13 Coromandel Place Pty Ltd v CL Custodians Pty Ltd

Payment of remuneration from trust funds 27 On 22 August 2019, I made an order that the liquidators would be justified in using and applying the funds held in 13 identified accounts to pay identified ongoing trading and administration expenses of Halifax AU and any further reasonable and necessary trading expenses incurred by Halifax AU: Halifax (No 5), especially at [93]-[95]. 28 The accounts are considered by the liquidators to contain commingled trust funds to which investors in both Halifax AU and its related entity Halifax NZ are beneficially entitled. In some cases, the accounts may also contain company funds belonging to both Halifax AU and Halifax NZ. 29 The liquidators sought to apply funds from the same commingled trust funds in payment of their remuneration on the following bases: (1) Halifax AU has no separately identifiable company assets, other than minor company assets of no more than $10,000 in value such as office equipment, which continues to be used by the business; and (2) all of the work undertaken by the liquidators, during the administration and in the liquidation, can properly be considered to be necessary for the purpose of administering the trusts pursuant to which Halifax AU holds the commingled trust funds. 30 I accepted that Halifax AU has no separately identifiable company assets from which the remuneration of the liquidators might be paid. 31 The liquidators submitted that Halifax AU had no function other than as trustee, and its only substantive activities were as trustee of investor funds. I am doubtful that this is an accurate summary of the position: in my view, the evidence suggests that Halifax AU carried on a business in its own right, as a financial services provider, to a multiplicity of investors. 32 However, on any view Halifax AU acted as a trustee to a very significant extent. In his November 2019 affidavit, Mr Kelly clarified his view, which I accepted, that the activities of Halifax AU were all concerned with the administration of client moneys and the management of client moneys, that is trades placed by investors and interest accrued on funds held on trust for investors of Halifax AU and Halifax NZ, subject only to the following two possible qualifications: (1) To the extent that Halifax AU took a position, in effect as the counterparty, in respect of investments by its investors/beneficiaries in the MT4 or MT5 trading platforms, particularly where it did not hedge those investments and stood to make either a profit or a loss on transactions by its investors, this could be characterised as an activity in which Halifax AU was acting in its own right if it is not to be regarded as part of its fee-making activity as trustee. (2) When investors invested on the basis of a margin loan, Halifax AU charged to the investor an interest rate which was slightly higher than the interest rate charged to Halifax AU by its "liquidity supplier" or by Interactive Brokers. In that way, Halifax AU made a profit on the transaction. Mr Kelly is not clear whether this is to be regarded as Halifax AU having conducted business in its own right or whether the margin retained by Halifax AU is a fee earned by Halifax AU in the course of providing its services as trustee, as with any fee earned by a trustee in the nature of a commission on the amounts invested by the investors/beneficiaries. 33 Further, I accepted that all of the work undertaken by the liquidators, during the administration and in the liquidation, can properly be considered to relate to the trusts pursuant to which Halifax AU holds the commingled trust funds. 34 The work undertaken in the course of the administration and the liquidation to 31 August 2019 has been overwhelmingly directed to preserving investor funds and determining how they may be returned to investors. As there is a deficiency in the trust funds and the investors are unsecured creditors of Halifax AU, I accepted that any general liquidation work also relates the trusts. 35 Accordingly, I accepted that the liquidators were entitled to apply funds from the commingled trust funds identified above in payment of their remuneration in such amounts as may be determined by the Court.

Quantum of remuneration 36 The liquidators had not been paid any remuneration or any amount on account of expenses (principally debts to solicitors and counsel) in respect of work performed, either as administrators or liquidators of the company. 37 Mr Kelly's September 2019 affidavit describes in significant detail the work for which the liquidators seek remuneration. The affidavit also sets out the process undertaken to ensure that the amounts claimed are for work that was "proper and necessary". The figures are net of write-offs which followed a review to ensure that the amounts claimed were proper and necessary. 38 At the second meeting of creditors on 20 March 2019, the following resolution was passed: That the Creditors have no objection to the remuneration of the Administrators, as set out in the Remuneration Proposal dated 12 March 2019, for the period from 23 November 2018 to 28 February 2019 be fixed in the amount of $1,444,681.50 plus applicable GST. 39 Further, on 20 September 2019, the liquidators held a meeting of the Committee of Inspection, at which consideration was given to the liquidators' report on remuneration and internal disbursements dated 18 September 2019 in respect of remuneration for the period 1 March 2019 to 31 August 2019. 40 The following resolutions were passed at that meeting: 1. That the Committee of Inspection has no objection to the remuneration of the Administrators, as set out in the Remuneration Request dated 18 September 2019, for the period from 1 March 2019 to 19 March 2019 in the amount of $272,766.50 plus any applicable GST. … 4. That the Committee of Inspection has no objection to the remuneration of the Liquidators, as set out in the Remuneration Request dated 18 September 2019, for the period from 20 March 2019 to 16 June 2019 in the amount of $658,782.00 plus any applicable GST. … 6. That the Committee of Inspection has no objection to the remuneration of the Liquidators, as set out in the Remuneration Request dated 18 September 2019, for the period from 17 June 2019 to 31 August 2019 in the amount of $437,598.50 plus any applicable GST. 41 These resolutions are relevant to the reasonableness of the remuneration amounts sought.

Administration work 42 The work for which the liquidators sought remuneration in their capacity as administrators, undertaken during the period 23 November 2018 to 19 March 2019, is detailed at paras 66-146 of Mr Kelly's September 2019 affidavit. The claim comprises original work in progress of $1,862,265.00 less write-offs totalling $161,376.00. 43 The evidence included a work in progress spreadsheet for the administration period, itemising work totalling 3,162 hours. 44 In addition, there is: (1) a remuneration proposal report for the amount of $1,444,681.50 dated 12 March 2019; and (2) a remuneration report dated 18 September 2019 which covers the period 1 to 19 March 2019, the subject of the resolution passed by the Committee of Inspection set out above. 45 The remuneration proposal report includes a declaration by Mr Kelly and the other administrators that they have undertaken a proper assessment of the remuneration claim in accordance with the Act, the Australian Restructuring Insolvency & Turnaround Association Code of Professional Practice (Code) and applicable professional standards. The report states that the administrators were satisfied that the remuneration claimed was in respect of necessary work, properly performed, or to be properly performed, in the conduct of the administration. 46 The remuneration report similarly includes a declaration by the liquidators that they have undertaken a proper assessment of the claim for the period 1 to 19 March 2019 in accordance with the Act, the Code and applicable professional standards. The report states that the liquidators were satisfied that the remuneration claimed was in respect of necessary work, properly performed in the conduct of the administration. 47 Based on Mr Kelly's affidavit evidence supplemented by his oral evidence, the administration work may be summarised as follows: (1) Investigative work: related to determining the date of Halifax AU's insolvency; preparation and investigation into the flow of client moneys, tracing funds into investor accounts, investigations into the potential antecedent transactions which may be recoverable by a liquidator and investigations into potential advisor negligence and director misconduct. The work was primarily directed at understanding how Halifax AU held client monies and whether the client moneys could be identified as belonging to a particular individual investor, as well as identifying potential future recoveries available in a liquidation. (2) Investors and creditors: work directed at communicating with investors regarding client moneys and responding to queries raised by investors regarding client moneys, including in relation to requests for account statements, assisting with completion of proofs of debt and proxies in preparation for the first and second meetings of creditors and providing advice on the administration process. (3) Operations: work relating to continuing the operation of, and maintaining access to, the trading platforms for the primary purpose of preserving investor positions on the trading platform. (4) Assets: work directed at identifying and securing the client moneys and seeking the return of client moneys held by third parties. (5) Employees: managing and dealing with employees who were employed in connection with operating the trading platforms, and otherwise terminating the employment of certain employees. (6) Administration: responding to enquiries from investors, considering whether a deed of company arrangement would be feasible and managing the progress of the administration.

Liquidation work 48 The work for which the liquidators sought remuneration in their capacity as liquidators, undertaken during the period 20 March 2019 to 31 August 2019, is detailed at paras 147-193 of Mr Kelly's September 2019 affidavit. The claim comprises original work in progress of $1,248,404.50 less write-offs totalling $152,024.00. 49 The evidence included a work in progress spreadsheet for the liquidation work, itemising work totalling 2,011.3 hours. 50 The remuneration report referred to above addresses the remuneration claimed. 51 The remuneration report includes declarations by the liquidators that they have undertaken a proper assessment of the claims for the periods 20 March 2019 to 16 June 2019 and 17 June 2019 to 31 August 2019 in accordance with the Act, the Code and applicable professional standards. The report states that the liquidators were satisfied that the remuneration claimed was in respect of necessary work, properly performed, or to be properly performed, in the conduct of the liquidation. 52 Based on Mr Kelly's affidavit evidence supplemented by his oral evidence, the liquidation work may be summarised as follows: (1) Investigative work: related to tracing funds, investigations into potential antecedent transactions and filing the interlocutory process in this proceeding on 3 June 2019 in relation to the client moneys. This work was primarily directed at understanding how Halifax AU held client moneys and whether the client moneys could be identified as belonging to a particular individual investor. (2) Investors and creditors: work directed to responding to investors' queries regarding the client moneys and keeping the investors informed as to the status of the client moneys. (3) Operations: this work continued to concern the operation of, and maintaining access to, the trading platforms for the primary purpose of preserving investor positions on the trading platform. (4) Assets: work directed to seeking the return of funds held by merchant facility providers and notifying Halifax AU's insurer of claims in relation to the client moneys. (5) Employees: managing and dealing with employees who were employed in connection with operating the trading platforms, and dealing with former employees in respect of their entitlements. (6) Administration: work directed to identifying and preserving the client moneys and monitoring the progress of the liquidation. 53 As to s 60-12(a) of IPS, based on Mr Kelly's evidence and the absence of any objection from either the creditors or the Committee of Inspection, I accept that the whole of the work by the liquidators, as administrators and then as liquidators, for which remuneration is sought, was necessary and properly performed. 54 I relied upon Mr Kelly's view that the amounts claimed are proper and that the work for which remuneration is claimed was necessary. From Mr Kelly's September 2019 affidavit, I do not detect any basis for thinking that I should not rely on Mr Kelly's view in this respect. 55 As to s 60-12(c), the periods during which the relevant work was performed are set out above. 56 As to s 60-12(d), I have no reason to doubt the quality of the work for which remuneration is claimed. To the extent that I have seen that work, in the evidence that has been provided to the Court for the various applications made in the proceeding, the work appears to have been careful, thorough and generally of a high quality. 57 As to s 60-12(e) and (f), I consider the work performed to have been very complex involving, as it does, very large sums of money, multiple bank accounts, commingled trust funds and a large number of investors. The requirement to determine entitlements to commingled trust funds held by two related entities in different jurisdictions is arguably a requirement to deal with an extraordinary issue. 58 As to s 60-12(g), I consider that the liquidators have been required to accept a higher level of risk or responsibility than is usually the case, by virtue of the need to deal with trust assets. 59 As to s 60-12(h), the value and nature of the property dealt with by the liquidators is identified above. 60 As to s 60-12(i), the number of creditors is identified above. The evidence does not reveal the attributes of creditors but it is reasonable to assume, having regard to their large number, that they will include a fairly wide range of financial circumstances. 61 As to s 60-12(j), the time taken in performing the relevant works is set out above. Based on Mr Kelly's evidence and the lack of objection to the amounts claimed, I am satisfied that the time taken has been properly taken in performing the work the subject of the remuneration claims.

Conclusion 62 For these reasons, I made orders in accordance with the orders sought. I certify that the preceding sixty-two (62) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gleeson.