Consideration
42 In my view, order 1(b) should be stayed until the date that is two weeks after the date of the second creditors' meeting in respect of Trigon under s 439A of the Corporations Act unless, at that meeting, creditors vote to end the administration and control of Trigon is returned to its director, in which case the stay of order 1(b) should end when control of Trigon is returned to its director.
43 Once the second creditors' meeting has been held, the Company's fate will be clearer. Either the DOCA proposed by Mr Salerno (Trigon's sole director) will have been accepted, or the Company will have been placed into a creditors' voluntary winding up. In theory, there is a chance (although it appears to be common ground that it is rather improbable) that the administration of the Company will end and control of the Company will return to its director.
44 The DOCA proposes that all of the Court Fund be paid over to ADG, and will not form part of the Fund to be established pursuant to the DOCA. Accordingly, if the DOCA is accepted, ADG will have been made whole (to the extent of approximately $11 million), and issue concerning whether or not Trigon held the Transfer Amount as trustee for ADG (referred to as the trust issue) will not need to be determined, save to the extent that ADG wishes to pursue the case in relation to the FTX transfer. While it is obviously not for me to speculate on the fate of the DOCA, it is relevant to note that the Administrators' estimate of the Company's liabilities is in the order of $78 million, the known assets of the Company comprise the Court Fund (approximately $11 million), another fund of about $800,000 and a further account held with Signature Bank holding USD10,910,045.31 (which has yet to be verified by the Administrators), leaving a significant shortfall, even if related party creditors of about $27 million are discounted. The DOCA also proposes that the Court Fund and the amount in the Signature Bank account not form part of the DOCA Fund.
45 If the Company enters into liquidation, it will be necessary (in order for the liquidators to undertake their statutory task) for the trust issue to be determined so that the assets of the Company, available for pari passu distribution to unsecured creditors, are known.
46 ADG urged that the indefinite nature of the stay sought prejudices it, as no concrete proposal has been put forward by the Administrators for determination of the trust issue. From ADG's point of view, the Transfer Amount constitutes trust funds, and, in any case, it has an order of the Court that the Balance Amount be paid to it from the Court Fund. ADG contended that the stay sought by the Administrators lacks utility because it fails to make any provision for bringing the trust issue to a head. Without clarity on whether or not the Court Fund (or the Balance Amount) are trust funds, or otherwise subject to equitable rights held by ADG, it says that the asset position of the Company will remain unclear. Until the asset position is resolved, ADG contends that the Company's creditors cannot make informed decisions and the Administrators cannot make useful recommendations to the creditors.
47 I have some sympathy for ADG's position on that point, insofar as ADG contends that the trust issue needs to be resolved so that the asset position of the Company is clear. That said, the position taken by the Administrators is that they are not satisfied that the Transfer Amount was held on trust, and, not being satisfied that there is a trust, take the position that the Court Fund is still within the ambit of the Administration; the Administrators accept that, if the Transfer Amount was held by Trigon as trustee, those funds, and hence the Court Fund, would not constitute property of the Company.
48 While, on one view, it would have been preferable for the issue to have been brought to a head earlier, ADG's trust claims have not been the subject of formal adjudication and it is not feasible for that to occur (even if ADG made an application and leave to proceed on the issue were granted) before the end of the Administrators' convening period. Accordingly, it appears inevitable that the issue will not be resolved before the second creditors' meeting. Further, it is obviously not for the Administrators to speak for the putative future liquidators of the Company; while they may be appointed liquidators, it remains open for creditors to propose and appoint others.
49 Granting a stay for a limited period of time will allow the liquidators (if they be appointed) to consider their position as to how and when the trust issue should be determined. If ADG remains concerned that determination of the trust issue will continue to be deferred, it would be open to ADG at that point to apply for leave to proceed with the present litigation so as to have the trust issue determined. Alternatively, if the liquidators make a determination on the trust issue in the course of determining ADG's proof of debt, and if that determination is adverse to ADG, it could bring a proceeding challenging that decision under s 90-15 of the Insolvency Practice Schedule (Corporations). It may also be the case that the liquidators will seek to extend the stay (noting that the question of whether s 471B or s 500(2) would preclude effect being given to order 1(b) has not been determined).
50 In my view, allowing a period of two weeks following the second creditors' meeting best balances the interests of ADG in the trust issue not being deferred indefinitely, while preserving the statutory "standstill" while the Company is in administration. It also prevents entry into transactions which may be voidable in a liquidation and avoids what may later be confirmed to be assets of the Company becoming incapable of being recouped if, as appears likely, funds remitted to ADG from the Court Fund would be paid over by ADG to its clients. I am satisfied that the Administrators have demonstrated a proper basis and a sufficient reason for the exercise of the Court's discretion under r 41.03 to stay order 1(b). The grant of a stay, which is not indefinite, will ensure that the risk of ongoing prejudice or damage to either party, and Trigon's other creditors, is minimised.
51 Of course, in the (apparently unlikely) event that control of the Company is returned to its director, the statutory stay of the proceeding under s 440D will be lifted, and there would then be no occasion for any stay to continue. Likewise, if the DOCA is accepted, ADG will have been made whole so far as the portion of the Transfer Amount reflected by the Court Fund is concerned and, for practical purposes, the balance of the proceeding may lack utility given the proposed treatment of the balance of ADG's claim under the DOCA (cll 3.8 and 11.5).
52 It was common ground that the question of whether or not order 1(b) should be stayed is informed by the strength of the parties' position on the trust issue. Much of the parties' written and oral submissions were devoted to putting their positions on why the Transfer Amount was or was not held by Trigon on trust for ADG.
53 The Administrators, like Trigon before them, did not dispute that Trigon is indebted to ADG for the Transfer Amount. While not foreclosing the possibility that ADG may yet advance evidence to satisfy them of its trust contention (or that the trust issue may subsequently be decided in ADG's favour by future liquidators, or by the Court), their present position is that they are not satisfied that the Transfer Amount was held on trust, and they intend to conduct the administration on that basis.
54 The Administrators accepted that the funds were transferred by ADG to Trigon for a known and clear purpose: namely to be transferred on to ADG's Westpac account. The Administrators stressed, however, that there was no other restriction placed on Trigon's use of the funds and that they were deposited into Trigon's usual trading account, mixed without other client funds. For its part, ADG emphasised the content of the communications between Trigon and ADG, including communications post-dating the transfer, in which Trigon was seeking and acting on ADG's instructions about what to do when hurdles were encountered in transferring the funds quickly, which included Trigon asking whether ADG wanted the funds returned to its Deltec account. ADG also emphasised the language in many of Trigon's communications, including language used in solicitors' correspondence after the proceeding had been commenced.
55 Nevertheless, despite their focus in submissions on the trust issue, both parties took the position that I need not, and ought not, determine the trust issue on this application. I agree. The application before me is for the stay of order 1(b), which was made without prejudice to the parties' rights in the litigation. Moreover, the present interlocutory stay application is not the occasion to determine complex and contested issues lying at the heart of the underlying proceeding.
56 While I am satisfied that ADG has a credible claim that the Transfer Amount was held on trust, its trust claim is not without its challenges, to which the Administrators drew attention. That is to say, there are points both ways and I do not consider either party's position on the substantive trust issue to be so strong as to affect what I otherwise consider to be the appropriate course of ordering a stay, given the intervention of the administration.
57 As has been set out above, s 440D imposes a statutory stay on proceedings against the Company while it is in administration, except with the Administrators' written consent or with leave of the Court. The statutory stay serves a number of purposes, one of which is to ensure that certain creditors do not obtain an advantage over other creditors. This extends to the preservation of the property of the Company so that it can be dealt with appropriately, without the creation of preferences in favour of certain creditors prior to the completion of the administration.
58 Given the apparent deficiency in the Company's assets, relative to its liabilities, unless the Transfer Amount was held by Trigon on trust for ADG, there is every possibility that, if Trigon goes into liquidation, payment of the Retention Amount to ADG would constitute an unfair preference or would otherwise be subject to action on the part of the liquidators to recoup monies. The Administrators, in their grounds for the stay, have foreshadowed that the liquidators may seek an order under s 468(1) to void any non-exempt dispositions of the property of the Company made after the commencement of the winding up (which ss 513A and 513C deem to be the day on which the administration began). Although, as noted, s 468(1) is only available in a Court-ordered winding up, under a voluntary winding up, the liquidator may apply to avoid the transaction under Pt 5.7B Div 2 of the Corporations Act. While liquidation is not, of course, a foregone conclusion, it is far from a remote possibility on the evidence. Further, as noted above, in either of the alternative eventualities (a successful DOCA, or the return of the Company to the control of its director) ADG will either receive the entire amount of the Court Fund, or will otherwise have the benefit of effect being given to order 1(b) when the stay is lifted. In the meantime, the Court Fund will remain secure.
59 ADG did not put on any evidence that a delay in access to the Balance Amount prejudices its business operations or its ability to meet any obligations it has to its clients or third parties. This is a relevant matter going to the balance of convenience. Nor did ADG put on any evidence of its financial capacity to avoid any prejudice to other creditors on the basis that it could readily repay any amount if the trust issue is ultimately determined against it and it is only an unsecured creditor. As such, I accept the Administrators' contention that other creditors may ultimately be prejudiced if order 1(b) is not stayed, and that this is a matter of significance to the exercise of the Court's discretion.
60 Here, it was common ground that, if Trigon held the Transfer Amount on trust for ADG, ADG's interest as beneficiary would continue to attach to the funds in Court. That is consistent with Harmer v Federal Commissioner of Taxation (1991) 173 CLR 264 at 273 (Mason CJ, Deane, Dawson, Toohey and McHugh JJ) (Harmer) which confirms that funds paid into court remain subject to any pre-existing trust. However, whereas the Administrators took the position that ADG's position was not improved by payment of funds into court, or by order 1(b), ADG contended that its position was improved such that it still sought to have the Balance Amount even if the trust issue were determined against it. In the course of oral argument, ADG advanced, for the first time, the proposition that even if Trigon did not hold the Transfer Amount as trustee for ADG, when the funds were paid into Court, or if not then, when an order for payment out was made, ADG acquired equitable rights in respect of the Court Fund. While ADG's argument was principally advanced as a reason why no order ought to be made under s 447A of the Corporations Act (being the Administrators' alternate case), the proposition is also relevant to whether or not there ought to be a stay under r 41.03.
61 It is clear from the Victorian Court of Appeal's decision in Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd (2014) 49 VR 86 (Dura) that the parties' rights and interests in funds in court can be affected by the payment of those funds into court, and orders made for payment out. Much depends on the context in which those orders and payments were made. Here, the parties paid little regard to the detail of the circumstances in which the orders made on 21 and 25 November 2022 and the December Orders were made, to the point where neither party had even obtained the transcript of the hearings on 25 November 2022 and 1 December 2022. It is clear from Dura that, ordinarily, where funds are paid into court in lieu of a freezing order, the party who obtained the freezing order does not obtain any rights in the court fund. There is also no general rule that, upon payment into court, the payer necessarily loses all interest in the funds, although that can be the result in some circumstances: Dura at [63], [67], [86(a)], referring to Harmer at 272-3 and Dwight v Commissioner of Taxation (1992) 37 FCR 178 at 186 (Hill J). In many circumstances, a party may obtain an equitable charge over funds paid into court: Dura at [86(b)]. Various examples of cases in which the non-paying party obtained an equitable charge were discussed by Santamaria JA in Dura, with whose analysis Maxwell P and Whelan JA agreed.
62 In argument, ADG emphasised a number of passages of Hill J's judgment in Re Lovering; Galladin Pty Ltd v Jackson (1994) 50 FCR 587 (Galladin), quoted in Dura at [70]-[71]. In Galladin, funds were paid into court following the sale of bales of wool and livestock. Following trial, orders were made that the funds be paid out, by way of equitable execution, to Galladin Pty Ltd. Before the order was effected, the Lovering family members became bankrupt. In finding that the court funds did not vest in the trustee in bankruptcy absolutely, Hill J considered that, upon the order for payment out, either the beneficial interest was in Gallandin Pty Ltd, or, if the order merely perfected its status as a secured creditor, then the trustee would only have the money vested in it subject to the equities of the company. ADG sought to draw an analogy between the payment of the funds into Court by Trigon with the payments made in Galladin, and to liken the order for payment out in Galladin with order 1(b).
63 It is not necessary for me to decide whether, as it contended, ADG acquired an equitable charge over the fund paid into Court when that ultimately occurred. Not only did the submission only emerge in oral argument (and was not the subject of considered submissions taking account of the full factual picture concerning the relevant orders made), but the Administrators submitted that, even if ADG obtained an equitable charge over the Court Fund, a stay would still be appropriate. I agree.
64 In Dura, Santamaria JA (with whom Maxwell P and Whelan JA agreed) engaged in a detailed survey of the authorities, and then summarised the principles to be distilled from that survey. His Honour's summary included the principle that "the interest acquired by the party other than the party making the payment in remains subject to the rules relating to void or voidable dispositions in insolvency": at [86(d)] (citing Commercial Banking Company of Sydney Ltd v Colonial Financiers of Australia Pty Ltd [1972] VR 702; WA Sherratt Ltd v John Bromley (Church Stretton) Ltd [1985] 1 QB 1038 at 1056 (Oliver LJ)). The short point is that, even if the payment into Court resulted in ADG obtaining an equitable charge, the objects of Pt 5.3A of the Act and the preservation of the position pending the potential appointment of liquidators are still served by ensuring that ADG does not enjoy an advantage over other creditors by having Trigon's debt to it satisfied to the extent of the Balance Amount by those funds being remitted to it. If the Balance Amount is remitted to ADG, not only would a future liquidation be made more drawn out and expensive (by the need to pursue repayment as a voidable transaction if the liquidators decide the trust issue adversely to ADG) but the funds may not be capable of recoupment at all. The evidence suggests that any funds ADG obtains from the Court Fund will be paid over to its clients. The Administrators submitted this is what would happen (based on indications in correspondence) and ADG did not dispute this.
65 Nor do I accept that the making of order 1(b) had the effect that the Balance Amount was held entirely for ADG (by analogy with the first alternative Hill J referred to in Galladin). In this case, order 1(b) was made in anticipation of the funds coming into court - no fund in court yet existed. Further, and by contrast with Galladin, where the order for payment out was made by way of equitable execution after trial, order 1(b) of the December Orders was expressly stated to be "without prejudice to either parties' [sic] rights or claims…".
66 It remains to address some of the further arguments advanced by the parties.
67 Given that an instruction was given to Deltec to effect the transfer in accordance with orders of this Court, which instruction was apparently pursued with the imprimatur of the former administrators, I am not prepared to find at this point (as was contended by the Administrators) that the transfer of the funds into Court was unauthorised. While the countermanding instruction was given by the Administrators to Deltec on 19 January 2023, the Court has no insight into the back office operations of Deltec, whether it was too late to change the instruction, or whether the instruction to send the funds to the Administrators' account instead was overlooked. Nor is it necessary to determine whether the statutory stay under s 440D operated such that the transfer of funds into Court should not have occurred. On its face, it appears a doubtful proposition that an instruction, already issued to a third party bank overseas, should be automatically halted by force of a statutory stay on steps being taken in a proceeding in Australia.
68 ADG's arguments also focused on the circumstances by which the orders made on 25 November 2022 and the December Orders were made. It submitted that Trigon (through its Administrators) should be estopped from taking a position that is inconsistent with the December Orders. ADG submitted that Trigon's proposal to resolve the November Interlocutory Application by keeping the Retention Amount in Court, and disbursing the Balance Amount, induced an assumption by ADG that the balance of the Court Fund was no longer in dispute and would be returned to ADG. ADG submitted (but did not file any witness evidence to state that) it acted on the induced assumption by consenting to the December Orders.
69 In a linked submission, ADG contended that it was irrelevant that the trust issue had not been finally determined as the December Orders were made to give effect to an agreement between the parties to partially resolve ADG's claims and the November Interlocutory Application.
70 There are a number of difficulties with these arguments. First, the December Orders did not finally dispose of the November Interlocutory Application. Paragraph 3 of those orders stood over the November Interlocutory Application, with liberty to apply. Subject to the statutory stay, it remains open to ADG to pursue it.
71 Secondly, the consent orders first made on 25 November 2022, and then supplemented by the December Orders, granted ADG one of the alternate forms of relief it sought by the November Interlocutory Application. One of the forms of relief sought (in the alternative for payment of all the remaining funds directly to it) was payment into Court. It obtained that relief, albeit that it may not have been ADG's preferred option.
72 Thirdly, in proffering the compromise that was reflected in the December Orders, Trigon's solicitors stated in their correspondence that it would dispose of ADG's November Interlocutory Application; they did not say it would resolve, in ADG's favour, issues raised in the proceeding concerning whether the Transfer Amount was held on trust.
73 Fourthly, the December Orders were made "without prejudice to either parties' [sic] rights or claims". Accordingly, ADG did not adopt a position on the strength of any representation by Trigon by which it finally compromised its rights.
74 Finally, and importantly, ADG's submissions overlook the significance of the interposition of the administration, other than to characterise it as an event that should not be allowed to stand in the way of ADG receiving payment from the Court Fund in accordance with the December Orders.
75 What ADG's submissions fail to grapple with is that the position Trigon took did not dispute its indebtedness to ADG in respect of at least the portion of the Transfer Amount not (most likely lost) via the transfer through FTX. The Administrators have not sought to have the Company, under their control, depart from that position. But the Administrators take the view, as they must, that they cannot simply accede to a contention that the Transfer Amount was held on trust by Trigon, and is therefore not the property of the Company. The Administrators are alive, as they must be, to the consequences for the unsecured creditors of Trigon as a whole of the payment out of a significant portion of the Court Fund to an entity (ADG) which may be nothing more than an unsecured creditor of Trigon. Once Trigon entered into administration, the question of the fate of the Court Fund ceased to be a purely inter-partes matter; fidelity to the statutory scheme for companies in administration, and the interests of the creditor body, have come into view.
76 The Administrators also contended that the payment out of the Balance Amount from the Court Fund would constitute a step in the proceeding for the purposes of s 440D. The Administrators located no case law dealing with that point, but pointed to conflicting authorities on whether s 440D prevents a court from delivering a reserved judgment. ADG contended that the Court is not a person bound by s 440D, and giving effect to pre-administration orders does not constitute a step taken in proceedings, as it is not an action which carries the proceeding forward to final judgement.
77 Given that I have concluded that order 1(b) ought to be stayed, whether or not payment out from the Court Fund is precluded by s 440D, it is not necessary to determine this issue.
78 As noted, the Administrators' Amended Interlocutory Application sought an alternative order under s 447A of the Corporations Act. Given that I have determined that order 1(b) is to be stayed, it is not necessary to consider the Administrators' alternate application for an order under s 447A.
79 Finally, I do not consider that ADG's submissions concerning the Administrators' failure to criticise the transfer of the US dollar sum to ADG pursuant to the orders made on 25 November 2022 to have any merit. The thrust of the Administrators' present application was to prevent further sums being paid out, for reasons already stated. There would have been no utility in the Administrators criticising the transfer of the US dollar amount, which had already occurred.