Australasian Conference Association Ltd v Mainline Constructions Pty Ltd

Judgment 1By Originating Process filed on 3 April 2012, the Plaintiffs, Stephen Parbery, Nicholas Martin and Mark Robinson as liquidators of Trio Capital Limited (in liquidation) ("Trio") seek directions under s 511 of the Corporations Act 2001 (Cth), ss 63 and 81 of the Trustee Act 1925 (NSW), s 23 of the Supreme Court Act 1970 (NSW) and the inherent jurisdiction of the Court. 2In particular, the liquidators seek the Court's advice, opinion and direction as to the distribution of funds held by the liquidators in an "Application Account" ("Fund"). The liquidators seek a direction that they pay the Fund to specified persons and in the amounts set out in the Schedule to the Originating Process. The liquidators also seek a declaration that they are entitled to recover from the Fund the amount of their costs and expenses of and incidental to, inter alia, identifying and communicating with those who might have a beneficial interest in the Fund and these proceedings. The amount held in the Fund is in total, $556,176.78 and the amount of the anticipated distribution after the liquidators' costs and expenses to be distributed to those persons would be $496,247.64. 3By way of background, Trio was formerly known as Astarra Capital Limited and held a registrable superannuation entity licence and, prior to 16 December 2009, an Australian financial services licence. Prior to that date, Trio was responsible entity for 25 managed investment schemes, the trustee of 5 superannuation entities and the trustee of 3 unregistered managed investment schemes. Astarra Funds Management Pty Limited, the parent company of Trio and a corporate authorised representative of Trio, provided "back office" support including premises and staff to Trio. 4In August 2005, Trio established a fund initially known as the Alpha Strategic Fund and subsequently known as the Astarra Strategic Fund ("ASF"). The present constitution of the ASF is dated 12 March 2008 and provides that the beneficial interest in the ASF is divided into units. Relevantly, clause 5.1 of the constitution provides for a person who wishes to apply to invest in the scheme to complete an application form which must be accompanied by a payment in a form which the responsible entity approves or other transfer of property of a kind capable of being vested in the responsible entity. Clause 5.4 provides that a person becomes an "investor" when their name is recorded in the register by the responsible entity. The term "investor" is defined as "the person registered as the holder of a unit (including persons jointly registered)". Clauses 5.9 - 5.12 of the constitution provide that the responsible entity will establish an investor account for each investor which may record application monies received by the responsible entity from the investor and amounts or property transferred to or from the investor account of the investor. Clause 11.1 of the constitution requires Trio to keep the registers, books and records required by the Corporations Act. 5On 2 October 2009, the Australian Securities and Investments Commission ("ASIC") commenced investigations concerning the affairs of Trio and the operation of the ASF. On 16 October 2009, the Australian Prudential Regulation Authority ("APRA") commenced investigations into the affairs of various superannuation funds of which Trio was trustee. Administrators were appointed to Trio in anticipation that ASIC and APRA would suspend Trio's Australian financial services licence and registrable superannuation entity licence as a result of their investigations. On 21 October 2009, APRA issued directions to freeze assets to Trio as trustee of a number of funds and those directions were subsequently extended. APRA issued notices of suspension of trustee to Trio on 16 December 2009 and ASIC suspended its Australian financial services licence from 17 December 2009. The Court ordered that several managed investment schemes for which Trio was responsible entity, including the AFS, be wound up on the just and equitable ground under s 601MD of the Corporations Act on 19 March 2010. The administrators were appointed joint and several liquidators of Trio on 22 June 2010. 6Mr Robinson, one of the liquidators, has sworn an affidavit in support of this application and gives evidence based on the liquidators' investigations that Trio's practice was to record the names of applicants for units in ASF on the register of ASF on the receipt of monies in respect of an application for units but it did not calculate the number of units allocated to the applicant or record that number of units at that time. The number of units was determined and that number of units was later recorded in the register, and funds transferred from the Application Account to the Scheme Custodian Account, when the next application price was set. The price at which units were to be issued in ASF was generally set on a monthly basis. 7In the period 1 October 2009 to 15 October 2009, Trio received monies in connection with applications for the issue of units in ASF from various interested investors and deposited receipts from those investors into the Application Account. The applicants in issue in these proceedings ("relevant applicants") were not issued units in ASF. Their names were entered on the ASF register without, initially, any statement of the number of units issued to them and their funds were not transferred from Trio's Application Account to the Scheme Custodian Account. Mr Robinson notes that ASF's computerised register of applicants recorded units as having been issued to the relevant applicants when, in December 2009, Trio reset its unit price as required by APRA. However, units in ASF were not issued to the relevant applicants at that point. 8Mr Robinson expresses the opinion that the monies held in the Application Account received from the relevant applicants may be held by Trio on trust for those persons, so that Trio is bound to account to them for the monies held in the Application Account rather than their being deemed to have been issued units which have not in fact been issued to them. Court's jurisdiction to make the relevant directions 9The principles applicable to an application under s 511 of the Corporations Act were recently reviewed by Ward J in Re Purchas as liquidator of Astarra Asset Management Pty Ltd (in liq) [2011] NSWSC 91 and I gratefully adopt her Honour's summary of the relevant principles. Applications made under this section in a voluntary winding up are determined in a similar manner to applications in a Court ordered winding up under s 479(3) of the Corporations Act notwithstanding that section does not expressly require that it be "just and beneficial" to give the relevant direction. The Court may give such a direction where it will be "of advantage in the liquidation": Dean-Willcocks v Soluble Solution Hydroponics Pty Ltd (1997) 42 NSWLR 209 at 212; Handberg (in his capacity as liquidator of S&D International Pty Ltd) v MIG Property Services Pty Ltd [2010] VSC 336; (2010) 79 ACSR 373 at [7]. There is no inflexible rule requiring that such an application not be brought on an ex parte basis, and the effect of a determination under the section is to sanction a course of conduct on the part of the liquidator so that he or she may adopt that course free from the risk of personal liability for breach of duty: S & D International at [7]. 10The application is alternatively brought under s 63 of the Trustee Act 1925 (NSW), which permits relief aimed at resolving legitimate doubts held by a trustee as to the proper course of action and protecting the trust and those entitled to it: Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42; (2008) 237 CLR 66 at [70]-[71]; Re Purchas as liquidator of Astarra Asset Management Pty Ltd (in liq) at [39]. In this case, the liquidators' application reflects at least a potential dispute between different claimants to the relevant funds, being the persons whom the liquidators consider they should be paid on the one hand and other claimants on the ASF, and the general rule is that opinion or advice will not be given under s 63 of the Trustee Act where a question concerns the respective rights of beneficiaries or their identity: JD Heydon and MJ Leeming, Jacobs' Law of Trusts in Australia, 7th ed at [2134]; Re Purchas as liquidator of Astarra Asset Management Pty Ltd (in liq) at [40]. I will therefore proceed under s 511 of the Corporations Act rather than under s 63 of the Trustee Act. Analysis 11The liquidators' submissions addressed an initial question whether the effect of clause 5.4 of the Fund's constitution is to treat a relevant applicant as having become an investor when his or her name was recorded on the register, notwithstanding that units had not been issued to that applicant. As I noted above, the term "investor" is defined in ASF's constitution as a person registered as the holder of a unit and, reading clause 5.4 together with that definition, it seems to me strongly arguable that a person could not be treated as becoming an "investor" until at least the register recorded that they were the holder of units in the ASF. However, this question is ultimately not determinative in this matter, since it appears that the register did record the relevant applicants as allocated such units from December 2009 and, for the purposes of ASF's constitution, they must be treated as "investors" from that date. 12The liquidators also relied on Pt 7.8 Div 2 of the Corporations Act which regulates dealing with clients' money by a financial services licensee. However, the relevant provisions do not apply where money is paid to acquire a financial product from the licensee, inter alia, by way of issue or sale by the licensee: s 981A(2)(c) of the Corporations Act. 13However, in my view, s 1017E of the Corporations Act applies in the present circumstances. That section deals with the position where money is paid to the issuer of financial products or the seller of such products in relation to which it has prepared a product disclosure statement, and the product provider does not issue or transfer the relevant products immediately after receiving the money. In that case, the product provider is required to pay the money into an account which meets specified requirements. Section 1017E(2A) provides that, subject to sub-section (2C), money paid within the scope of that section is taken to be held in trust by the product provider for the benefit of the person who paid the money. The money must only be taken out of that account, relevantly, if it is taken out for the purpose of return to the person by whom it was paid; the product is issued to or transferred to, in accordance with the instructions of that person; or is taken out for a purpose specified by the regulations: s 1017E(3). That statutory trust terminates in the circumstances identified in s 1017E(4) of the Corporations Act: Basis Capital Funds Management Ltd v BT Portfolio Services Ltd [2008] NSWSC 766; [2008] 219 FLR 157; (2008) 67 ACSR 297 at [119]. 14Section 1017(4) of the Corporations Act in turn requires that a product provider must either return the application money to the applicant, or issue the financial product applied for, before the end of 1 month starting on the day on which the money was received; or if it is not reasonably practicable to do so before the end of that month, by the end of such longer period as is reasonable in the circumstances. The phrase "it is not reasonably practicable to do so" in s 1017E(4) applies both to issuing the product and returning the application money, so that the application money must be returned with a month unless it is not reasonably practicable either to issue the product or return the application money. In Basis Capital, Austin J observed at [129] that: "subs (4) should be construed so that it does not give the product provider the ability to choose that which is not practicable of achievement within one month (ie, the issue of the financial product) over that which is (the return of the investor's money). The alternative construction would permit the product provider to retain the money on the basis of its own determination of the practicability of the issuing, by the product provider itself, of the financial product." 15His Honour there held that s 1017E(4) required the product provider, Basis, to return the application money to each applicant who applied and paid for units, within 1 month of the day on which the money was received where units were not issued within that period. His Honour held that, once that period expired, the application monies were held by the product provider on trust to return them to those who paid them. His Honour made declarations to the effect that Basis held the application money paid by each applicant on trust under s 1017E(2A) of the Corporations Act and was obliged to return the money to each applicant. The existence of a trust in these circumstances was also recognised in Samuel Holdings Pty Ltd v Securities Exchange Guarantee Corporation Ltd [2010] QSC 450; (2010) 80 ACSR 706. 16The one month requirement was not satisfied in the present case, since the applications were made no later than 15 October 2009 and units were not issued to the relevant applicants within one month of that time, or at all, notwithstanding the information subsequently included in ASF's register in December 2009. I am satisfied that a statutory trust to repay the relevant monies arose under s 1017E of the Corporations Act. This analysis supports the liquidators' position that the moneys held in the Application Account plus accrued interest are held on trust for the relevant applicants and should be returned to them, subject to the liquidators costs and expenses to which I will refer below. 17The liquidators also relied on principles relating to the creation of a purpose trust of the kind contemplated by Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567; Australasian Conference Association Ltd v Mainline Constructions Pty Ltd (in liq) (1978) 141 CLR 335 at 353. It is not necessary to address the application of those principles given the findings which I have reached as to the trust arising under s 1017E of the Corporations Act. Liquidators' claim for costs and expenses 18I consider that this is a proper case for an order that the liquidators' costs and expenses of and incidental to, inter alia, identifying and communicating with those who might have a beneficial interest in the Fund be paid out of the Fund, where the work done can properly be characterised as realising and preserving the relevant property: Re Universal Distributing Co Ltd (1933) 48 CLR 171; Shirlaw v Taylor (1991) 31 FCR 222; Re Appln of Sutherland (2004) 50 ACSR 297; Grossman v E Katz Manufacturing Jewellers (ACT) Pty Ltd [2004] NSWSC 1224; (2004) 213 ALR 373 at [6]; Re Purchas as liquidator of Astarra Asset Management Pty Ltd (in liq) at [29]. Orders 19I direct the liquidators to bring in Short Minutes of Order to give effect to my judgment within seven days.