- 13 Coromandel Place Pty Ltd v C L Custodians Pty Ltd

Supreme Court of NSW|2016-11-18|Before: Black J

Solicitors: Johnson Winter & Slattery (Plaintiffs) Bridges Lawyers (Defendant) File Number(s): 2016/107316

Judgment

By Amended Interlocutory Process filed, by leave, on 30 September 2016, the Plaintiffs, Messrs Fraser and McGrath as administrators and liquidators of Primespace Property Investment Limited (in liq) ("PPIL") seek an order that they be allowed remuneration in specified amounts. IQIT Nominees Pty Ltd ("IQIT Nominees"), the current trustee for the IQ Investment Trust ("IQIT"), was joined as a defendant in the proceedings and contested aspects of Messrs Fraser's and McGrath's claims for remuneration. The issues raised by the application are, first, whether Messrs Fraser's and McGrath's remuneration should properly be paid from any assets of PPIL in its own right or from the assets of the trust; second, the quantum of Messrs Fraser's and McGrath's remuneration, both as administrators and as liquidators of PPIL; and, third, the allocation of that remuneration as between the several trusts both in the period of the administration and the period of the liquidation. I will first set out the factual background to the application and then deal with those issues in that order.

Factual background

I have set out the factual background to the appointment of Messrs Fraser and McGrath as administrators and liquidators of PPIL in two earlier judgments ([2016] NSWSC 1113 and [2016] NSWSC 1450) and I briefly summarise that background here. Messrs Fraser and McGrath were initially appointed as joint and several voluntary administrators of PPIL on 23 April 2015 and subsequently became its liquidators in a creditors' voluntary winding up under s 439C of the Corporations Act on 28 May 2015.
PPIL acted as responsible entity and trustee of funds and trusts within the Prime Access Group. PPIL is the trustee of the PrimeSpace Northbourne Trust ("PSNT") which has a 38.74% interest in the IQ joint venture ("IQJV"), which funded and managed the development of the IQ Smart Apartments in Canberra. PSNT's interest in that joint venture was funded by a construction facility from a bank, the issue of convertible notes and equity invested by PSNT and funded by the Prime Access Property Fund ("PAPF"). Titles to the apartments were issued in late May 2015 and the construction facility was repaid on 8 July 2015. PSNT has received substantial interim distributions from the IQJV. PPIL is also presently the responsible entity of PAPF which is an unlisted managed investment scheme, which funded property investment and development activities. PPIL, as responsible entity of PAPF, owns all the units in the Prime Office Property Trust ("POPF"), which in turn owns all of the 10,460,000 ordinary units in PSNT. Another entity, PS Office Pty Ltd, is trustee of POPF.
PPIL was the trustee of IQIT from 21 November 2012 until 1 October 2015, when it was replaced by IQIT Nominees as trustee of that trust. PPIL was therefore the trustee of IQIT for the whole of the period of its administration period, and for a substantial part of the period of its liquidation. IQIT was established in 2012 as a unit trust for the purpose of raising monies to assist with the development of the IQ Smart Apartments, and the constitution for PSNT was then amended to create a class of preference units, which were entitled to receive distributions in priority to ordinary units. It is common ground that, on 8 July 2015, IQIT's preference units in PSNT converted into loan notes.
PPIL, in addition to being trustee and responsible entity of entities within the Prime Access Group, also acted as trustee of the Canberra House Trust ("CHT") and the PrimeSpace Property Trust No 3 ("PSPT3") which, on Mr Fraser's evidence, are outside the Prime Access Group. CHT is currently dormant and PSPT3 purchased and redeveloped a shopping centre in South East Queensland, where two commercial units are yet to be realised. PAPF also holds a 100% interest in the Prime Retail Property Fund ("PRPF"), as to which PS Retail Pty Ltd (recs and mgrs apptd) is responsible entity. PRPF funded and managed a development known as the Summer Centre Orange, a regional shopping centre and apartment development in Orange, NSW.

The affidavit evidence

Messrs Fraser and McGrath rely on several affidavits in support of the application. By his affidavit dated 6 April 2016, Mr Fraser refers to the role of the relevant entities within the Prime Access Group. By a second affidavit dated 12 July 2016 ("Fraser 2"), Mr Fraser led evidence, inter alia, in support of the application for payment of the administrators' and liquidators' remuneration, including from the assets of the several trusts and funds for which PPIL is responsible entity or trustee. I will refer to that affidavit below in dealing with the amount of the remuneration claimed in respect of the administration and the liquidation and its allocation between the trusts. Messrs Fraser and McGrath also relied on a third affidavit of Mr Fraser dated 23 August 2016, which, inter alia, referred to notice of the application to various interested parties, corrected an error in the calculation in his second affidavit and provided further information as to the calculation of the administrators' remuneration. Messrs Fraser and McGrath also rely on a fourth affidavit of Mr Fraser dated 21 September 2016 ("Fraser 4"), which provided further evidence in support of the claim for remuneration and responded to matters raised in evidence filed by IQIT Nominees in opposition to the claim for remuneration and also updated developments in the liquidation. Mr Fraser was cross-examined at some length, albeit largely in respect of matters directed to the basis on which Messrs Fraser and McGrath originally proposed to allocate remuneration referable to the unallocated "PPIL time" to the trusts, which they no longer press.
Messrs Fraser and McGrath also relied on the affidavit dated 15 November 2016 of Ms Thomson, a solicitor acting for the liquidators, who, inter alia, updated the position in respect of unit sales in respect of the IQ Smart Apartments, proposed examination summonses, and legal fees paid in respect of the liquidation.
IQIT Nominees in turn relied on the affidavits of Mr Paul Powderly dated 2 and 29 September 2016, although some parts of those affidavits were not relevant to the matters in issue in this application. Mr Powderly is a director of IQIT Nominees and a registered real estate agent and valuer. Mr Powderly's first affidavit set out the circumstances which led to the establishment of the IQJV Project Management Agreement and to PSNT's appointment as project manager of the IQJV, and to the termination of that agreement by notice given to PPIL as trustee of PSNT on or about 19 May 2015. Mr Powderly also dealt with matters relating to the management of the IQJV and the sale of units in the IQ Smart Apartment development. Mr Powderly's second affidavit responded to matters addressed in Mr Fraser's earlier affidavit and the exhibits to them. I will refer to aspects of that evidence below. Mr Powderly also made a number of calculations as to the amounts which would be received by IQIT on several scenarios. It seems to me that those calculations are of little assistance, since the question of the apportionment of liability among the trusts must be addressed as a matter of principle, rather than by reference to whether one particular trust, IQIT, will be advantaged or disadvantaged by its outcome.

A preliminary issue - should the administrators' and liquidators' remuneration be allowed against the assets of the trusts?

Messrs Fraser and McGrath submit that they should be paid their remuneration, whether for administering trust assets or for general liquidation work, out of trust funds where PPIL does not hold assets in its own right, and that, in approving their remuneration, the Court will be exercising its inherent equitable jurisdiction to allow remuneration out of trust assets in connection with the administration of a trust fund: Re Independent Contractor Services (Aust) Pty Ltd (in liq) (No 2) [2016] NSWSC 106; (2016) 305 FLR 222 at [31]. Ms Whittaker, who appears from Messrs Fraser and McGrath, submits that their remuneration is properly payable from the assets of the trusts because, at the time of the administration and the liquidation, PPIL carried on no activities other than as the trustee of a trading trust such that the proper costs and expenses of the administrators and liquidators can be met from the assets of the trusts.
In Re Suco Gold Pty Ltd (in liq) (1983) 7 ACLR 873 at 883, King CJ (with whom Jacobs J agreed) held that, when a company that carries on no activities other than being the trustee of a trading trust is placed in liquidation, the proper costs and expenses of the liquidator can be met from the assets of the trust. In 13 Coromandel Place Pty Ltd v C L Custodians Pty Ltd (in liq) [1999] FCA 144; (1999) 30 ACSR 377, Finkelstein J observed (at 385) that a liquidator's work that was solely concerned with a winding up and not with the administration of trust assets could not ordinarily be charged against trust assets. His Honour also observed that, provided a liquidator was acting reasonably, he or she was entitled to be indemnified out of trust assets for his or her costs and expenses in identifying or attempting to identify trust assets, recovering or attempting to recover trust assets, realising or attempting to realise trust assets, protecting or attempting to protect trust assets and distributing trust assets to the persons beneficially entitled to them. His Honour then noted that: "The position is a little more involved as regards work done and expenses incurred in what may be described as general liquidation matters. If that work is unrelated to the beneficiaries and their claims it is difficult to see how the cost could be charged against their assets. In the case of a company that has carried on the business of trustee it might be that much of the work involved in the liquidation is chargeable against trust assets if it can be shown that the liquidation is necessary for the proper administration of the trust. But it is unlikely that this will be so where the company did not act solely as trustee, or at least did not act in that capacity to a significant extent. In that event the liquidator will be required to estimate those of his costs that are attributable to the administration of trust property and only those costs will be charged against the trust assets."
In Bastion v Gideon Investments Pty Ltd (in liq) [2002] NSWSC 939; (2000) 35 ACSR 466, where all of a company's assets were trust assets and the liquidator had incurred costs and expenses in investigating the affairs of the company, Austin J held (at [71]) that: "the liquidator is entitled to be paid his reasonable remuneration, costs and expenses both for the work done to date as liquidator (including the costs of these applications), and the work done to date on behalf of the trust, out of the assets of the company … "
In Re French Caledonia Travel Service Pty Ltd (in liq) [2003] NSWSC 1008; (2003) 48 ACSR 97 at [212], Campbell J noted the possibility that such costs could also be shared between the distributable property of a company and trust assets, but that possibility does not arise in this case.
I summarised the relevant principles in Re National Buildplan Group Pty Ltd (subject to deed of company arrangement) [2014] NSWSC 146 at [34] (to which Ms Whittaker refers) as follows: "the court has an inherent jurisdiction to allow an insolvency practitioner, in his or her capacity as trustee of a fund, to receive payment of remuneration, costs and expenses out of trust assets: Re Application of Sutherland [2004] NSWSC 798; (2004) 50 ACSR 297 at [10]-[16]. Ms Whittaker refers to the judgment of Finkelstein J in 13 Coromandel Place Pty Ltd v CL Custodians Pty Ltd (in liq) [above] at [34], to which I referred in Re MF Global Australia Ltd (in liq) (No 2) [2012] NSWSC 1426 at [50], noting that a liquidator may, if acting reasonably, be indemnified out of trust assets for costs and expenses incurred in recovering or attempting to recover, realising or attempting to realise, or protecting or attempting to protect, trust assets and in distributing those assets to the persons beneficially entitled to them. Ms Whittaker also properly acknowledges that the court may decline to make such an order if a company did not act solely as trustee and has sufficient assets to meet the liquidator's remuneration, costs and expenses, and where the work done by the liquidator in relation to trust assets may properly be treated as done in winding up the company's affairs: Re GB Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674 at 685-689; Re MF Global Australia Ltd (in liq) (No 2) above at [55]."
In Re North Food Catering Pty Ltd [2014] NSWSC 77 at [9]-[17], Brereton J undertook a comprehensive review of the authorities and held (at [17]) that the result, in that case, was that: "the liquidators are entitled to be paid their remuneration, whether for administering the trust assets or for general liquidation work, out of the trust assets, since the company has no assets other than trust assets."
IQIT Nominees submits that those principles are not applicable in this case. In summary, IQIT Nominees submits that, because PPIL did not act solely as a trustee and responsible entity and also carried on business in its own right, remuneration referable to general administration and liquidation works should, in the first instance, be borne by the assets of PPIL to the extent that those assets permit payment. However, IQIT Nominees also fairly accepts that it is unclear whether a litigation claim against PPIL's former solicitors, to which I refer below, will result in PPIL recovering sufficient assets to meet the remuneration sought in respect of the general administration and liquidation work done by Messrs Fraser and McGrath.
First, IQIT Nominees submits that, prior to the liquidators' appointment, PPIL carried on its business providing project management services, for which it received substantial income, including $557,178.76 for the financial year ending 30 June 2014 (Fraser 2 [10]). IQIT Nominees also refers to the directors' report as to PPIL's affairs, which stated that PPIL had personal assets of $168,000, although the correctness of that claim has not been established (Ex A1, Tab 2, p 7). In oral submissions, Mr Stack, who appears for IQIT Nominees, submitted that PPIL did not act solely as trustee and that costs and expenses referable to work done in relation to the trust assets which are incurred for the purpose of winding up PPIL ought ordinarily be borne primarily by the non-trust property of PPIL to the extent that its assets permit. I accept that PPIL did not, at the point the administration commenced, act solely as a trustee and responsible entity, and that it carried on business in its own right until its role as project manager of the IQJV was terminated by notice dated 19 May 2015 (Powderly 2.9.16 [22]), prior to the completion of the administration and before the liquidators' appointment. IQIT Nominees also submits, and I accept, that the evidence shows that PPIL received income in that capacity and has its own creditors (Fraser 2 [38]; T20). I do not, however, accept that PPIL has sufficient assets in its own right to meet the administrators' or liquidators' remuneration, so that an order for remuneration against trust assets is not necessary or appropriate.
IQIT Nominees also contends that PPIL "may have" a significant asset in the form of a cause of action against its former solicitors and refers to Mr Fraser's evidence that he believes there is a reasonable basis for PPIL to make a claim against those former solicitors; that work has been done to progress the claim; and that the quantum of the claim is likely to exceed $500,000 (T33-34). Mr Stack submits that that claim is an asset of PPIL and on that basis the remuneration should not be borne from the trusts. Ms Whittaker responds that the possible claim by PPIL against its former solicitors, which relates to a failure to limit its liability under convertible note subscription agreements to the value of its indemnity from trust assets (Fraser 2 [77]-[87]), does not improve PPIL's present position and that PPIL currently has cash at bank in the sum of approximately $585 (Fraser 2 [37]). I do not accept IQIT Nominees' submission in respect of this claim. In practical terms, this claim is not presently realisable in a manner that would allow Messrs Fraser's and McGrath's remuneration to be met and is unlikely to be realisable without significant further effort, including further work for which Messrs Fraser and McGrath would be entitled to be remunerated and further legal costs. It seems to me that the question of the administrators' and liquidators' entitlement to remuneration from trust assets cannot now be determined by reference to a recovery that may or may not be made at some future time, and only if the liquidators are either prepared to devote their own resources to, or can obtain litigation funding to, progress that claim.
I have not accepted the submissions on which IQIT Nominees relied for the proposition that Messrs Fraser's and McGrath's remuneration could and should be funded from assets held by PPIL in its own right. I am satisfied that the work done by Messrs Fraser and McGrath in both the administration and the liquidation cannot be funded from the assets presently available to PPIL in its own right and that their remuneration for that work is properly paid out of trust assets.
In any event, the Court also has power to make a discretionary order for payment of remuneration in favour of Messrs Fraser and McGrath, as recognised in cases such as Re Berkeley Applegate (Investment Consultants) Ltd (in liq); Harris v Conway [1989] Ch 32 and Re French Caledonia Travel Service Pty Ltd (in liq) above. I would also have ordered that Messrs Fraser and McGrath be entitled to recover their remuneration from the trusts on that basis, had it been necessary to do so. Had they not taken responsibility for the steps required to take oversight of the realisation of PSNT's economic interest in the IQJV (albeit by the sale of apartments that were not directly sold by PPIL), it is likely that a court-appointed receiver would have been appointed in order to do so and would have been remunerated for doing so from the relevant fund: Re Berkeley Applegate (Investment Consultants) Ltd (in liq); Harris v Conway above at 50-51.

The amount of remuneration claimed in respect of the administration and the liquidation

The first amount claimed by Messrs Fraser and McGrath is $236,498.50 for the period of the voluntary administration of PPIL, 23 April 2015 to 28 May 2015 inclusive, in their capacity as joint and several administrators of PPIL. That amount includes a direct amount charged to PSNT in the amount of $55,981.10 and unallocated "PPIL time" in the amount of $176,212.10. The nature of unallocated "PPIL time" is addressed in Mr Fraser's evidence, and is comprised of "statutory" time (described at Fraser 2 [93(a)]) and other "split" time (described at Fraser 2 [93(b)]). Mr Fraser's evidence was that, at the second meeting of creditors, creditors of PPIL approved payment of the administrators' remuneration in the amount of $260,615, being an amount of $137,321.20 (exclusive of GST) for the period 23 April 2015 to 15 May 2015 and $123,293.80 (exclusive of GST) for the period 16 May 2015 to 28 May 2015. That approval is not sufficient to support a drawing of remuneration from assets of the trusts, but is a matter to be taken into account in determining whether the amount of remuneration claimed, and sought to be recovered against the assets of the trusts, is reasonable.
The second amount claimed by Messrs Fraser and McGrath $381,721.50 for the period from 28 May 2015 to 24 June 2016 in which they were liquidators of PPIL. That amount is comprised of a direct amount charged to IQIT in the amount of $4,100.10; a direct amount charged to PSNT in the amount of $197,661.30; a direct amount charged to PSPT3 in the amount of $37,356.20; a direct amount charged to PAPF in the amount of $6,922.60; and unallocated "PPIL time" in the amount of $135,681.30. Remuneration for 28 May 2015 appears to be claimed in both Messrs Fraser's and McGrath's capacities as administrators and liquidators, although there was no suggestion that there was any double counting of remuneration on that date in the application. That matter should be clarified before orders are made. Mr Fraser also refers to a resolution passed at the second meeting of creditors that future remuneration of liquidators be approved in a sum equal to the time spent by the liquidators, their partners and staff, calculated at the rates detailed in the schedule of remuneration methods and hourly rates provided to creditors, in the then amount of $154,922 (Fraser 2 [117]). Again, that resolution is not determinative of the position, so far as remuneration is sought to be claimed against trust assets, but is relevant to that question.
I now turn to the evidence supporting the amount of remuneration claimed. Mr Fraser's first affidavit dated 6 April 2016 exhibited a remuneration report for the administration period, breaking down the work performed into categories, and setting out hours of work performed by his firm's staff on each category of work, which had been provided with the report provided to creditors under s 439A of the Corporations Act (Ex A1, Tab 2(b)). Mr Fraser's second affidavit dated 12 July 2013 set out, in broad terms, the nature of the work done by the liquidators since PPIL had been placed in liquidation (Fraser 2 [14]), which included compliance with statutory reporting requirements, the conduct of investigations into several matters, an application made to the Court for directions as to matters involving PAPF and PSNT, and liaising with other parties involved in the IQJV including the custodian, Australian Executor Trustees Ltd, as to the sale process for completed apartments in which PPIL had an interest as trustee for PSNT. Mr Fraser's evidence is that the sale process in respect of property settlements and applications to title units, and the arrangements were re-documented because of the appointment of liquidators. Mr Fraser also refers to the modelling of returns of creditors and unitholders of PAPF, POPF and PSNT and to the need to liaise with the development financier for the IQ Smart Apartments in relation to security it held over PSNT's assets and repayment of debt funding that it had provided for development of the IQ Smart Apartments.
Mr Fraser's evidence, which I accept, is that the administration and liquidation gave rise to complex issues, given the scale of the IQ Smart Apartment development, and the size of PSNT's interest in that development, which had an estimated value of between $14 and $15 million at the time of Messrs Fraser's and McGrath's appointment. Mr Fraser also referred to complexities as to the structure of the Prime Access Group, and the fact that all stakeholders in that Group were reliant on the success of the IQ Smart Apartment development to realise funds in the administration and liquidation. Mr Fraser also noted that the complexity of those issues was increased by actions taken by a director of PPIL prior to the liquidators' appointment, which had caused difficulties for the contractual arrangements in respect of the apartment development.
Importantly, Mr Fraser draws attention to the fact that the administrators assumed a personal liability under s 443A of the Corporations Act for a final tranche of borrowings from the project financier of $5 million which were used to pay project creditors. In his second affidavit dated 29 September 2016, Mr Powderly responded to this evidence by pointing to several matters which he contends mitigated the personal risk assumed by Messrs Fraser and McGrath as joint and several administrators of PPIL, in respect of a drawdown of approximately $5 million under the Westpac construction facility available to PPIL to pay project creditors, including the fact that the IQ Smart Apartment development was nearing practical completion and that the large majority of residential units in the development had been pre-sold or were under contracts with deposits received, and about half of the commercial units in the development were pre-sold or under contract with deposits received, and that practical completion of the development was achieved about a month later and the balance of the Westpac construction facility was repaid from the proceeds of sale of units by July 2015. Mr Powderly's evidence, which can be no more than a submission, is that risks undertaken by the administrators in drawing down that final payment "do not appear to be as significant" as Mr Fraser suggests. That is a proposition which is, of course, very easy to put in hindsight when a risk has not come home. It seems to me that the administrators' assumption of personal liability of $5 million, even in circumstances that it was probable that, if matters went well, they would not be ultimately required to bear that liability, is a significant matter.
Mr Fraser's second affidavit also dealt with the status of the trust funds and the position of creditors as at 30 June 2016, and the status of the liquidators' investigations as to potential claims. Paragraphs 88-123 of that affidavit dealt with Messrs Fraser's and McGrath's claim to remuneration. Mr Fraser refers to circulars sent to the creditors of PPIL, and the various trusts of which PPIL was trustee and responsible entity, upon Mr McGrath's and his appointment as administrators of PPIL, including a schedule of remuneration methods and hourly rates, at a 10% discount to the standard rates of his firm. Mr Fraser refers to his view that those hourly rates are reasonable having regard to specified matters, and to the billing codes against which time was recorded, and the matters which were charged to separate billing codes for the trusts and funds. Mr Fraser's second affidavit also exhibited a remuneration report which set out the work performed in the liquidation in various categories, and the total hours of work prepared by his firm's staff in each category (Ex A1, Tab 24).
In his third affidavit, Mr Fraser expressed the view that the work performed in the administration and liquidation of PPIL was necessary to the performance of his and Mr McGrath's duties as administrators and liquidators. Mr Fraser also expressed the view that the work performed in the liquidation was appropriate having regard to the value of the assets to be dealt with in the liquidation, and that a significant component of that work was necessary to realise the main assets of PSNT and, to a lesser extent, other entities of which PPIL was trustee and responsible entity. Mr Fraser's evidence is that a significant component of the work initially undertaken by the liquidators has been directed to enabling realisation of assets, and there is a risk that assets would not have been realised without additional time, complexity and expense had that work not been done (Fraser 4 [11]). It seems to me that that evidence is consistent with the commercial probabilities, in a complex administration and liquidation, and I accept that evidence.
Messrs Fraser and McGrath also rely on a revised remuneration report, which included an additional column by way of a general description, summarising the main categories of work done, against the "task areas" reflecting activity codes under ARITA's Code of Professional Practice (Fraser 4 [13]). Mr Stack submits that the revised remuneration report is in summary format and does not provide sufficient information as to the work done by the relevant staff. That criticism is displaced by the fact that the liquidators have since tendered their work in progress reports which contain extensive detail, to an item by item level, in that respect (Ex A5).
Mr Fraser's fourth affidavit also included a representation of the work undertaken, separated into phases of the administration and liquidation, identifying the time periods in which work was undertaken in particular categories in the administration and liquidation periods and tables showing work undertaken by staff members of the firm in the administration and liquidation periods, again organised by task areas (Fraser 4 [17]; Ex A4, 74-86). Mr Fraser also leads evidence of the allocation of tasks to staff members, by reference to the complexity and significance of each task (Fraser 2 [119]; Fraser 4 [18]-[27]) and of the steps which he took to monitor and assess the tasks that were undertaken, who they were undertaken by and the amount of time involved (Fraser 4 [28]) and the process for review and write-off of time spent (Fraser 4 [30]-[35]). Mr Fraser also outlines the specific work which had been necessary in order to bring about the sale of apartments in the IQ Smart Apartment development where, as I noted above, PSNT had a 38.74% interest in the joint venture. Mr Fraser referred, in particular, to responsibilities assumed by the liquidators in dealing with Canberra Finance Group Pty Ltd ("CFG") as part of the sale process. Mr Fraser also referred to changes in the estimated return to creditors, to which IQIT Nominees had referred. Mr Fraser also addressed, at some length, the issues as to which legal advice had been required in respect of the administration and liquidation, where legal fees involved in the matter have been substantial.

The relevant principles and their application

I will first refer, relatively briefly, to the principles applicable to the assessment of the amount of an administrator's or liquidator's remuneration. It is common ground that an administrator or liquidator is entitled to reasonable remuneration for his or her services; that Messrs Fraser and McGrath bear the onus of establishing that the amount of remuneration they seek is fair and reasonable; and that, in determining their reasonable remuneration from the trust funds, the Court should have regard, by analogy, with the factors specified in, relevantly, ss 449E, 473(10) and 504(2) of the Corporations Act: Re AAA Financial Intelligence Ltd (in liq) (No 2) [2014] NSWSC 1270 at [26]; Re Independent Contractor Services (Aust) Pty Ltd (in liq) (No 2) above at [32]. It is also common ground that the court must bring an independent mind to bear on the question whether the remuneration sought is fair and reasonable; that the liquidators must lead evidence in sufficient detail that the court can determine that question; and that the court will generally need to be provided with an account in itemised form, setting out at least the details of the work done, the persons who did the work; the time taken to perform the work; the remuneration claimed and, to the extent relevant, the expenses incurred by the liquidator: Venetian Nominees Pty Ltd v Conlan (1998) 20 WAR 96 at 102-103.
The ARITA Code of Professional Practice for Insolvency Practitioners (3rd ed, 2014) ("ARITA Code") includes several principles relevant to the remuneration of insolvency practitioners. Principle 10 provides that a practitioner is entitled to claim remuneration and disbursements in respect of necessary work, properly performed in an administration, and explains those concepts. Principle 11 deals with disclosure of remuneration and the ARITA Code identifies several possible bases of calculation of remuneration, namely time-based charging; prospective fee approval, subject to a cap to a nominated limit; and a fixed fee or a "percentage of a particular factor", usually assets disclosed or assets realised. Principle 12 provides that a practitioner is only entitled to draw remuneration once it is approved and according to the terms of the approval.
Ms Whittaker also recognises the importance of proportionality in considering the question of whether remuneration is reasonable: Thackray v Gunns Plantations Ltd [2011] VSC 380; (2011) 85 ACSR 144 at [64]; Macks v Maka [2015] SASC 200; (2015) 110 ACSR 279 at [52]-[66]. Ms Whittaker also refers to the observations of Farrell J in Warner, Re GTL Tradeup Pty Ltd (in liq) [2015] FCA 323; (2015) 104 ACSR 633 at [70]-[71], to the effect that the "value" of a liquidator's work can include the benefit of resolving the position of creditors and beneficiaries; the benefit to the community of not permitting assets to remain unproductively in the hands of a defunct company for a long period; and can include work that was required to be done, although it did not result in a return to creditors.
Ms Whittaker submits that the method of time recording used in the liquidation is permitted by the ARITA Code and also submits that considerations particular to liquidations that involved small amounts of realisations or available assets did not arise in this liquidation and sought to distinguish the decisions in Re AAA Financial Intelligence Ltd (in liq) (No 2) above and Re Independent Contractor Services (Aust) Pty Ltd (in liq) (No 2) above on that basis. I have previously observed, and I continue to hold the view that, the considerations to which Brereton J referred in those cases are not limited to liquidations involving a relatively small amount of realisations from available assets: Re Idylic Solutions Pty Ltd atf Super Save Superannuation Fund [2016] NSWSC 1292 at [44]. Mr Stack did not submit that a time- based approach to remuneration was inappropriate, as a matter of principle, and submitted that the fundamental question was whether the fees sought to be approved were fair and reasonable in all the circumstances (T95) and that in some circumstances a time-based and in others a percentage of recoveries approach will be more likely to deliver that result. Mr Stack also emphasised the importance of proportionality, as an element of reasonableness of remuneration, to which the Full Court of the Federal Court referred in Templeton v Australian Securities and Investments Commission [2015] FCAFC 137; (2015) 108 ACSR 545 (T96).
Most decisions in both State Supreme Courts and in the Federal Court of Australia have applied time costing as at least the starting point for a calculation of remuneration, although those decisions also emphasise the need for proportionality between the cost of the work done and the value of the services provided: Venetian Nominees Pty Ltd v Conlan above; Templeton v Australian Securities and Investments Commission above; Warner, Re GTL Tradeup Pty Ltd (in liq) above. Several recent decisions in this Court have emphasised the significance of the percentage that a liquidator's remuneration bears to the level of asset realisations achieved, and applied percentages of recoveries where time-based calculations would have led to unreasonable results: Re AAA Financial Intelligence Ltd (in liq) (No 2) above; Re Hellion Protection Pty Ltd (in liq) [2014] NSWSC 1299; Re Gramarkerr Pty Ltd (No 2) [2014] NSWSC 1405; Re Independent Contractor Services (Aust) Pty Ltd (in liq) (No 2) above; Re Sakr Nominees Pty Ltd [2016] NSWSC 709 (which is presently on appeal, with judgment reserved). Another possibility is to use percentage of realisations as a test of whether remuneration claims brought by a liquidator on a time costing basis are reasonable: Re Clout (in his capacity as liquidator of Mainz Developments Pty Ltd) (in liq) [2016] NSWSC 1146; Re Idylic Solutions Pty Ltd atf Super Save Superannuation Fund above. I note that the relevant issues have also been considered by the Court of Appeal of England and Wales in Brook v Reed [2011] EWCA Civ 331; [2012] 1 WLR 419, to which Counsel helpfully drew attention. It is not necessary here to address the questions whether any particular approach is generally preferable, or whether the several approaches are true alternatives, where there was common ground between the parties that I may properly apply the approach that I adopted in Re Idylic Solutions Pty Ltd atf Super Save Superannuation Fund above in this application.
In their summary of their major contentions, Messrs Fraser and McGrath point out that the rates utilised represent a 10% discount on McGrathNicol's standard rates (Fraser 2 [88]). That submission does not go very far, where there is no evidence as to whether those standard rates were higher or lower than the range of usual market rates. They also emphasise that they assumed, as administrators, a potential personal liability of $5 million under s 443A of the Corporations Act for a period in order to enable completion of the IQ Smart Apartment project (Fraser 2 [23]) and, as I have noted above, that seems to me to be a matter of considerable significance. The fact of approval of their remuneration as administrators, in an amount of a similar order to that now claimed, by creditors is also a matter that should be given some weight.
Messrs Fraser and McGrath prepared a table comparing the extent of their remuneration, and extending to legal fees at June 2016, with the high and low estimates for total asset realisations (Fraser 4 [98] - [99]), which was intended to assist the testing of a time-based claim in the manner noted in Re Idylic Solutions Pty Ltd atf Super Save Superannuation Fund above. There were difficulties with the methodology adopted in that table, which double-counted recoveries because it did not take account of the fact that recoveries were distributed upward through the trust entities, so they could not be simply totalled, and to that extent understated the proportion that Messrs Fraser's and McGrath's claim for remuneration bore to recoveries. A comparison of the amount of remuneration claimed with the amount of recoveries could only be undertaken by reference to the anticipated recoveries of $14.43-$15.43 million, and on the basis that the recoveries received by "upstream" trusts were derived from the monies originally received by PSNT, and not by comparison with a total amount of $22.9 million that would never be received. Mr Fraser acknowledged the logic of that approach in cross-examination, without entirely conceding its correctness (T9-10). After that error is corrected, as Mr Stack submitted, the percentage of remuneration and legal costs would constitute 10.26% of the "low" estimate of recoveries of $14.43 million and 9.56% of the "high" estimate of recoveries of $15.43 million. That figure would be substantially lower if all that was included in it was Messrs Fraser's and McGrath's remuneration, as distinct from legal costs.
Ms Whittaker also submits that, although relevant, the percentages disclosed by that analysis are not determinative, where, she submits, Messrs Fraser and McGrath have established that the work performed was necessary, was undertaken within a reasonable period and by appropriate people in the context of a complicated and long running administration and liquidation. She submits that, in these circumstances, a concept of proportionality would not found any discount on the basis of the comparison between remuneration claimed and estimated total returns, and that the mathematical relationship between the amount of remuneration claimed and the estimated realisations to creditors does not of itself expose the value of the work undertaken. Messrs Fraser and McGrath submit that the value of the work claimed has been justified by Mr Fraser's evidence and that there is no principled basis upon which the total quantum of remuneration sought by the liquidators could be discounted. It is not necessary to address that submission where the percentage that Messrs Fraser's and McGrath's remuneration bears to recoveries is not of a size that gives rise to concern in accordance with the case law to which I referred in Re Idylic Solutions Pty Ltd atf SuperSave Superannuation Fund above.
IQIT Nominees accepts that the quantum of remuneration claimed by Messrs Fraser and McGrath appears to be reasonable, subject to two matters. First, IQIT Nominees responds to the comparison to the amount of Messrs Fraser's and McGrath's remuneration and legal fees and the amount of realisations by submitting that, so far as the "value generated" by Messrs Fraser and McGrath is concerned, the IQJV is not managed by Messrs Fraser and McGrath and the units in the IQ Smart Apartment development are not being sold by them. Mr Stack also submitted (T96) that Messrs Fraser's and McGrath's activities do not involve the recovery of an asset, so far as distributions will in the ordinary course be received by PSNT as units in the IQ Smart Apartment development are sold. I do not accept that submission, since the concept of "recoveries" adopted in the case law seems to me to be directed to the assets which are dealt with, both by way of receipts and distributions, by a liquidator in a winding up. Mr Stack subsequently clarified (T98) that his submission was no more than that the recoveries made by PPIL had not involved substantial effort on the part of the liquidators. I also do not accept that submission as a matter of fact, so far as significant efforts have been devoted to the management of the sale process, including Messrs Fraser and McGrath assuming the $5 million personal liability to which I referred above, and the efforts undertaken by Messrs Fraser and McGrath should in any event be assessed by reference to the work done in the administration and the liquidation as a whole, not merely the work done in respect of recoveries.
Second, IQIT Nominees submits that the reasonableness of a liquidator's remuneration may also be tested by considering whether there has been any "transfer of risk and responsibility away from the liquidators", adopting the language of Re Independent Contractor Services (No 2) above at [34]. IQIT Nominees submit that the liquidators' legal representatives have claimed substantial fees and their invoices have not been put into evidence and, consequently, it is difficult to assess whether there has been any transfer of risk or responsibility. Messrs Fraser and McGrath respond that there is no support in the evidence for the proposition that they transferred risk, or should receive discounted remuneration, because they engaged legal representatives to provide legal advice. Mr Fraser also leads evidence of the matters as to which legal advice has been obtained (Fraser 4 [64]-[70]) and of the basis on which he chose to retain the firm of solicitors that presently act for the liquidators and of the steps which have been taken to review invoices rendered by those legal practitioners. Mr Fraser expresses the view, which admittedly may not be wholly unbiased, that he does not consider that risk or responsibility has been transferred to his solicitors such that legal fees incurred should impact on the claim for remuneration (Fraser 4 [64]).
It seems to me that, within a complex administration and liquidation, involving numerous legal issues which have been reflected in several applications to the Court, the retainer of legal representation by the administrators and liquidators was prudent and, indeed, essential. It does not seem to me that it involves a substantial transfer of risk away from the liquidators, by contrast with the somewhat simpler position if, for example, a liquidator contracted out particular work to a subcontractor. Here, the fact that the administrators and liquidators have obtained legal advice, in respect of complex issues, has not discharged them from the responsibility for the conduct of the administration and the liquidation including, importantly, the responsibility that attaches to the conduct of the administration and liquidation generally and, more narrowly, the provision of instructions to their legal advisers.
I should also address several other matters raised by IQIT Nominees, which ultimately do not seem to have been pressed in opposition to the amount of remuneration claimed by Messrs Fraser and McGrath. IQIT Nominees at one point also submitted that PSNT had only five creditors, namely IQIT Nominees, which is owed approximately $7.8 million; CFG, which claims to be owed approximately $3.35 million, a liability which may be in dispute; PAPF, which is or may be owed $1.7 million; and Australian Executor Trustees Limited and TressCox Lawyers which are owed small amounts. IQIT Nominees submitted that, although the sums involved are relatively substantial, the "process of winding up the PSNT would not appear to be particularly difficult". I am not persuaded by that submission, given the number of competing interests at stake and the matters which have arisen in respect of the winding up of PSNT to date.
IQIT Nominees at one point also raised concern as to the extent of Messrs Fraser's and McGrath's involvement in the process for sale of the IQ Smart Apartments. Mr Fraser addresses that question in his fourth affidavit and expressed the view that the steps taken in that respect were in creditors' and beneficiaries' interests (Fraser 4 [41]-[47]). It seems to me that a criticism of the extent of that involvement would have amounted to an unreasonable application of hindsight, after that process has been substantially and apparently successfully completed. It is very likely, or inevitable, that creditors and beneficiaries of PSNT would have submitted that greater rather than less involvement was required, had Messrs Fraser and McGrath not maintained a close engagement with that process and had that process miscarried. It seems to me that the remuneration incurred by Messrs Fraser and McGrath in this respect were properly incurred, given the importance of the sale process to realisations by PPIL and PSNT and their ability to make distributions to creditors and beneficiaries.
IQIT Nominees also referred, in submissions, to the fact that successive estimations of the return to creditors on the administration and liquidation have indicated a reduction in that estimated return. Mr Fraser addresses the differences between the initial estimate obtained in the administrators' section 439A report and a further estimate contained in his second affidavit, which reflect remuneration and legal costs incurred since the Plaintiffs' appointment as liquidators, interest due to IQIT and the amount of a loan that is alleged to be due from PSNT to PAPF (Fraser 4 [48]-[50]; Ex A4, 94). The proposition that the return to creditors has reduced somewhat over the period, and IQIT Nominees' further submissions as to the ranking of creditors and the currency of evidence of disbursements, seem to me to have limited relevance in the assessment of the administrators' and the liquidators' remuneration.
Messrs Fraser and McGrath submit that, on that basis, the Court should approve the remuneration directly recorded against the particular entities, in the voluntary administration and liquidation periods, of $253,642.40 for PSNT; $11,227.90 for PAPF; $4,100.10 for IQIT; and $37,356.20 for PSPT3. I am satisfied that such approval should be given. I am satisfied that the balance of the remuneration claimed in respect of unallocated "PPIL time" should also be approved, subject to the issues as to allocation to relevant trusts which I will address below. For completeness. I noted that Messrs Fraser and McGrath properly disclosed that they had paid themselves some remuneration from trust assets prior to seeking the Court's approval to do so and have since repaid those amounts. A similar issue arose in Re North Food Catering Pty Ltd [2014] NSWSC 77 and, like Brereton J in that case, I do not consider that this matter warrants further attention.

Evidence relevant to allocation of remuneration between the trusts

Messrs Fraser and McGrath initially sought directions under ss 479(3) and 511 of the Corporations Act, or alternatively under s 63 of the Trustee Act 1925 (NSW), that they would be justified in drawing their remuneration (in their capacity as administrators of PPIL for the administration period from 23 April 2015 to 28 May 2015) in the amount of $16,460.85 from funds held by PPIL in its capacity as responsible entity of PAPF; $214,037.65 from funds held by PPIL in its capacity as trustee of PSNT, allocating the substantial part of that remuneration to PSNT; and $3,000 each from funds held by PPIL in its capacity as trustee of PSPT3 and from funds held by PPIL in trust for IQIT.
Messrs Fraser and McGrath also initially sought directions under ss 479(3) and 511 of the Corporations Act, or alternatively under s 63 of the Trustee Act, that they would be justified in distributing funds held by PPIL to pay their remuneration, in respect of the period from 28 May 2015 to 24 June 2016, as liquidators of PPIL, in the amount of $10,740.14 from funds held by PPIL as responsible entity of PAPF; $306,663.58 as to funds held by PPIL as trustee of PSNT; in the amount of $57,956.65 as to funds held by PPIL as trustee of PSPT3; and as to $6,361.14 as to funds held by PPIL in trust for IQIT.
I now turn to the evidence as to the allocation of remuneration between the trusts, which is relevant to both the periods of the administration and the liquidation. As I have noted above, Messrs Fraser and McGrath and their staff have charged remuneration directly against particular trusts, where work could be specifically allocated directly to that trust, totalling $306,326.60 (Ex A4, 92-93). In its summary of main contentions, IQIT Nominees indicated that, subject to the Court being satisfied as to the reasonableness of the liquidators remuneration, IQIT Nominees does not seek to challenge the remuneration which has been specifically allocated by the liquidators to the several trusts and pointed out PSNT had been specifically charged $55,981.10 during the administration period and $197,661.30 during the liquidation period. The evidence does not give any reason to question the specific allocation of remuneration in that amount, particularly where there was no substantive challenge by IQIT Nominees to that allocation, beyond its criticism of the amount of remuneration generally which I have addressed above.
Messrs Fraser and McGrath and their staff did not or could not allocate work to a particular trust in respect of remuneration totalling $305,893.40 (Ex A4, 92-93). The monies that could not be allocated to particular trusts in respect of the voluntary administration period are $170,212.10; the monies that could not be allocated to particular trusts in respect of the liquidation are $135,681.30; and those monies are comprised of both general liquidation expenses, which ordinarily could not be allocated to a particular trust (Fraser 2 [93(a)]) and monies that are related to trusts, but where the staff member allocating them did not consider that the work was referable only to one trust so as to be allocated to that trust (Fraser 2 [93(b)]).
In his second affidavit, Mr Fraser refers to matters which were charged directly to a billing code for PPIL, which comprised partly work performed in the administration or liquidation of PPIL as a corporate entity, but also work performed in circumstances where, on Mr Fraser's evidence, it was not possible or practicable to identify the trust or fund that the work related to, when the time was entered, due to the inter-connectedness of the trusts and the funds and the difficulty of separately identifying the particular trusts or funds to which specific issues relate. Mr Fraser gave examples of that work as follows (Fraser 2 [93(b)]): "(i) work required to understand the structure of the trusts/funds of which PPIL is and was trustee [or] RE, including review and analysis of significant quantities of documentation and records; (ii) dealing with and searching books and records, in circumstances where records which dealt with various of the trusts and funds were not kept separately; (iii) liaising with company creditors in circumstances where the creditor has made the same claim against multiple entities in the Prime Access Group …; and (iv) team planning and strategy discussions or meetings and general project management about the administration and winding up where issues affecting multiple trusts or funds are discussed."
Mr Fraser's evidence was that PPIL's only function was to act as trustee or responsible entity of the various entities, and he expressed the view that it was appropriate that time treated as "PPIL time" be allocated among the various funds and trusts of which PPIL was trustee or responsible entity (Fraser 2 [95]). Messrs Fraser and McGrath and their staff did not record time directly against PAPF, PSPT3, or IQIT during the administration period (Fraser 2 [103]). Mr Fraser accepted in cross-examination that, during the liquidation, where it was possible to identify that the majority of particular work was attributable to a particular fund, it would be allocated to that fund but, in respect of unallocated work, the person that was allocating the work could not make such an allocation, and could not identify the particular trust to which the work should be charged (T16). In submissions, Ms Whittaker submitted that the allocation process adopted was that the staff member did not allocate work to a particular entity if it did not only relate to that entity (T55).
Mr Fraser also set out various matters which suggested that the bulk of "PPIL time" had been for the benefit of or focused upon PSNT, namely that: "(a) PSNT's 38.74% holding in the IQ Smart Apartment joint venture is the main asset of the Prime Access Group, such that the focus of the administration and liquidation has been on realising that asset; (b) A large proportion of the notifications as to the appointment of administrators and liquidators were for the other entities involved in the IQ Smart Apartments joint venture, which PPIL was involved in in its capacity as trustee of PSNT; (c) The vast majority of matters which required team meetings and strategy discussions and planning related to PSNT tasks or issues; (d) In complying with out statutory obligations as administrators and subsequently liquidators, we are required to have an understanding of and report to creditors on the circumstances surrounding PPIL and the entities of which it is the trustee/RE. The bulk of my investigations in preparing the 439A Report and report to ASIC pursuant to section 533 of the Corporations Act relate to PSNT, particularly the CFG Transactions; and (e) The bulk of the investigation work carried out to date has related to PSNT and potential breaches of duty in respect of the CFG Transactions." Mr Fraser's evidence in that regard would support an allocation of a greater proportion of time, and associated remuneration, to the administration of PSNT. Difficulties arose, however, with a more precise allocation of time which Mr Fraser sought to undertake, to which I will refer below.
In his second affidavit, Mr Fraser also initially expressed the view that it would be reasonable to apportion the unallocated "PPIL time", in the period of the administration, by either the "Liquidation Time Based Allocation" (Fraser 2 [112]) or the "Administration Time Based and Lump Sum Allocation" (Fraser 2 [114]) and, in the liquidation period, by the "Time Based Method" (Fraser 2 [98], [122]). Each of these methods distributed "PPIL time" in the proportions of direct time recorded against entities. Mr Fraser had recognised the complexity of the issue in his evidence and the possibility that the Court may not adopt those approaches (Fraser 2 [115]). In their summary of major contentions, Messrs Fraser and McGrath indicate that they no longer seek directions that apply a methodology which allocates "PPIL time" on the basis of direct time recorded. They recognise that the close examination of that methodology at the hearing has exposed difficulties with it such that it does not appear to be appropriate. There was ultimately both a wider and narrower difficulty with these approaches. The wider difficulty, which seems to me to be fundamental, is that that methodology depended upon an assumption that unallocated work would be directed to the trusts in the same proportions as work that could be allocated to the particular trusts. That assumption was not established by evidence and was not self-evidently correct, where time that could not be allocated to particular trusts might, of its nature, involve a different mix of activities to time which could be allocated to the particular trusts. Second, there were several methodological difficulties in respect of the particular allocation which Mr Fraser undertook, on that basis. Ultimately, Messrs Fraser and McGrath did not press that manner of allocation.

Allocation of remuneration in respect of the administration

I now turn to principles that are applicable to the allocation of remuneration as between the trusts in respect of the administration and the liquidation, although I will conclude below that they lead to somewhat different results in those two periods. Ms Whittaker refers to the observations of Palmer J in Trio Capital Ltd (Admin App) v ACT Superannuation Management Pty Ltd [2010] NSWSC 941; (2010) 79 ACSR 425 at [34], to the effect that the trustee of several trusts cannot charge the beneficiaries of one trust with the costs and expenses incurred in relation to work done for the benefit of another trust. Mr Stack also submits that, where remuneration has been earned by a trustee of several trusts and the remuneration cannot be allocated to each of those trusts, with some accuracy, then remuneration should be apportioned equally in accordance with the principle that equality is equity. Palmer J there observed (at [34]) that: "If the trustee cannot, with some accuracy, apportion the expenses of administration between the various trusts, 'the maxim that equality is equity should provide the solution to the problem of apportionment' Re Suco Gold Pty Ltd (in liq) [above] at 109 per King CJ and 13 Coromandel Place Pty Ltd v CL Custodians Pty Ltd (in liq) [above] per Finkelstein J]".
In Re MF Global Australia Ltd (in liq) (No 2) [2012] NSWSC 1426 at [11], I similarly observed, by reference to authority, that: "the maxim that equality is equity can provide a basis for apportionment where a trustee could not otherwise, with accuracy, apportion the expenses of administration between various trusts, and such an apportionment may take place on a pro rata basis … ."
Ms Whittaker submits that a principled exercise of the Court's discretion to allow remuneration from the trust funds would be based upon the maxim "qui sentit commodum sentire debet et onus", that is that he who derives the advantage ought to sustain the burden, which merges in equity's recognition that "equity is equality", as noted in a different context in HIH Claims Support Ltd v Insurance Australia Limited [2011] HCA 31; (2011) 244 CLR 72 at 87 (footnote 85). Ms Whittaker submits that the realisation of the assets to be distributed to the trusts necessarily required the liquidation, and the incurring of the liquidation expenses, and in those circumstances it is appropriate that the trusts which will benefit from that work should bear the burden of it (T70).
IQIT Nominees submits that the resolution of this issue is difficult because the revised remuneration reports on which Messrs Fraser and McGrath rely do not identify what works were allocated and unallocated; what works were general administration/liquidation works; and what works were not related to specific trusts. IQIT Nominees submits that this causes difficulty because allocation requires a consideration of the nature of the work actually performed by Messrs Fraser and McGrath and because different principles apply in respect of remuneration which relates to "general liquidation work" and remuneration which relates to the administration of trust assets: Re AAA Financial Intelligence Ltd (in liq) [2014] NSWSC 1004 at [13]. IQIT Nominees submits that, if (as I have held above) PPIL's assets are insufficient to meet the general administration and liquidation works, then because those works cannot be allocated between the trusts and the schemes with any accuracy, the approach adopted by Palmer J in Trio Capital Ltd (Admin App) v ACT Superannuation Management Pty Ltd above at [32]-[34] should be followed. IQIT Nominees also submits that, where the unallocated works that relate to the trusts cannot be allocated between the trusts with any accuracy, the approach adopted in that case should also be followed.
IQIT Nominees submits, with substantial force, that the revised remuneration report in respect of the administration and the section 439A report do not indicate a significant focus by Messrs Fraser and McGrath on PSNT, and they point out that that result is consistent with the fact that the objects of Pt 5.3A of the Corporations Act would have directed the administrators' attention to the continued existence of PPIL or achieving a better return for PPIL's creditors, who were numerous and owed a substantial amount (Fraser 2 [38]-[39]). IQIT Nominees also submits, again with force, that works claimed in the revised remuneration report have already been charged directly to PSNT during this period, and that may make it less likely that unallocated works are referable to PSNT and more likely that they are general works necessary for the administration of PPIL. IQIT Nominees submits that, in those circumstances, it would be "manifestly unfair" to adopt the approach now proposed by Messrs Fraser and McGrath, in their summary of major contentions, that PSNT should bear the whole burden of the unallocated remuneration during the administration period, and would also be unfair to make only IQIT and PAPF responsible for the remuneration, an alternative recognised by Messrs Fraser and McGrath, IQIT Nominees submits that both of those contentions are inconsistent with the principles identified in Trio Capital Ltd (Admin App) v ACT Superannuation Management Pty Ltd above and with the maxim that "he who derives the advantage ought to sustain the burden" because it cannot be said that those entities gained any special or particular advantage from PPIL's administration process.
IQIT Nominees contends that the principles set out in Trio Capital Ltd (Admin App) v ACT Superannuation Management Pty Ltd and Re AAA Financial Intelligence Ltd (in liq) above would, strictly, require that if, as I have held, the assets of PPIL are insufficient to satisfy Messrs Fraser's and McGrath's remuneration, then each of the trusts and the schemes identified in sections 4.3 and 4.4 of the section 439A report should bear those liabilities equally, being PAPF, PSNT, IQIT, PSPT3, CHT and the Mona Vale Development Trust ("MVDT"). However, IQIT Nominees submits that strict adherence to these principles may appear to lead to an unfair result where CHT and MVDT are dormant trusts and PPIL was replaced as trustee of IQIT. IQIT Nominees contends that CHT and MVDT and IQIT should be excluded from the allocation group, with the result that Messrs Fraser's and McGrath's remuneration should be allocated equally between PAPF, PSNT and PSPT3. I accept that submission in part, so far as it contemplates the exclusion of CHT and MVDT from such an allocation, but not so far as it contemplates the exclusion of IQIT from such an allocation.
IQIT Nominees submits that an alternative approach would be to allocate remuneration referable to the unallocated "PPIL time" for the administration among the creditors and beneficiaries identified in paragraphs 38 and 39 of Mr Fraser's second affidavit in proportion to the monies owed to them. That approach would have the happy result for IQIT that the substantial burden of the costs would be allocated to PAPF, which has larger creditor claims upon it, and a smaller proportion to PSNT against which IQIT has claims. Mr Stack fairly accepted, in oral submissions (T105) that that approach did not focus upon the claimants to the fund, but instead upon persons with claims upon those claimants. There seems to me to be little attraction to that course, since any equity in sharing the burden of the costs between the relevant trusts would reflect the benefits that the trusts obtained, not the number of creditors between whom those benefits are ultimately to be split. A further difficulty with that approach, as Ms Whittaker points out (T107) is that the identity of creditors who will ultimately have claims upon the relevant trusts is not known, since the liquidators have not yet adjudicated the creditors' claims.
As I noted above, Mr Fraser's evidence was that no time was directly recorded against PAPF, PSPT3 or IQIT during the administration, because they were not the focus of the administration or of particular challenges facing the Prime Access Group at the time, although they did receive the benefit of work undertaken so far as the administrators' addressed the wider Prime Access Group (Fraser 2 [103]). That evidence is consistent with the work done by the administrators as recorded in their report under s 439A of the Corporations Act, which records work done in respect of several of the relevant trusts, including PSNT, IQIT and PAPF and also the financial position of PPIL in its own right. It does not seem to me that work can be treated as referable only or primarily to PSNT where it did not involve the realisation or distribution of the assets of that trust but was directed to all of the trusts.
It seems to me that the application of the principles in Trio Capital Ltd (Admin App) v ACT Superannuation Management Pty Ltd above support the view that the unallocated "PPIL time" in respect of the administration should be allocated equally between PSNT, IQIT, PAPF and PSPT3. It seems to me that an allocation of an equal share of expenses to PSPT3 would be appropriate in the administration (although not in the liquidation where work referable to the IQ Smart Apartments did not relate to it). It seems to me that an allocation of remuneration should also be made to IQIT, through the whole of the administration period. I do not accept Mr Stack's submission that IQIT should be excluded from the pool of trusts to which costs should be allocated, on the basis that unitholders of IQIT had resolved to replace PPIL as trustee of IQIT on 1 May 2015 (Powderly 2.9.16 [13(a)]). PPIL did not cease to be trustee of IQIT until 1 October 2015 and, as Ms Whittaker submits, that has the result that IQIT should bear its share of the administrators' remuneration when PPIL remained as trustee of IQIT. The subsequent replacement of PPIL as trustee of IQIT does not displace that result, since an outgoing trustee retains a right of indemnity from the trust assets, secured by an equitable charge over them, for its liabilities incurred by reason of acting as trustee: Re Stansfield DIY Wealth Pty Ltd (in liq) [2014] NSWSC 1484; (2014) 291 FLR 17 at [10]). Ms Whittaker also points out that cl 4.1 of the Deed of Retirement and Appointment (Ex I1, 52) provides for the relevant amounts to be paid to the liquidators directly from the distribution payable from PSNT to IQIT Nominees as new trustee.
I note, for completeness, that it seems to me that the principle in Re Universal Distributing Co Ltd (in liq) [1933] HCA 2; (1933) 48 CLR 171, to which I refer below, would have no application to the costs of the administration of PPIL, since the evidence does not support a conclusion that those costs were referable to realising the assets of PSNT.

Allocation of remuneration in respect of the liquidation

I now turn to the application of the principles to which I referred in paragraphs [52]ff above to the remuneration of Messrs Fraser and McGrath in respect of unallocated "PPIL time" in the liquidation. Ms Whittaker submits that PSNT receives the direct benefit of the general work done by the liquidators, reflected in the "PPIL time" that has not been directly allocated to one particular fund, since PSNT cannot make distributions to its creditors and unitholders unless the work of the liquidation is performed, although she also acknowledges that IQIT and PAPF (through POPF) will ultimately benefit from that work since they cannot receive a distribution unless the work of the liquidation is performed.
Ms Whittaker points to Mr Fraser's evidence that the liquidators' efforts to date have been primarily directed towards the realisation of the main asset of the Prime Access Group held by PSNT, ultimately for distribution (Fraser 2 [96]-[97]). Ms Whittaker submits that relevant factors are here that, first, the only realisable asset in the Prime Access Group is PSNT's 38.74% interest in the IQ Smart Apartment development, in which six units remain to be sold (Thomson 15.11.16 [8]). Second, the joint venture agreement has manifested in distributions to PSNT such that it has current cash at bank in excess of $8 million (Fraser 2 [37], [44]; Thomson 15.11.16 [9]). Third, Ms Whittaker submits that PSNT is no more than a pool of assets to be distributed to others, being PSNT's unsecured creditors (including CFG), then IQIT in respect of its interest under loan notes and then POPF as the ordinary unit holder, and, through POPF, to PAPF as the ultimate owner. Ms Whittaker also points to the risk that there will be no funds available for distribution to POPF (and ultimately PAPF) from PSNT, as a result of proceedings brought by CFG. That, however, is simply the product of the ranking of claims upon PSNT and not reason to allocate the costs of the administration or liquidation in any particular manner.
Ms Whittaker identifies a possible approach that, having regard to the matters to which I referred above and subject to the position of PSPT3, IQIT and PAPF should share the burden of the "PPIL time" on the proportions of their estimated likely returns, or on the basis of actual returns, or alternatively equally. She recognises that it could be some years before actual returns are known but submits that remuneration could conceivably be paid on a preliminary or interim basis and subject to undertakings to effect restoration of funds if necessary. Ms Whittaker identifies an alternative approach, which she submits is more equitable where it is not currently known how much the distributions to IQIT and PAPF will be, or when they will be made, that PSNT should bear the whole burden of the "PPIL time" work as it was for its immediate benefit. Ms Whittaker submits that this approach is permissible and appropriate because the immediate benefit of the work was received by PSNT, although for the ultimate benefit of IQIT and PAPF. Ms Whittaker also submits that the practical course is for the amounts to be taken from the level of PSNT before distributions in any event.
IQIT Nominees submits that a review of the revised remuneration report demonstrates that significant works were undertaken by Messrs Fraser and McGrath which do not appear to concern PSNT or, for that matter, IQIT. IQIT Nominees also submits that a substantial amount of the works claimed in the revised remuneration report have been charged directly to PSNT during this period, and it is reasonable to conclude that a significant portion of the unallocated works are not referable to PSNT and appear to be general works necessary for the liquidation of PPIL. IQIT Nominees submits that, in these circumstances, it would be "manifestly unfair" to adopt the approach now advanced by Messrs Fraser and McGrath that PSNT "should bear the whole burden" of the unallocated remuneration during the liquidation period and would also be unfair to make only IQIT and PAPF responsible for that remuneration, where general liquidation works are no more referable to those entities than to the other entities of which PPIL was trustee or the responsible entity. IQIT Nominees contends that the unallocated remuneration relating to the liquidation period should be allocated between PAPF, PSNT and PSPT3, consistent with its position in respect of the administration.
The evidence to which I have referred establishes that a significant part of the unallocated "PSNT time" in respect of the liquidation would properly be characterised as work done to bring about the realisation and distribution of PSNT's assets, initially to its creditors, and then to IQIT as holder of loan notes, POPF and, through it, to PAPF. However, it does not seem to me that substantially all of the unallocated time falls within that category. With some hesitation, it seems to me that the evidence is not sufficient to support the allocation of that remuneration wholly to PSNT. It seems to me that the approach adopted in Trio Capital Ltd (Admin App) v ACT Superannuation Management Pty Ltd above here leads to a somewhat different result to the position in the administration. In the period from 28 May 2015 to 1 October 2015, when PPIL ceased to be trustee of IQIT, remuneration should be shared equally between PSNT, PAPF and IQIT, unless Messrs Fraser and McGrath wish to apply to reopen to lead further evidence, including possibly by way of estimate, to support a differential allocation between those trusts. In the period after 1 October 2015, when PPIL had ceased to be trustee of IQIT, remuneration should be shared equally between PSNT and PAPF, again unless Messrs Fraser and McGrath wish to apply to reopen to lead further evidence to support a differential allocation between those trusts.
It seems to me that no allocation of remuneration, or a nominal allocation only, should be made to PSPT3 in the period of the liquidation. Ms Whittaker points out that PSPT3 sits outside the Prime Access Group and, as I noted above, its assets are comprised of two commercial units in Queensland (Fraser 2 [8]). Ms Whittaker submits that it should be inferred that that work performed in relation to PSPT3 would be directly recorded against it, or only a small allowance could be made for "PPIL time" referable to PSPT3. Ms Whittaker also submits that work in the liquidation related to the sale of the IQ Smart Apartment units should not be attributed to PRPF which is involved with a development on a smaller scale at Orange. Although it does not seem to me that there is any reason to think that there are material unallocated costs that would be referrable to PSPT33 or PRPF, the parties should agree any further adjustment that needs to be made in that respect, or I will otherwise need to allow a further opportunity to be heard as to that matter.

The principle in Re Universal Distributing Co Ltd (in liq)

Ms Whittaker also raised an alternative argument, at the conclusion of the hearing, although that argument would only assist Messrs Fraser and McGrath to the extent that their remuneration as liquidators referable to the unallocated "PPIL time" can properly be attributed to the costs of realising and distributing the assets of PSNT. Ms Whittaker points to the principles to which Dixon J referred in Re Universal Distributing Co Ltd (in liq) above and submits that the work recorded in the "PPIL time" is of a kind for which the liquidators would be entitled to an indemnity on that basis recognised in 13 Coromandel Place Pty Ltd v C L Custodians Pty Ltd (in liq) above. Ms Whittaker submits that, broadly, all of the relevant work described by Mr Fraser (Fraser 2 [14]-[23]) was directed towards realising and distributing PSNT's interest in the IQ Smart Apartments, for the benefit of IQIT and PAPF, and would fall within the principle in Re Universal Distributing Co Ltd (in liq) in any event and that payment could be made directly from PSNT on this basis.
The principle in Re Universal Distributing Co Ltd (in liq) above has effect that remuneration, costs and expenses incurred by a liquidator in preserving, recovering and realising a fund on behalf of others would generally be paid out of, and are secured by an equitable lien over, the relevant fund: Re Universal Distributing Co Ltd (in liq) above; Coad v Wellness Pursuit Pty Ltd (in liq) [2009] WASCA 68; (2009) 40 WAR 53; Trio Capital Ltd (Admin App) v ACT Superannuation Management Pty Ltd above. In 13 Coromandel Place Pty Ltd v CL Custodians Pty Ltd (in liq) above at [34], Finkelstein J observed that: "These cases establish, clearly enough in my opinion, that provided a liquidator is acting reasonably he is entitled to be indemnified out of trust assets for his costs and expenses in carrying out the following activities: identifying or attempting to identify trust assets; recovering or attempting to recover trust assets; realising or attempting to realise trust assets; protecting or attempting to protect trust assets; distributing trust assets to the persons beneficially entitled to them."
In Stewart (in his capacity as liquidator of Newtronics Pty Ltd (in liq)) v Atco Controls Pty Ltd (in liq) [2014] HCA 15; (2014) 252 CLR 307, the High Court also considered the circumstances in which a liquidator's equitable lien would be available over a settlement amount in liquidation, and observed that that principle in Re Universal Distributing Co Ltd (in liq) above applies where an insolvent company is in liquidation; the liquidator has incurred expenses and rendered services in the realisation of an asset; the resulting fund is insufficient to meet both the liquidator's costs and expenses of realisation and the debt due to a secured creditor; and the secured creditor claims the fund. Their Honours noted that the application of the principle avoids the result that a secured creditor would unconscientiously take the benefit of the liquidator's work without the liquidator's expenses being met and observed (at [41]) that such a lien arose simply from the fact that the liquidator's costs and remuneration were incurred in realising the assets that created the relevant fund.
While I accept that the persons who receive that benefit cannot unconscientiously take the benefit of the liquidators' work without the liquidators' expenses being met, it does not seem to me that that leads to any different result than that reached above, where there would be no unconscientious conduct in, for example, IQIT receiving a distribution from PSNT, after PSNT and IQIT had each borne its share of remuneration properly attributable to it on the basis set out above.

Summary and orders

In summary, Messrs Fraser's and McGrath's costs as administrators and liquidators of PPIL should be approved in the total amounts claimed; the amounts directly allocated to the particular trusts should be paid from those trusts; and the amount of unallocated "PPIL time" in respect of the administration and the liquidation should be allocated among the trusts that were administered by PPIL at the time of the administration and the liquidation, including IQIT until 1 October 2015, as set out above. As a practical matter, a direction may be appropriate that those amounts should initially be paid out of funds now held by PSNT, with the amounts to be attributed to other trusts to be set off against payments or distributions later due to those other trusts. Messrs Fraser's and McGrath's costs of this application should be costs in the administration and the winding up as applicable.
The parties should bring in orders to give effect to this judgment within 7 days. I will hear the parties, in the beginning of the next Court term, as to the position in respect of IQIT Nominees' costs of this application, if agreement cannot be reached between them.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 21 December 2016

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