribution of proceeds of settlement of litigation – whether proposed method of distribution fair and reasonable
Trusts Act 1973 (Qld), s 96
COUNSEL:
B Ross
SOLICITORS:
DLA Phillips Fox
This is an application pursuant to section 96 of the Trusts Act 1973 (Qld) by Trust Company Superannuation Services Limited, the trustee of the Employees Productivity Awards Superannuation Trust ("the Fund"). The applicant seeks directions concerning the distribution of the proceeds of settlement of litigation in this Court, being S3543 of 2000 and S3544 of 2000.
The settlement sum of $10 million was paid in July 2008. It has since been placed on interest-bearing deposit. When the deposit matures on 19 February 2009, the total interest earned will have been $415,192.
The Fund is an accumulation superannuation fund. The applicant has been the trustee of the Fund since 21 May 1999. The former trustee was EPAS Limited, which has since gone into liquidation. The members of the Fund were predominantly itinerant workers in the hospitality industry resident in Queensland.
Imprudent transactions resulted in the Fund sustaining losses in the 1998 and 1999 financial years. Those losses have been variously calculated between $9 million and $14 million.
ASIC conducted an investigation, and subsequently it conducted litigation, the fruits of which are now available for distribution.
In the meantime EPAS Limited as trustee had credited members' accounts for the year ended 30 June 1998 with an investment rate of return of negative 43 percent.
Then in August 1998 EPAS Limited had frozen payment or transfer of any benefits from the Fund except in special circumstances. The "freeze" was not applicable to persons who became members after 30 June 1998 or to contributions by existing members made after 30 June 1998. The freeze was not implemented immediately and, as I shall describe, there were some members who "fell through the cracks" and left the Fund.
After the applicant had become the trustee it further credited negative 13.75 percent to members' balances as at 30 June 1998.
As at 30 June 1998 there were 24,730 affected members. Those who became members after that date and contributions made by existing members after that date are not affected by the losses. It is not proposed that they participate in the distribution of the settlement sum.
The litigation was settled on 18 July 2008. As at that date the affected members were as follows:
19,277 continuing members
2,198 members who had left the Fund
3,255 members whose accounts had been closed
Total 24,730
Of the 2,198 who had left the Fund, 1,384 were approved releases (for example, on account of total permanent disablement) and 814 were releases for which no reason can be identified.
The continuing members were credited with both negative 43 percent and negative 13.75 percent investment rates of return. Of the 814 who left the Fund after the freeze was imposed for reasons which cannot be identified, some were credited with negative 43 percent investment rate of return and some were credited with both negative 43 percent and negative 13.75 percent investment rates of return.
The 1,384 who were approved releases were credited with a further payment from a Reserve Fund equivalent to 1.7 percent per annum of the daily account balances from the previous July to the date of exit.
3,255 accounts were closed because the account balances were negative.
I turn to the proposed distribution. $10 million is insufficient to fully recompense all members. Therefore, what is proposed is as follows:
a)That there be no payment to those 3,255 members whose accounts were closed. The total loss sustained by the holders of those closed accounts is approximately $34,000. The cost of locating those members and processing any payment entitlement would outweigh the likely allocation.
b)That continuing members (19,277) and all exited members (2,198) be treated in the same way.
An actuary engaged, Mr Bill Buttler, has recommended distribution on a "fair and reasonable basis".
This is based on each continuing member's total loss incurred as a result of the application of the negative 43 percent investment rate of return and the other negative 13.75 percent investment rate of return. In other words, a continuing member's share of the $10 million will depend upon whether he or she was the subject of only the negative 43 percent crediting rate or both the negative 43 percent and the negative 13.75 percent crediting rate.
So far as the 814 members who exited the fund are concerned, there will be no compensation or adjustment to take into account the benefit received by those who were not subject to the negative 13.75 percent crediting rate. This is because the amounts involved are too small to justify the cost of obtaining details and making the calculations.
Some of the continuing members are "contactable" and some are "lost". Similarly, some of the exited members are "contactable" and some are "lost". "Contactable" means that the trustee has their current address and contact details. "Lost" means that the trustee has no contact details and/or that the account has been inactive for five or more years.
The proposal is to treat "contactable" and "lost" members in the same way. Under applicable legislation the entitlement of "lost" members will be paid to an eligible rollover fund and ultimately to the Australian Taxation Office.
Capital gains tax will be payable on the settlement amount of $10 million.
Further, interest on the settlement sum will be taxable. The proposal is to deduct all tax payable from the settlement sum before it is distributed to members.
The distribution proposal which is before the Court does not deal with the Reserve Account.
ASIC was advised of this application. It did not appear on the hearing.
APRA was similarly advised. It had no major concerns, but asked to be kept informed on how any surplus in the Reserve Account is to be distributed. It did not appear at the hearing.
In all the circumstances I am satisfied that the proposed method of distribution is a fair and reasonable one and that the applicant trustee should be permitted to proceed accordingly. I make an order in terms of the draft.
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