STA Travel (the Company) was the operating subsidiary in Australia for the international STA Travel group of companies (International STA Travel Group), which included approximately 40 entities. Across over 27 stores in Australia, STA Travel provided travel agency services including as an agent for travel providers such as airlines or tour operators.
On 21 August 2020, the Liquidators were appointed voluntary administrators of STA Travel following a resolution being passed by the directors pursuant to s 436A of the Corporations Act. The event precipitating the appointment of the Administrators was the insolvency filing, in Switzerland, of its parent company (STA Travel Holding AG) on 20 August 2020.
On 25 September 2020, at the second meeting of creditors, the creditors of the Company resolved that it be wound up and that Mr Tracy and Mr Norman be appointed as its Liquidators.
[2]
Distribution of customer refunds
The Liquidators sought the Court's directions or advice about the distribution of customer refunds that have been obtained by STA Travel. This includes a determination of whether the refunds are held on trust.
Three types of customers have sought refunds from STA Travel:
1. customers to whom STA Travel sold flights with airlines via IATA, which acted as an intermediary or clearinghouse for the processing of payments between STA Travel (as agent) and various respective airlines;
2. customers to whom STA Travel sold flights with airlines via the respective Student Air Travel Association (SATA) agreements with various airlines directly rather than through IATA; and
3. customers to whom STA Travel sold services with "Other Travel Suppliers", that is, travel providers other than airlines such as for accommodation or tour services.
With respect to customers who claimed refunds, it is only necessary here to consider those customers whose refunds were being facilitated by STA Travel with the respective travel providers when the Administrators were appointed on 21 August 2020, because an issue arises as to whether those refunds are held on trust for those customers. The other types of customers are ordinary unsecured creditors and rank equally with the claims of other creditors.
The Liquidators did write to all customers informing them of the different classification of customers and suggesting that customers who had not sought a refund before the administration commenced ought to contact their travel provider directly.
The Liquidators, including in their former role as Administrators, deposed to having actively sought refunds from travel providers where refunds had been requested by a customer and were being facilitated by STA Travel up to the date of the appointment of the Administrators. There were 587 such customers.
The Liquidators have recovered net refunds of $1,245,085.97 comprising:
1. $1,057,346.55 in net refunds from IATA with respect to tickets purchased with IATA (IATA Refunds);
2. $173,314.99 in net refunds from various airlines with respect to tickets purchased directly from those airlines (Direct Airline Refunds); and
3. $14,424.43 in total refunds from other travel suppliers (Other Travel Suppliers Refunds).
Those sums are net of $102,812.84 associated fees and costs (Fees), such as pre-administration commissions, credit card transaction fees, taxes and cancellation fees. Those Fees were deducted before the refund sums were provided to STA Travel.
While the Liquidators have been able to determine which customer is entitled to a specific refund in each category, it is not possible for the Liquidators to determine what amount of the Fees have been applied to each refund for IATA customers.
The same is true of the Direct Airline Refunds, however the amount of associated fees and costs in issue is merely $420.05.
For Other Travel Suppliers' customers there are no associated fees and costs with the refunds and the exact refund referable to the customers is known by the Liquidators.
Because the Liquidators have been able to precisely identify and reconcile the particular customers who are entitled to a distribution of (at least) the gross realisation of the Customer Refunds and Other Travel Supplier Refunds as well as the respective proportion of those monies, the refunds are specifically traceable for each customer. This is akin to a solicitor's trust account holding payments made by multiple clients in a single account: Re Magarey Farlam Lawyers Trust Accounts (No 3) (2007) 96 SASR 337; [2007] SASC 9 at [117]-[118] (Debelle J).
I am comfortably satisfied that the refunds were obtained specifically for and on behalf of the particular customers, who had made requests for refunds, and whose requests were being proposed, prior to the external administration. Therefore, the Customer Refunds do not represent general recoveries in the winding up but are held on trust for those particular customers.
As a result, it is appropriate for the Customer Refunds to be distributed to those particular customers in proportion to their respective percentage entitlement.
The exception are 33 customers who already received a refund from their credit card provider. Those customers ought not receive a refund from STA Travel also, as that would be a windfall in the nature of a double-recovery. I am also satisfied that Commonwealth Bank of Australia (CBA) has not sustained any loss because any liability for the chargebacks has been passed onto the Company by debiting its CBA accounts in accordance with the terms and conditions in the Company's June 2014 Merchant Agreement with CBA (CBA Terms and Conditions) detailed further below. Finally, I accept counsel for the Liquidators' submission that there should be no distribution of Customer Refunds to customers already receiving a proportionate entitlement to the fund and where any such distribution would be at the expense of the Company in liquidation and unsecured creditors: Travel Compensation Fund v Classic International Cruises Pty Ltd [2014] NSWSC 167 at [30] (Black J). Instead, those refunds ought to be retained by STA Travel and distributed through the winding up of the Company, because it has borne the refund through the operation of the chargeback regime under the Scheme Rules.
The Liquidators have not been able to determine which IATA and Direct Airline Refunds Fees are referable to particular customers. Such information was sought from IATA and no fruitful response had been received at the date of the hearing. Different customers paid different amounts for different tickets or travel products and have been refunded different amounts. Therefore, I consider it is appropriate that a proportional (rather than equal) allocation of those fees and costs is consistent with the equitable maxim qui sentit commodum sentire debet et onus (he or she who derives the advantage ought to sustain the burden): Dering v The Earl of Winchelsea (1787) 1 Cox 318; (1787) 29 ER 1184 at 1185-1186 (Eyre LCB); HIH Claims Support Limited v Insurance Australia Limited (2011) 244 CLR 72 at 87-88 [37] (Gummow ACJ, Hayne, Crennan and Kiefel JJ); Re BBY Holdings Pty Ltd (recs and mgrs apptd) (in liquidation) [2019] NSWSC 1272 at [20], [23] (Rees J).
[3]
Unclaimed Refunds
The Liquidators also seek a direction that they would be justified in paying to the NSW Trustee and Guardian any remaining part of the Customer Refunds that are unclaimed after six months, for example, because of an inability to locate the particular customer after all reasonable efforts are made. Section 47 of the Trustee Act relevantly provides
47 Payment to the NSW Trustee or a trustee company
(1) Where any money is held in trust for … a person who … cannot be found, the trustee may pay the money to the NSW Trustee … and on such payment shall furnish the NSW Trustee … with a copy of the trust instrument, or where there is no such instrument, then with a statutory declaration setting forth the trusts on which the money is held and shall also furnish such information as to the … identity of the person for whom such money is held in trust as the public trustee or trustee company, as the case may be, may require.
(2) The NSW Trustee or trustee company shall hold the money in trust for the … person in accordance with the trusts affecting the same.
In the event that the Liquidators are unable to establish contact with a customer entitled to a distribution from the Customer Refunds, then, absent any order from the Court, the Liquidators would need to wait six years before the funds become unclaimed money: s 7(1)(a) of the Unclaimed Money Act 1995 (NSW). The Liquidators would also be subject to the obligation to ensure that reasonable efforts are made, and a reasonable period has passed under s 8A.
I accept the Liquidators' submission that six months is the appropriate time in which to wait before any unclaimed monies and any interest earned on that monies are paid to the NSW Trustee and Guardian as that period strikes a balance between the distribution of the monies without foreclosing the opportunity of customers to subsequently assert their entitlement, and is analogous to the time specified in section 544 of the Corporations Act for liquidators to pay unclaimed dividends in a winding up to ASIC: Georges & McCluskey in their capacity as Liquidators of Radiata Plantations Ltd (In Liquidation) v Radiata Plantations Ltd (In Liquidation) [2009] NSWSC 994 at [14] (White J, as his Honour then was); Re Direct Acceptance Corporation Ltd (Receiver Appointed) (in liq) (2019) 136 ACSR 245 at 255-256 [71]-[74] (Ward CJ in Eq).
[4]
Liquidators' remuneration
The Liquidators have already had their remuneration approved for work carried out by them in the course of the administration and liquidation of the Company.
However, insofar as STA Travel was the trustee of a trust (with respect to the monies constituting the Customer Refunds), then the Liquidators require Court approval of their claim for remuneration in the sum of $301,735.50 (exclusive of GST) in priority to claimants of the fund for their work in connection with the Customer Refunds, including obtaining the refunds, reconciling the refunds from lump sum "batch payments" received against particular customer ticket numbers and customers, preserving the fund and dealing with customer enquiries.
The Liquidators bear the onus of establishing that such remuneration is reasonable: Sanderson as Liquidator of Sakr Nominees Pty Ltd (in liquidation) v Sakr (2017) 93 NSWLR 459 at 470 (Bathurst CJ, with whom Beazley P, Gleeson JA, Barrett AJA and Beach AJA agreed) (Sanderson v Sakr).
It is well established that a liquidator is entitled to be indemnified out of trust assets for his or her costs and expenses, but only to the extent that they are referable to administering the trust assets: 13 Coromandel Place Pty Ltd v CL Custodians Pty Ltd (in liq) (1999) 30 ACSR 377 at 385 (Finkelstein J); Re Sutherland; French Caledonia Travel Service Pty Ltd (In Liq) (2003) 59 NSWLR 361 at [211], [213] (Campbell J, as his Honour then was); Re AAA Financial Intelligence Ltd (in liq) [2014] NSWSC 1004 at [13(3)] (Brereton J, as his Honour then was); Re BBY Ltd (recs and mgrs apptd) (in liq) [2021] NSWSC 1299, at [52]-[59] (Gleeson J).
The absence of objections to the claim for remuneration by other interested parties is a relevant consideration, although the Court must still to assess for itself the reasonableness of the remuneration: ACN 104 635 369 Pty Ltd (in liq) v Hamilton [2015] FCA 1219 at [21] (Gleeson J), citing Deputy Commissioner of Taxation v Starpicket Pty Ltd (No 2) [2013] FCA 699 at [22] (Gordon J).
If time entries are considered, it is not the role of the Court to undertake a line-by-line review of the relevant bill narratives of the insolvency practitioner, although a broad-brush review in the context of the other evidence may be appropriate: Re Idylic Solutions Pty Limited (2016) 115 ACSR 581; [2016] NSWSC 1292 at [58] (Black J); Re Fearndale Holdings Pty Ltd (in liq) (recs & mgrs apptd) [2020] NSWSC 901 at [38] (Black J); Re Octaviar Administration Pty Limited (in liquidation) [2020] NSWSC 927 at [52]-[53] (Rees J).
In exercising the inherent equitable jurisdiction to allow a trustee remuneration, I am prepared to approve the remuneration sought as being fair and reasonable for the following reasons:
1. The process of obtaining the $1,245,085.97 by way of refunds was time consuming and somewhat complex, but necessary in order to determine who was entitled to monies in the account.
2. The Liquidators have discounted the sum sought by $25,000 compared to remuneration on a time-costed basis which is responsive to some of the criticisms against time-based charging: Sanderson v Sakr at 471 (Bathurst CJ).
3. The Liquidators also will not charge for any further work necessary to finalise the issue of refunds. The Liquidators depose to this constituting a discount of around $50,000 - $100,000.
4. All customers, creditors and potentially interested persons such as ASIC have been given notice of the claim. One creditor at a Committee of Inspection meeting on 30 June 2021 who represented 1.2% of the total creditor pool, voted against the Liquidators' claim to this remuneration, but no reasons are recorded in the minutes. I do not consider this unexplained dissent of great weight.
5. The $301,735.50 sum represents approximately 24 per cent of the $1,245,085.97 recovered by the Liquidators in net refunds. I accept that the proportion may not, in itself, be determinative: Sanderson v Sakr at 471 (Bathurst CJ, with whom Beazley P, Gleeson JA, Barrett AJA and Beach AJA agreed). In my view, there is nothing to suggest the proportion points against the remuneration sought. This is because there is value in the Liquidators providing a benefit to the community at large where such work concerned a large Australian travel company and the consequential impacts of COVID-19 on Australian consumers: Re Sakr Nominees Pty Ltd [2017] NSWSC 668 at [23] (Black J). There was also work that needed to be done even though it did not necessarily generate a return to creditors, such as maintaining a customer register to provide updates to customers and responding to customer inquiries.
6. One of the Liquidators, Mr Tracy, deposes to the work being performed efficiently by persons with the appropriate seniority.
[5]
Leave to derive a profit
Sections 60-20 of the IPS specifies that without the leave of the Court pursuant to subsection 60-20(3)(b), an external administrator (which includes a liquidator) may not derive a profit or advantage from the external administration of a company, which includes a circumstance where a related entity directly or indirectly derives a profit or advantage.
In order to process the refund amounts to the 587 customers, the Liquidators propose to use a software tool known as the "Halo Platform", which is owned by the Liquidators' own firm Deloitte, and is said to be used by some of Australia's largest corporate businesses and Government departments and instrumentalities.
The Liquidators submitted that the Halo Platform would assist the Liquidators by:
1. facilitating communications with the 587 customers;
2. capturing customer contact information (including any form of identity verification required);
3. providing a secure interface for the customers to input their bank account details for the return of funds; and
4. providing an audit trail regarding communications with the customers.
The estimated costs of utilising the Halo Platform in the distribution process of the Customer Refunds is approximately $15,000 (plus GST), comprising about $9,000 (plus GST) for IT server hosting costs and about $6,000 (plus GST) for customer identity checks (being $10 per search with an estimated 600 searches in total).
In each of Lucantonio v Benscrape Pty Ltd (No 2) [2020] NSWSC 1114 and Re JPD Media & Design Pty Ltd (subject to deed of company arrangement) [2020] NSWSC 1311, the Court granted such leave with respect to "internal disbursements" such as photocopying, which were charged out with a profit component. In JPD Media at [20], Black J expressed the following conclusion:
In Lucantonio v Benscrape Pty Ltd (No 2) above, a receiver sought the Court's approval of internal charges, implicitly under this section, because they may contain an element of profit for his firm. Williams J granted that approval where the amounts of the internal disbursements were modest having regard to the period over which they were made, and were, in that case, the kind of charges likely to be incurred in the course of a receivership that involved the ongoing operation of a business. I will adopt the same approach and grant that leave.
The proposed cost for using the Halo Platform is of a similar character to the charges considered in those cases.
The proposed costs involved (being $15,000) is relatively modest in comparison to the total fund of the Customer Refunds and the evidence is that if the Halo Platform was not used, the cost of distribution would likely be more than three times the amount as well as being less efficient with the result that such funds would be unproductively in the hands of the Company for longer.
For those reasons, I grant leave to the Liquidators to derive a profit or advantage from the Halo Platform capped at $15,000 plus GST.
[6]
Is CBA entitled to exercise a set off?
Prior to its external administration, STA Travel had several bank accounts held with the CBA who is its principal creditor:
1. A principal account, known as the "Operating Account" (Operating Account), was used for everyday purposes of the Company, including receiving payments from customers in the first instance and paying liabilities (such as employees' wages and rent) and had a credit balance of $774,204.06 as at the date on which the Administrators were appointed;
2. Two other bank accounts (Additional Accounts) did not have any specified purpose or use and together held less than $75,000 as at the date on which the Administrators were appointed;
3. An account (Bank Guarantee Account), which secured obligations of STA Travel to CBA with respect to bank guarantees given by CBA, such as guarantees given many years prior to the external administration, in favour of landlords of real property leased by the Company (Bank Guarantees). This account had a credit balance of $5,500,000 as at the date on which the Administrators were appointed; and
4. A separate "trust account", known as the STA Travel Trust Account (Client Travel Account). This account held monies paid by customers for tickets to be purchased by STA Travel on their behalf and that were to be on-paid to IATA and / or monies repaid by IATA to be refunded to customers where tickets were cancelled.
The establishment and operation of the Client Travel Account was mandated by requirements of IATA. However, customers of STA Travel who purchased IATA tickets did not pay monies directly into the Client Travel Account. Rather, those customers typically purchased tickets to be issued by IATA by paying money to the Company, with such funds being paid into the Company's Operating Account. STA Travel would then arrange for the funds paid by the customer to be transferred to the Client Travel Account, which was a process that typically took a few days. IATA would complete an automatic debit of funds from the Client Travel Account based on advice provided by STA Travel relating to arranged flight bookings and IATA would then on-transfer those funds to the IATA participating airline on behalf of the customer.
Funds for other tickets purchased by STA Travel on behalf of customers (including SATA tickets and bookings for Other Travel Suppliers) did not pass through the Client Travel Account. The Client Travel Account did not hold other monies of STA Travel, to which it was entitled in its own right.
In June 2014, STA Travel and CBA entered into a Merchant Facility Agreement which contained CBA's Terms and Conditions, and which permitted the Company to accept payment from customers via credit card and debit card facilities.
There were many instances prior to and since the commencement of the external administration where customers of STA Travel, who made payments to the Company via their VISA or MasterCard credit or debit card have subsequently disputed the transaction and the credit or debit card provider has issued a refund on the customer's account. By a "chargeback" process, the credit card provider passed on that liability to CBA. At all times, including after STA Travel was placed into external administration, CBA in turn passed onto STA Travel the chargeback amounts it paid to VISA or MasterCard by debiting monies in bank accounts of STA Travel held with CBA, including the Operating Account, such that the chargebacks have been met from STA Travel's funds.
The chargeback arrangements with the credit card and debit card providers are governed by regimes imposed by VISA and Mastercard as set out in the Visa Core Rules and Visa Product and Service Rules dated 18 April 2020 and the Mastercard Chargeback Guide dated 14 May 2020 (together the Scheme Rules).
The Scheme Rules permit a credit card or debit card customer to dispute a transaction on their credit card or debit card (for example, where the goods or services paid for on the credit card or debit card are alleged to be defective or were not provided), in which case the credit card or debit card provider is entitled to chargeback the amount to the merchant or, where a merchant facility is in place, as with STA Travel, the merchant's banker, here CBA.
Where CBA met a chargeback liability for a customer of STA Travel, it debited monies of STA Travel in accounts held with CBA in accordance with the CBA Terms and Conditions. Therefore:
1. where customers of STA Travel received a refund from their credit card provider;
2. these claims were in turn borne by CBA under the Scheme Rules; and
3. CBA's liability was likewise to be met by STA Travel under the Merchant Agreement (2014 Merchant Agreement).
In addition, where CBA has made payments during the external administration to landlords under the Bank Guarantees, CBA has relied on an account set off dated 13 April 2017 (Set Off Agreement) and similarly debited those monies from the Bank Guarantee Account.
The total amount debited by CBA from the various accounts with respect to liabilities for chargebacks and Bank Guarantees totals $4,779,706.43.
The Liquidators submitted that CBA was entitled to set off its liabilities, even where they crystallised after the commencement of the winding up, against amounts in the bank accounts of the Company held with CBA other than the Client Travel Account which, for reasons explored below, constitutes a trust account. In particular, the Liquidators said CBA has a statutory right to set off under s 553C of the Corporations Act in a manner supported by and consistent with its contractual rights under the CBA Terms and Conditions and Set Off Agreement. For the following reasons, I accept that CBA is entitled to a set off.
The affected party of any set off would be the Commonwealth standing in the shoes of employees to recover monies as a priority creditor. The Commonwealth was notified of the Liquidators' application and did not express any view. The Liquidators also provided CBA with a draft of its originating process and received a response indicating that CBA did not intend to comment.
There is nothing particularly unusual or special about a banker's set off compared to other forms of set off. In Re PrimeSpace Property Investment Limited (in liquidation) [2018] NSWSC 919, Black J explained the necessary requirements for s 553C to apply at [25] (citations omitted):
A set-off under that section requires that the creditor's claim is provable in the winding up; the claims exist at the date of the winding up; the claims are capable of being converted into monetary amounts; and the element of "mutuality" exists, namely credits, debts or claims arising from the dealings must be between the same parties and the benefit or burden of those credits, debts or claims must lie in the same interest, although it is not necessary that the claims are similar in nature.
Further, the following matters with respect to insolvency set off were recently emphasised by Gleeson J in Re Force Corp Pty Ltd (in liq) (2020) 149 ACSR 451; [2020] NSWSC 1842 at [81]-[84] (citations omitted):
1. Insolvency set off is "self-executing" in the sense that its operation is automatic and is not dependent upon the option of either party, such that the effect of s 553C(1) is to bring about an extinguishment of the claims at the date of the winding up to the extent of the set off.
2. The relevant date for determining whether the sum due from one party is to be set-off against any sum due from the other party in respect of mutual dealings is the "relevant date" under s 554 for determining what claims are admissible to proof against the company, being the date at which the winding-up of STA Travel is taken to have commenced as per ss 513B(b) and 513C(b) of the Corporations Act (that is, the date on which STA Travel began under administration);
3. The "account" in accordance with subs 553C(1) shall be deemed to be taken and the sums due from one party set off against the other as at the date of the winding up, such that the respective claims cease to have a separate existence as choses in action and are replaced by a claim to a net balance; and
4. Debts in respect of mutual dealings which may be set off under subs 553C(1) include not only debts that are then due, but debts which are contingent and which ultimately mature into pecuniary demands.
CBA has continued to debit the Operating Account and the Bank Guarantee Account with respect to liabilities for chargebacks and payments made under the Bank Guarantees pursuant to the CBA Terms and Conditions. The relevant clauses provide as follows.
1. Clause 2.7 entitles CBA to chargeback a transaction by debiting the Company's account where the cardholder disputes liability for the transaction "for any reason" (emphasis added).
2. Clause 1.10.2 provides examples of customer disputes that result in chargebacks, including where a customer argues they never received the goods or services.
3. Clause 1.10.3 conditions the chargeback on the cardholder dispute not being satisfactorily resolved and, specifically, not being resolved in the Company's favour.
4. Clause 2.5.5 empowers CBA to deduct any debit amount from "any of" the Company's CBA accounts where the amount cannot be debited.
I accept the Liquidators' submissions that these clauses express the Company's liability to CBA broadly.
The relevance of the CBA Terms and Conditions is confined to showing how the underlying liabilities came into being. The actual terms would give way to the statutory provision: Re Paddington Town Hall Centre Ltd (In Liquidation) (1979) 41 FLR 239 at 240 (Needham J).
I accept that both the chargebacks and exposure under the Bank Guarantees were, in effect, contingent liabilities of STA Travel which were owed to CBA and existed at the relevant date when the Administrators were appointed by reason of the 2014 Merchant Agreement and the terms of the 2017 Bank Guarantee, which provided CBA with express contractual rights to set-off liabilities owed by STA Travel against funds in its identified accounts.
The authorities suggest that debts that are contingent at the date of the commencement of the winding-up but mature into pecuniary demands are subject to the set off regime in s 553C. As Hayne J (as his Honour then was) observed in Old Style Confections Pty Ltd v Microbyte Investments Pty Ltd (in liq) [1995] 2 VR 457 at 463:
Hiley [v People's Prudential Assurance Co Ltd (1938) 60 CLR 468], Day & Dent [Constructions Pty Ltd v North Australian Properties Pty Ltd (1982) 150 CLR 85] and Gye v McIntyre [(1991) 171 CLR 609] … make plain that the mere fact that performance of the contract made before liquidation may not take place until after liquidation does not determine whether the debt due under that contract may be set-off against other dealings with the company. The question is not whether both claims are vested, liquidated or enforceable at the decisive date but whether they exist as contingent at that date and "are of a kind which will ultimately mature into pecuniary demands susceptible of set off" (see Gye v McIntyre at 624 and Hiley's case at 497). That question is not answered by enquiring simply when performance of the contract occurred.
Various liabilities of STA Travel have arisen since August 2020, against which CBA has set-off money in STA Travel's accounts.
Having regard to the operation of the chargeback regime and Scheme Rules, I consider that STA Travel's liabilities were contingent debts that crystallised after the commencement of the external administration but, they arose and were in existence prior to that time. As such, on a statutory taking of accounts under s 553C(1) and consistent with its exercise of rights under the CBA Terms and Conditions, CBA was entitled to set off those liabilities against the monies in the various bank accounts including the Bank Guarantee Account.
The only exception to CBA's entitlement to set off concerns the monies in the Client Travel Account. A bank's right to combine or set off accounts is not permissible with respect to an account that the bank knows is held on trust for others: Re Gross, ex p. Kingston (1871) LR 6 Ch App 632 at 639 (James LJ); Union Bank of Australia Ltd v Murray-Aynsley [1898] AC 693 at 697-698 (Lord Watson). CBA's claim is against STA Travel whereas the monies in the Client Travel Account are not owned beneficially by STA Travel and, accordingly, set off against the Client Travel Account is prohibited because there is no mutuality between the credits and debts. In any event, CBA has not sought to exercise any right of set off in relation to the Client Travel Account Counsel for the Liquidators also submitted that there are no further chargebacks.
It is well established that all relevant circumstances must be examined to determine whether STA Travel intended to create a trust with the Client Travel Account: Byrnes v Kendle (2011) 243 CLR 253 at 290 (Heydon and Crennan JJ); Re Sutherland; French Caledonia Travel Service Pty Ltd (In Liq) (2003) 59 NSWLR 361 at 368 (Campbell J).
I accept that STA Travel intended to create a trust with the Client Travel Account. The account holder was designated as the "STA Travel Trust Account" and the account itself was labelled "Client" account, distinguishing it from the Company's other operating accounts: see also Travel Compensation Fund v Classic International Cruises Pty Ltd (in liq) [2014] NSWSC 167 at [8]-[9] (Black J); Walker v Corboy (1990) 19 NSWLR 382 at 397-398 (Meagher JA).
The characterisation of the Client Travel Account as a trust account is also consistent with IATA's requirement that a separate account be created into which customer payments would be transferred for on-payment to IATA and from which customers would receive refunds which were, in turn, refunded by IATA.
There do not appear to be any countervailing factors that would lead to a different conclusion.
For reasons which are detailed below, the Liquidators have not been able to identify the beneficiaries. That is a factor relevant to the directions sought here, not whether there is a trust ab initio.
[7]
Distribution of money in Client Travel Account
As at the date of appointment of the Liquidators, there was a balance of $76,077.53 in the Client Travel Account which has since increased slightly due to the accrual of interest.
I am satisfied that the Liquidators properly classified those monies trust money held for customers who paid money to STA Travel for the purchase of IATA tickets that ordinarily ought to be repaid to those customers. Counsel for the Liquidators submitted there is likely to be "hundreds, if not thousands, of such customers".
The Liquidators submitted that there are various practical problems identifying the customers who paid sums now held in the Client Travel Account, because they cannot access customer records stored centrally in England and Romania and the fact that customer monies are comingled with other funds in the Operating Account before being transferred to the Client Travel Account in accordance with relevant IATA guidelines.
The Liquidators have formed the view that determining the identity of the customers and the proportions to which the customers are entitled would likely deplete the whole fund: Re Sutherland; French Caledonia Travel Service Pty Ltd (In Liq) (2003) 59 NSWLR 361 at 422 [193] (Campbell J).
Unlike Re Sutherland, the Liquidators said the matter is more complicated here because it is not practically possible, within the available funds, to identify the customers who purchased the IATA Tickets whose funds now constitute the monies in the Client Travel Account.
There is a need to distribute the fund in some appropriate way: see eg Re BBY Ltd (recs and mgrs apptd) (in liq) (No 2) (2018) 363 ALR 492 at 508 [41] (Brereton J).
The Liquidators submitted that retaining the monies as part of the general liquidation may be preferable to payment to the Trustee and Guardian pursuant to s 47 of the Trustee Act because, at least in the former scenario, it would add to the general liquidation account and there is a hope that any beneficiaries could make a claim along with the unsecured creditors. Were the monies paid to the Trustee and Guardian, the Liquidators submitted it is unlikely it would find its way into the hands of any beneficiaries, and it is more likely it would be unclaimed and eventually paid into Consolidated Revenue.
The fact that the money in the Client Travel Account constitutes trust money necessarily means it is held for the beneficiaries of the trust and should be distributed to them: Carter Holt Harvey Woodproducts Australia v Commonwealth (2019) 268 CLR 524 at 541 (Kiefel CJ, Keane and Edelman JJ). At 568, Bell, Gageler and Nettle JJ stated (citations omitted):
The liquidator of a company assumes control of the company's assets subject to equities, and accordingly, must deal with assets held by the company as trustee in accordance with the terms of trust.
The Liquidators do not suggest the monies in the Client Travel Account are not trust monies. However, they submitted that the Court may be prepared to make a more pragmatic direction that the money be retained as part of the Company's winding up. The Liquidators did not suggest any statutory provisions permitted such a course.
I accept that the beneficiaries cannot be identified for the difficulties raised by the Liquidators. I do not consider it appropriate for the money to be retained as part of the Company's winding up, because it is inconsistent with the character of the monies as trust monies. Such a direction would, in effect, permit the trustee to appropriate the trust fund for persons other than the beneficiaries.
As I am satisfied the beneficiaries cannot be found within the funds available to the Liquidators, it is appropriate for the Liquidators is to pay the funds into the NSW Trustee and Guardian in accordance with s 47 of the Trustee Act.
[8]
Orders
For the reasons outlined above, I make the following orders:
1. Direct that Jason Mark Tracy and Timothy Bryce Norman (Liquidators), in their capacity as joint and several liquidators of STA Travel Pty Limited (In Liquidation) (STA Travel), would be justified in treating the funds recovered during the external administration of STA Travel from, or otherwise repaid by, various travel providers in the form of refunds that had been requested by or on behalf of the customers of STA Travel prior to 21 August 2020 for travel services that were not provided to them (Travel Services), as being held on trust for those customers identified in Schedule 1, Schedule 2 and Schedule 3 to these orders and also set out in the Corporations Law Originating Process filed 14 June 2022 and referred to in the Amended Originating Process filed 8 September 2022 (Schedule 1, Schedule 2 and Schedule 3 respectively, collectively referred to as the "Schedules") in the proportions set out therein (Customer Refunds).
2. Order that the remuneration of the Liquidators with respect to the recovery, preservation, administration and proposed distribution of the Customer Refunds be approved and fixed in the sum of $301,735.50 (exclusive of GST).
3. Order pursuant to section 60-20(3)(b) of the Insolvency Practice Schedule (Corporations) that the Liquidators be granted leave to derive a profit or advantage from the external administration of STA Travel, in a sum up to but not exceeding $15,000 (plus GST) for the utilisation of the Halo platform (as described in the affidavit of Jason Mark Tracy affirmed 1 September 2022) as an internal disbursement for the proposed distribution of the Customer Refunds in accordance with order 4 below.
4. Direct that, subject to the direction in 5 below, the Liquidators would be justified in distributing the Customer Refunds as follows:
1. In relation to the total of the amounts set out in Column F of Schedule 1 titled 'Net Amount ($)' (IATA Refunds):
1. First, in payment of the Liquidators' costs and expenses in connection with these proceedings so far as the Court may determine that such costs and expenses are properly paid from the IATA Refunds, calculated on a pro rata basis in proportion to the total Customer Refunds recovered;
2. Second, in payment of the Liquidators' costs, charges and expenses (including any disbursements as approved in conformity with order 3 above) and the Liquidators' remuneration (as approved in conformity with order 2 above) with respect to the recovery, preservation, administration and proposed distribution of the IATA Refunds, calculated on a pro-rata basis in proportion to the total Customer Refunds recovered; and
3. Third, after deduction of the amount of $102,812.84, being the offsets applied by various airlines with respect to the processing of the IATA Refunds, to the customers identified in Schedule 1 in the proportions set out therein;
1. In relation to the total of the amounts set out in Column F of Schedule 2 titled 'Net Amount ($)' (Direct Airline Refunds):
1. First, in payment of the Liquidators' costs and expenses in connection with these proceedings so far as the Court may determine that such costs and expenses are properly paid from the Direct Airline Refunds, calculated on a pro rata basis in proportion to the total Customer Refunds recovered;
2. Second, in payment of the Liquidators' costs, charges and expenses (including any disbursements as approved in conformity with order 3 above) and the Liquidators' remuneration (as approved in conformity with order 2 above) with respect to the recovery, preservation, administration and proposed distribution of the Direct Airline Refunds, calculated on a pro rata basis in proportion to the total Customer Refunds recovered; and
3. Third, after deduction of the amount of $420.05 (being the offsets applied by various airlines with respect to the processing of the Direct Airline Refunds), to the customers identified in Schedule 2 in the proportions set out therein; and
1. In relation to the total of the amounts set out in Column F of Schedule 3 (Other Travel Supplier Refunds):
1. First, in payment of the Liquidators' costs and expenses in connection with these proceedings so far as the Court may determine that such costs and expenses are properly paid from the Other Travel Supplier Refunds, calculated on a pro rata basis in proportion to the total Customer Refunds recovered;
2. Second, in payment of the Liquidators' costs, charges and expenses (including any disbursements as approved in conformity with order 3 above) and the Liquidators' remuneration (as approved in conformity with order 2 above) with respect to the recovery, preservation, administration and proposed distribution of the Other Travel Supplier Refunds, calculated on a pro rata basis in proportion to the total Customer Refunds recovered; and
3. Third, to the customers identified in Schedule 3 in the proportions set out therein.
1. Direct that, to the extent any customers identified in the Schedules have also had a chargeback claim honoured by the Commonwealth Bank of Australia (CBA) and received a refund from their credit or debit card provider, the Liquidators would be justified in:
1. not treating those customers as being entitled to a distribution from the Customer Refunds in accordance with order 4 above for the amounts of any chargeback claim honoured by CBA; and
2. instead, paying the amount that would otherwise be payable to those customers from the Customer Refunds to STA Travel as an asset of the company to be distributed in the winding up in accordance with the priority provided by the Corporations Act 2001 (Cth) (Corporations Act).
1. Direct that the Liquidators would be justified in distributing and/or treating any future Customer Refunds recovered in the manner set out in orders 4 and 5 above.
1. Order that any:
1. of the Customer Refunds that the Liquidators, after taking all reasonable efforts, have been unable to distribute to the customers identified in Schedule 1, Schedule 2 and Schedule 3 in accordance with orders 4, 5 and 6 above (because of an inability to locate the relevant customers within six (6) months following the final determination of this application);
2. of the Customer Refunds distributed to the customers identified in Schedule 1, Schedule 2 and Schedule 3 in accordance with orders 4, 5 and 6 above that remains unclaimed within six (6) months following the date of the distribution by the Liquidators; and
3. of the funds in bank account number 400012673520 held with CBA (Client Travel Account);
are to be paid to the NSW Trustee in the manner provided for in section 47 of the Trustee Act 1925 (NSW).
1. Direct that the Liquidators would be justified in permitting CBA to set-off, against the funds in the following bank accounts of STA Travel held with CBA, STA Travel's liabilities to make payments to CBA under the Merchant Agreement entered into by STA Travel and CBA on or about June 2014 (including chargebacks paid by CBA to various merchant credit and debit card providers) (Chargeback Liabilities) and with respect to bank guarantees given by CBA to various landlords of premises leased by STA Travel (Landlord Liabilities):
1. CBA Premium Business Cheque Account, account number 400010427676;
2. CBA Cheque Account, account number 400010427684;
3. CBA Cheque Account, account 400012595825; and
4. CBA Cash Deposit Account, account number 151 555.
1. Order that the Liquidators' costs of and incidental to the proceedings:
1. insofar as they are referable to the relief in relation to the Customer Refunds, be payable out of the Customer Refunds in accordance with subparagraphs 4(a) to (c); and
2. insofar as they are referable to the Chargeback Liabilities, the Landlord Liabilities, the Client Travel Account and CBA's right of set-off, be costs in the winding up of STA Travel.
[9]
Amendments
11 November 2022 - Jurisdiction amended
15 November 2022 - Correction of paragraph numbering and page number in a cited judgment.
14 December 2022 - Numbering of orders amended.
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: 14 December 2022
iquidation) [2018] NSWSC 919
Re Sakr Nominees Pty Ltd [2017] NSWSC 668
Re Sutherland; French Caledonia Travel Service Pty Ltd (In Liq) (2003) 59 NSWLR 361
Sanderson as Liquidator of Sakr Nominees Pty Ltd (in liquidation) v Sakr (2017) 93 NSWLR 459
The Trust Company (Re Services) Limited (in its capacity as responsible entity and trustee of the Australian Wholesale Property Fund) [2016] NSWSC 117
Travel Compensation Fund v Classic International Cruises Pty Ltd [2014] NSWSC 167
Union Bank of Australia Ltd v Murray-Aynsley [1898] AC 693
Category: Principal judgment
Parties: Jason Mark Tracy and Timothy Bryce Norman in their capacity as joint and several liquidators of STA Travel Pty Ltd (in liq) (First Plaintiff)
STA Travel Pty Ltd (in liq) (Second Plaintiff)
Representation: Counsel:
D Krochmalik (Plaintiffs)
No appearance (Defendant)
Judgment
The COVID-19 Pandemic had a significant negative impact on the international travel industry. On 25 September 2020, Jason Mark Tracy and Timothy Bryce Norman of Deloitte (Liquidators) were appointed as joint and several liquidators of the company in these proceedings, STA Travel, about one month after they had been appointed as administrators.
The Liquidators have sought directions and advice from the Court. The application is brought pursuant to ss 90-15 of the Insolvency Practice Schedule (Corporations) (IPS), being Schedule 2 to the Corporations Act 2001 (Cth) (Corporations Act), and s 63 of the Trustee Act 1925 (NSW) (Trustee Act).
The Liquidators seek the Court's guidance in the form set out in the Amended Originating Process filed 8 September 2022 in relation to legal issues which have arisen in the winding up:
1. Whether the Liquidators should treat refunds requested by customers and received from suppliers prior to the appointment of the administrators as being held on trust and what should be done with that money;
2. Whether the Company's principal creditor, CBA, is entitled to a set off against funds in several STA Travel bank accounts in relation to certain liabilities by STA Travel to the CBA in relation to chargebacks and bank guarantees;
3. Whether the Liquidators' remuneration with respect to recovery, preservation, administration and proposed distribution of those refunds should be fixed at $301,735.50;
4. Whether the Liquidators can derive a profit or advantage from the external administration of STA Travel in the sum up to $15,000 for the utilisation of what is referred to as the "Halo Platform" which is a software tool owned by the Liquidators' firm;
5. Whether the Liquidators ought to pay customer refunds to the New South Wales Trustee and Guardian where those customers have not been located;
6. The form of any costs orders and from which accounts they should be paid.
The Court has power to give judicial directions to an external administrator where that is of advantage in the liquidation: Dean-Willcocks v Soluble Solution Hydroponics Pty Limited (1997) 42 NSWLR 209 at 212 (Young J, as his Honour then was); see also Re Octaviar Administration Pty Ltd (in liq) [2017] NSWSC 1556 at [7]-[9] (Black J). Further, reliance was placed on s 63 of the Trustee Act insofar as any relevant property is held on trust for customers.
I am satisfied there is jurisdiction to enliven s 63(1) in this case because there is a question concerning the administration of trust money, specifically being monies in a bank account which, for reasons detailed below, STA Travel holds on trust for certain customers: The Trust Company (Re Services) Limited (in its capacity as responsible entity and trustee of the Australian Wholesale Property Fund) [2016] NSWSC 117 at [20] (Ball J).
Reliance is also placed on s 90-15(1) of the IPS which provides:
(1) The Court may make such orders as it thinks fit in relation to the external administration of a company.
I am satisfied that this is an appropriate case for directions and advice to be given to the Liquidators because it will provide advantageous guidance to resolve legitimate doubts respecting whether assets are held on trust and how they can be distributed and whether a particular bank creditor is entitled to a right of set off and the directions or advice concerning the course of action the Liquidators propose to take. Further, this will protect the Liquidators against accusations that they have acted contrary to law: see eg Re Direct Acceptance Corporation Ltd (Receiver Appointed) (in liq) (2019) 136 ACSR 245 at 250 [36] (Ward CJ in Eq, as the President then was); Re Octaviar Administration Pty Ltd (In liq) [2017] NSWSC 1556 at [7]-[9] (Black J) and the authorities cited therein.
All interested parties, being creditors, customers, the Commonwealth of Australia (administering the Fair Entitlements Guarantee Scheme), International Air Transport Association (IATA), the Committee of Inspection and the Australian Securities and Investments Commission, have been notified of the application, and none has sought to be joined to the proceedings or be heard without being joined as a party.
Notwithstanding that no interested party has sought to intervene or be heard, there is no impediment to the Court proceeding on the application without a contradictor: Dean-Willcocks v Soluble Solution Hydroponics Pty Ltd (1997) 42 NSWLR 209 at 212-213 (Young J).
In preparing this judgment I have been greatly assisted by the submissions of Mr Krochmalik, counsel for the Liquidators.