Australian Executor Trustees Ltd v Provi

The affidavit evidence

1. The Special Purpose Receivers rely on an affidavit of Mr Michael Sloan dated 8 September 2015, which had been read by the Receivers in the September application. Mr Sloan is a partner in the firm of solicitors that acts for the Receivers and his evidence was that the BSL Proceedings, the Bolitho Group Proceedings and the BSL Trust Co Proceedings (together, "Banksia Proceedings") were closely interrelated and that they generally arose out of the same substratum of facts and many of the allegations intersected with allegations made in the other proceedings (Sloan 8.9.15 [45]). Mr Sloan referred to various aspects of the overlap between BSL's defence in the Bolitho Group Proceedings and the allegations that BSL made against Trust Co in the BSL Proceedings and in the BSL Trust Co Proceedings; to the fact that allegations made by Trust Co by way of cross-claim in the Bolitho Group Proceedings were substantially the same as allegations made against other defendants by BSL in the BSL Proceedings; to overlapping issues of causation, loss and damage in at least the BSL Proceedings and the BSL Trust Co Proceedings; to overlapping allegations made by Mr Bolitho and BSL against BSL's directors, auditors and Trust Co in the BSL Proceedings and BSL Trust Co Proceedings; and to a notice of contribution filed by BSL against Trust Co in the Bolitho Group Proceedings and to Trust Co's claim that BSL is a concurrent wrongdoer in those proceedings.
2. The Special Purpose Receivers also rely on an affidavit dated 14 December 2015 of Mr John Lindholm, one of the Special Purpose Receivers, which was originally read in the application in the Supreme Court of Victoria. That affidavit refers to the creation of a committee of inspection comprising several debenture holders and a representative of Trust Co, which is relevant to the mechanism for approval of the Special Purpose Receivers' remuneration adopted in the February 2016 orders. Mr Lindholm there noted that the Special Purpose Receivers intended to consult with that committee of inspection in relation to, inter alia, the approval of their reasonable remuneration and expenses, including legal fees.
3. The Special Purpose Receivers also rely on an affidavit dated 8 February 2016 of Ms Marelda Hibberd, a solicitor acting for them in respect of the Banksia Proceedings. Ms Hibberd sets out the nature of those proceedings, refers to the September orders and also refers to the work that has been done by the Special Purpose Receivers, together with the Receivers, in respect of the Banksia Proceedings. Ms Hibberd noted that an agreement had been reached in principle to settle with several defendants in the BSL Proceedings and the Bolitho Group Proceedings, other than Trust Co, another defendant and BSL so far as it is a defendant in the Bolitho Group Proceedings. It appears that that in principle settlement has not yet been converted to a binding agreement between those parties and Trust Co has also advised the parties that it will be continuing cross-claims against the relevant defendants, irrespective of any settlement that other parties reach with them. Ms Hibberd also refers to the remuneration and disbursements, including legal fees and expert witness fees, that have been incurred by the Special Purpose Receivers in the Banksia Proceedings.
4. Ms Hibberd's evidence, consistent with that previously given by Mr Sloan, was that the several Banksia Proceedings were closely interrelated and were to be case managed and heard together, with evidence in one proceeding being evidence in another, and that substantially all of the expenses of those proceedings would have been incurred by the Special Purpose Receivers even if the BSL Trust Co Proceedings were not being prosecuted. Ms Hibberd pointed out, by way of example of that relationship, that BSL expressly relies upon the allegations it makes against Trust Co in the BSL Trust Co Proceedings in its defence to the Bolitho Group Proceedings. Ms Hibberd's evidence was that, as matters stood, the Special Purpose Receivers did not have access to funds to pay the expenses that they had incurred and would continue to incur in carrying out their role as special purpose receivers by prosecuting the BSL Proceedings and defending the Bolitho Group Proceedings for BSL. Ms Hibberd's evidence was also that, even if the in principle settlement of aspects of the Banksia Proceedings was consummated and approved by the Supreme Court of Victoria, the total costs and expenses to conduct the Banksia Proceedings to completion, including any appeals, could be approximately $10 million with potential adverse costs exposure of a similar magnitude. Ms Hibberd also refers to an application filed by the Receivers in the Supreme Court of Victoria seeking directions that they are justified in paying Trust Co additional remuneration for work that it claims to have performed since the appointment of the Receivers. It appears that application will be opposed, at least by several debenture holders and potentially also by the Special Purpose Receivers.
5. Ms Hibberd's evidence is that the Special Purpose Receivers consider it critical that their funding to conduct the Banksia Proceedings be resolved urgently, since the ongoing conduct of those proceedings would be stultified unless the Special Purpose Receivers had sufficient certainty as to their funding arrangements. She also expresses the view that it was practically unworkable for the ambit of the special purpose receivership not to include BSL's claims in the BSL Trust Co Proceedings. As I noted above, the application brought by the Special Purpose Receivers in the Supreme Court of Victoria in that respect has now been cross-vested to this Court.
6. The Special Purpose Receivers in turn relied on a further affidavit dated 17 February 2016 of Mr David Newman, who has the conduct and supervision of the Banksia Proceedings together with Ms Hibberd on behalf of the Special Purpose Receivers. Mr Newman updated the position as to the settlement in principle of aspects of the Banksia Proceedings with some defendants and noted that no binding settlement had then been reached. Mr Newman also set out a somewhat more detailed estimate of the likely costs of the Banksia Proceedings on the basis that they would continue against all defendants, although that estimate was much less detailed than might have been required, for example, in a security for costs application. Mr Newman also recognised the possibility that the Special Purpose Receivers' costs of the proceedings would be reduced if a settlement was concluded with some defendants. That estimate seemed to me to be sufficient for the present purpose, which is to determine whether the amount proposed to be transferred to the Special Purpose Receivers to fund the Banksia Proceedings is reasonably based. The acceptance of that estimate, for that purpose, does not involve any determination as to whether particular costs are reasonably or properly paid by the Special Purpose Receivers, which is a matter as to which they must be satisfied at the relevant time, or whether amounts are properly payable to them by way of remuneration, which is a matter to be addressed by the Court when an application is made in the future for approval of their remuneration.
7. The Special Purpose Receivers relied on Mr Lindholm's further affidavit dated 19 February 2016, where he sets out the amounts claimed by the Special Purpose Receivers by way of remuneration, including in respect of the period since their appointment as liquidators of BSL on 24 June 2014. The large part of that remuneration related to the period in which they were appointed as liquidators of BSL for the period to 31 January 2016, and a smaller part related to their role as Special Purpose Receivers to 31 January 2016. Mr Lindholm in turn set out an estimate of additional remuneration that may be claimed by the Special Purpose Receivers, with a relatively wide range between its lower and upper level, in respect of the conduct of the Banksia Proceedings going forward. Mr Lindholm also expressed the view that the Special Purpose Receivers' remuneration other than in respect of those proceedings would not be significant, since the vast majority of their tasks relate to those proceedings.
8. The Special Purpose Receivers also relied on the further affidavit of Ms Hibberd dated 26 February 2016 which further updated the status of the Banksia Proceedings, the position in respect of the application in the Supreme Court of Victoria and the Receivers' application for directions as to whether they are entitled to pay additional remuneration to Trust Co from funds held by the Receivers.
9. The Receivers in turn relied on an affidavit dated 11 February 2016 of Mr Joseph Hayes, one of the Receivers. Mr Hayes there expressed the view that it was necessary for the Receivers to continue to hold a substantial part of the receivership fund, by reason of steps which remain to be taken within the broader receivership, and the fact that costs orders may be made against BSL in the Banksia Proceedings and that the Receivers have indicated that they would retain funds to meet such costs orders. In the event, those issues have now been addressed by the form of orders that have now been agreed between the Receivers and the Special Purpose Receivers.

The Court's jurisdiction under s 283HB of the Corporations Act

1. The Special Purpose Receivers submit that the Court has jurisdiction under s 283HB of the Corporations Act in respect of this application. Mr Hutley and Mr Redwood, who appear for the Special Purpose Receivers, submit, and I accept, that the September orders appointing the Special Purpose Receivers were inherently of an interlocutory and continuing nature, because the Special Purpose Receivers were appointed by the Court and are subject to its ongoing supervision and direction. In any event, I had expressly reserved liberty to apply, which has now been exercised by the Special Purpose Receivers and an exercise of that liberty allows the Court to make such further orders as are necessary to implement and give effect to the principal relief already given, namely the appointment of the Special Purpose Receivers under s 283HB of the Corporations Act: Cameron v Renouf [2008] WASC 60 at [28]. The Receivers supported the Special Purpose Receivers' submissions that the Court had jurisdiction under s 283HB of the Corporations Act to make the orders now sought, where the proceedings were commenced by Trust Co under that section and the Special Purpose Receivers are exercising liberty to apply in those proceedings, and Trust Co did not seek to advance any submission that the Court did not have jurisdiction in respect of the application.
2. I am satisfied that the Court continues to have jurisdiction under s 283HB of the Corporations Act, where the initial application was brought for the appointment of the Special Purpose Receivers under that section, and the application now made, pursuant to liberty to apply reserved by the Court, is intended to perfect the terms of that appointment. Mr Hutley and Mr Redwood also identified additional bases for the Court to grant the relief sought, in its inherent jurisdiction and under r 36.16 of the Uniform Civil Procedure Rules 2005 (NSW), but it is not necessary to have regard to those alternative bases of jurisdiction where the application under s 283HB of the Corporations Act remains before the Court.
3. Mr Hutley and Mr Redwood in turn point to the width of the Court's powers under s 283HB of the Corporations Act, which relevantly provides: "(1) If the trustee or ASIC applies to the Court, the Court may make any or all of the following orders: … (d) an order appointing a receiver of any property constituting security for the debentures; … (g) any other order that the Court considers appropriate to protect the interests of existing or prospective debenture holders. (2) In deciding whether to make an order under subsection (1), the Court must have regard to: (a) the ability of the borrower and each guarantor to repay the amount deposited or lent as and when it becomes due; and (b) any contravention of section 283GA by the borrower; and (c) the interests of the borrower's members and creditors; and (d) the interests of the members of each of the guarantors."
4. Mr Hutley and Mr Redwood submit, and I accept, that s 283HB confers a broad remedial and protective jurisdiction on the court, which extends (in s 283HB(1)(g)) to making any order that the court considers appropriate to protect the interests of debenture holders and is to be exercised having regard to the matters set out in s 283HB(2). In Australian Securities and Investments Commission v Bridgecorp Finance Ltd [2006] NSWSC 836; (2006) 58 ACSR 499 at [18], Barrett J observed that, once relevant issues were identified under s 283HB(2), it was open to the court to make any order that appeared to be calculated to safeguard those interests. That observation was approved by Rares J in Australian Executor Trustees Ltd v Provident Capital Ltd [2012] FCA 728; (2012) 90 ACSR 650 at [77], and his Honour also observed (at [78]) that: "The conferral of power on the court to make orders under s 283HB was intended by the Parliament to supplement the armoury of relief that the court could otherwise give either under the general law, the provisions of debenture trust deeds or other provisions in legislation. There are no constraints on the exercise of the powers under s 283HB(1), other than the requirement that the court have regard to the relevant considerations in subs (2). However, the subject matter, scope and purpose of Pt 2L is a relevant matter in considering the exercise of the discretions created by s 283HB(1): R v Australian Broadcasting Tribunal; Ex parte 2HD Pty Ltd (1979) 144 CLR 45 at 49-50; 27 ALR 321 at 325 per Stephen, Mason, Murphy, Aickin and Wilson JJ. These provisions are intended to provide protection for persons who have invested in companies that have raised funds by way of issuing debentures."
5. In Trust Co (Nominees) Ltd v Southern Finance Ltd, Re Southern Finance Ltd [2012] FCA 1339 at [16], Yates J observed that: "Section 283HB confers a broad remedial and protective jurisdiction on the court. The powers of the court are confined by the specific matters identified in subs (1), although a plenary grant of power is provided by para (g) to make any order that the court considers appropriate to protect the interests of existing or prospective debenture holders. The exercise of the discretion to grant relief under subs (1) is affected by subs (2) only to the extent that the matters that are identified in that subsection are matters to which the court must have regard."
6. I referred to some of those authorities and noted the broad and remedial scope of the section in Re Metal Storm (subject to Deed of Company Arrangement) [2014] NSWSC 813; (2014) 100 ACSR 637 at [83]. In Trust Company (Nominees) Ltd v Angas Securities Ltd [2015] FCA 772; (2015) 107 ACSR 464 at [82]-[83], Beach J observed that the court may have regard to factors other than the mandatory factors specified in s 283HB(2), although the mandatory factors would take priority over non-mandatory factors, and that, once the factors in s 283HB(2) have been considered, the court may make any order that appears to it to be calculated to safeguard the relevant interests identified under s 283HB(2). His Honour also noted that those interests included, importantly, if not most importantly, the interest of the debenture holders in receiving payment due to them under the debentures.

Expansion of the Special Purpose Receivers' role in respect of the BSL Trust Co Proceedings

1. By order 1 of the February 2016 orders, I ordered that Schedule A of the September orders be varied to include the rights and entitlements of BSL that are the subject of the BSL Trust Co proceedings. I now set out the reasons for making that order.
2. The Special Purpose Receivers submitted that their appointment should be extended to include the BSL Trust Co Proceedings and the Receivers supported that submission. I have referred above to the evidence as to the overlap between the BSL Proceedings and the Bolitho Group Proceedings on the one hand and the BSL Trust Co Proceedings on the other. It seems to me that the order sought to appoint the Special Purpose Receivers as special purpose receivers of the chose in action in respect of the BSL Trust Co Proceedings is supported by similar practical considerations to those which support the September orders in respect of the BSL Proceedings and the Bolitho Group Proceedings. Once it is accepted that the two proceedings as to which the Special Purpose Receivers had previously been appointed are in the interests of debenture holders, then it must also be accepted that it is in the interests of debenture holders that the Special Purpose Receivers be funded to conduct the BSL Trust Co Proceedings, where the three proceedings are interconnected and interdependent. As a practical matter, it is also unlikely that the Special Purpose Receivers could fund the BSL Trust Co Proceedings, at least without access to litigation funding, as unfunded liquidators, and their ability to do so depends upon their access to assets of BSL which would only be available upon their appointment as special purpose receivers over the relevant cause of action, and orders conferring the power to fund such proceedings from assets made available to them. The Special Purpose Receivers also submit, and I accept, that there would be artificiality in seeking to separate costs incurred in the three proceedings, given the overlap between them, as well as the potential costs and inefficiencies involved in such an attempted separation (T16).
3. For these reasons, I made order 1 in the February 2016 orders.

Funding of the Special Purpose Receivers

1. By order 2 of the February 2016 orders, I made an order, which was not opposed by the Receivers, that the Receivers immediately release $10 million to the Special Purpose Receivers ("SPR Litigation Fund") for the payment of: "(a) all past and unpaid remuneration and costs and expenses incurred by the Special Purpose Receivers, including in their capacity as Liquidators prior to the 30 September Orders, in respect of the Banksia Proceedings; (b) all future remuneration and costs and expenses, as they are incurred by the Special Purpose Receivers, in continuing to prosecute the Banksia Proceedings; and (c) all future remuneration and costs and expenses, as they are incurred by Special Purpose Receivers in respect of any other matters reasonably incidental or related to the conduct of the Banksia Proceedings, including the Fee Application." The reference in that order to the "Banksia Proceedings" was to the BSL Proceedings, the BSL Trust Co Proceedings and the Bolitho Group Proceedings. The reference to the "Fee Application" was to an application filed by the Receivers in the Supreme Court of Victoria for a direction from the Court that they are justified in paying out of the assets of BSL the sum up to an amount of $3,960,163 to Trust Co, which will potentially be opposed by the Special Purpose Receivers. Order 3 of the February 2016 orders in turn provides that, for the avoidance of doubt, the Special Purpose Receivers were entitled immediately to draw on the SPR Litigation Fund for the payment of their remuneration and all costs and expenses as and when they are incurred by them in respect of the Banksia Proceedings.
2. I first set out the wider reasons for making those orders, then turn to their scope below. The Special Purpose Receivers submitted that the orders sought should be made because they are necessary to give effect to the September orders and protect the interests of debenture holders. The Special Purpose Receivers submitted that, unless the September orders were varied so that they are funded for the conduct of the Banksia Proceedings, then the practical implementation of the orders appointing them as special purpose receivers of the relevant causes of action would be frustrated.
3. The Special Purpose Receivers submit, and I accept, that there is no suggestion that the Special Purpose Receivers could or should be expected to, conduct the proceedings contemplated by the September orders unless they are funded to do so. The Special Purpose Receivers draw attention to the observation in Cape v Redarb Pty Ltd (receiver and manager appointed) (1991) 32 FCR 407 at 420: "In a receivership of the magnitude of the present one it would be quite unrealistic to expect the receiver to carry the cost of disbursements, and to be kept out of fees for professional services rendered for periods of months at a time. If the rules and practice of the court so required, it would be doubtful if there would be appropriately qualified professional people willing to take such appointments which must be a matter of concern to the courts …."
4. It is common ground that the only presently available source of funding to the Special Purpose Receivers is the assets of BSL presently under the Receivers' control. I put aside the question whether the Special Purpose Receivers could, for example, obtain litigation funding, were funding not otherwise available, which was not raised by any party and which would involve complexities such as the time likely to be required to obtain such funding and whether it was in the debenture holders' interests to give up a percentage of potential recoveries that would likely be required for that course, if assets were otherwise available to fund the proceedings.
5. The Special Purpose Receivers submit, and I also accept, that orders should be made by the Court in a form that provides them with sufficiency of funds, immediate access to those funds and independence from Trust Co and the Receivers in respect of such access. It seems to me that the need for sufficiency and immediacy of access to the funds is supported by the fact that the Special Purpose Receivers were appointed to conduct the relevant proceedings and cannot be expected to do so unless they are funded to do so. Once it is accepted (as all parties accepted in respect of the BSL Proceedings and the Bolitho Group Proceedings when the September orders were made) that it is in the interests of debenture holders that the Special Purpose Receivers conduct the Banksia Proceedings, then it seems to me that it is necessarily also in the interests of debenture holders that the Special Purpose Receivers be adequately funded to conduct the proceedings, because the former cannot occur without the latter. The need for independence from Trust Co and the Receivers arise because Trust Co is a substantial target of the proceedings, and would have an obvious conflict in addressing any question of whether the Special Purpose Receivers should be adequately funded to conduct the proceedings against it, and the Receivers have fairly recognised that they may be exposed at least to an appearance of conflict, or lack of independence, so far as they were appointed by Trust Co as receivers over the assets of BSL.
6. The Receivers did not object to funds being transferred to the Special Purpose Receivers to allow them to fund their reasonable remuneration, costs and disbursements in respect of the Banksia Proceedings. The Receivers also supported the Special Purpose Receivers' submission that the Court had power, at least under s 283HB(1)(g) of the Corporations Act to make orders to the effect sought. The Receivers submit that, if the several proceedings are in the debenture holders' interests, a matter which has not been contested by any party in the application before me, then it must be the case that ensuring their prosecution or defence by providing for their funding must also be in debenture holders' interests. In submissions as amicus curiae, ASIC submitted that there was no apparent reason why the Court would lack the power, under s 283HB(1)(g) of the Corporations Act, to make specific provision for the Special Purpose Receivers to receive remuneration and payment of their costs and expenses out of the monies held by the Receivers.
7. Trust Co made clear, in written submissions, that it did not submit that the Special Purpose Receivers are not entitled to be paid, from the funds currently held by the Receivers, for work undertaken by them under the September orders. Trust Co drew attention, in submissions, to its claim to remuneration payable under cl 18.02 of the trust deed for first ranking debenture stock dated 12 December 1994 (as amended from time to time) which, it contends, has priority over other claims under cl 16.01(c) of the trust deed. That claim is, as I have noted above, contested.
8. I am conscious that Trust Co also drew attention, in the course of argument in the Supreme Court of Victoria, to several matters that it did not raise in this application, having recognised the conflict of interest affecting its position. I should, nonetheless, briefly refer to those matters. The first was a suggestion that a court-appointed receiver may only draw remuneration and expenses from the assets over which the court-appointed receiver is appointed. Whatever the correctness of that proposition as a matter of general law, it seems to me that s 283HB(1) of the Corporations Act authorises the court to make a wider order, once it is satisfied that that order is in the interests of debenture holders. It is therefore not necessary to address a further proposition which was raised before the Supreme Court of Victoria that an equitable lien of the Special Purpose Receivers could take priority over Trust Co's claim, as trustee for debenture holders under the debenture trust deed where Trust Co had applied for the appointment of the Special Purpose Receivers: see Australian Securities and Investments Commission v GDK Financial Solutions Pty Ltd (in liq) (No 3) [2008] FCA 448; (2008) 246 ALR 580 at [11].
9. A second matter raised by the Trust Co in the Supreme Court of Victoria was that the debenture trust deed made no provision for any payment to the Special Purpose Receivers. The Special Purpose Receivers submit that an order under s 283HB of the Corporations Act is capable of overriding the terms of the debenture trust deed, if it is necessary to do so to protect the interests of debenture holders. The Receivers also point out that there is nothing in the debenture trust deed that is inconsistent with the orders sought by the Special Purpose Receivers, and also point to several provisions in the trust deed which are arguably consistent with such orders. ASIC, as amicus curiae, supported the submission that the court's powers under s 283HB of the Corporations Act could override restrictions in the trust deed, pointing to the protective nature of that section, the fact that s 283HB(1)(c) expressly contemplates that the court may act contrary to the terms of a trust deed required to be entered into under s 283AA of the Act, and the fact that the purpose of s 283HB could otherwise be defeated if parties could exclude or narrow the court's power to make orders under that section, by inserting restrictive provisions in the trust deed. Those submissions seem to me to have substantial force.
10. It does not seem to me that it is necessary to find any power for such payment in the debenture trust deed, where the court has statutory power to authorise such a payment under s 283HB(1) of the Corporations Act. It also seems to me that the proposition that an order under s 283HB of the Corporations Act is capable of overriding the terms of the relevant trust deed follows from the conferral upon the court of a statutory power to make an order that the court considers appropriate to protect the interests of existing or prospective debenture holders under s 283HB(1)(g) of the Corporations Act, although the terms of the trust deed will very likely be relevant to determining whether the orders sought are appropriate for that purpose. It is not necessary to form a final view as to that matter, for the purposes of this application, since no party has drawn attention to any provision of the trust deed that would be inconsistent with the expenditure of monies to pursue the relevant proceedings, where it is accepted that those proceedings are in the interests of debenture holders.
11. I should now say something further as to the effect of the particular orders. Order 2 of the February 2016 orders provides for the release of a specified amount to the Special Purpose Receivers for the payment of specified expenses and should be understood as permitting the release of the funds and defining the matters to which they may be applied. It does not itself authorise the expenditure of such funds, once they are in the hands of the Special Purpose Receivers, which is addressed elsewhere in the orders. That order extends to future remuneration, costs and expenses, in respect of matters "reasonably incidental" or related to the conduct of the Banksia Proceedings, including the "Fee Application" as defined in the orders.
12. Paragraph (a) of order 2 includes, as a purpose of the amount which is transferred to the Special Purpose Receivers, the payment of past and unpaid remuneration and costs and expenses, including in the Special Purpose Receivers' capacity as liquidators prior to the 30 September orders, in respect of the Banksia Proceedings. I am satisfied that that order is appropriate, so far as the Special Purpose Receivers ought to be funded to meet the costs and expenses incurred prior to their appointment as special purpose receivers, where meeting those costs and expenses is presently likely to be necessary for the continued conduct of the proceedings in their capacity as special purpose receivers. In reaching that view, it is not necessary for me to determine, and I do not determine, whether the Special Purpose Receivers should ultimately be entitled to remuneration from the amount transferred to them for work done in their capacity as liquidators rather than as special purpose receivers, with the result that their ability to recover remuneration as liquidators is retrospectively improved by their subsequent appointment as Special Purpose Receivers. It is not necessary to determine that matter because, if the Liquidators pay remuneration to themselves, attributable to the period prior to their appointment as special purpose receivers (as they would be entitled to do, under order 3 noted below) but such remuneration is ultimately not approved by the Court under order 4 noted below, then they will be required to repay it by the undertaking they have offered as noted below.
13. Order 3 of the February 2016 orders in turn provides for the Special Purpose Receivers' entitlement to draw upon the fund created by the payment to them, for the payment of remuneration, costs and expenses, as and when they are incurred. It should be recognised that, first, that provision is expressly inserted for the avoidance of doubt, and does not expand the Special Purpose Receivers' entitlement to pay costs and expenses beyond reasonable costs and expenses that are properly incurred, consistent with their duties as court-appointed receivers. This order permits the Special Purpose Receivers to pay remuneration, on an ongoing basis, notwithstanding that it would ordinarily require prior approval by the court, subject to the requirement in order 4 for a retrospective application by the Special Purpose Receivers for approval of such remuneration by the Court. The authority for the Special Purpose Receivers to draw remuneration on an ongoing basis is, of course, underpinned by their undertaking to the Court that, if the Court determines that any remuneration paid to them is unreasonable and not properly incurred, they must reconstitute the relevant fund within seven days of that determination.
14. I was satisfied that orders 2 and 3 of the February 2016 orders should be made for these reasons.

Mechanism for approval of amount of Special Purpose Receivers' remuneration

1. By order 4 of the February 2016 orders, I ordered that, every six months, commencing on 1 April 2016, the remuneration of the Special Purpose Receivers drawn from the SPR Litigation Fund (as defined) in the previous six months be approved by the Supreme Court of New South Wales, and before making each application, the Special Purpose Receivers must submit their remuneration for approval by the Committee of Inspection. I also noted the undertaking offered by the Special Purpose Receivers that: "If the Court determines that any of the remuneration paid from the SPR Litigation Fund is unreasonable and not properly incurred the Special Purpose Receivers shall reconstitute the SPR Litigation Fund within 7 days of that determination in the amount so determined."
2. This order contemplates that an application for approval of the Special Purpose Receivers' remuneration will be brought in this Court. It seems to me that application is properly brought in this Court, both because this Court appointed the Special Purpose Receivers, and because the relevant application concerning remuneration in the Supreme Court of Victoria has now been cross-vested to this Court. As the parties contemplated in submissions, it may be necessary for the Special Purpose Receivers to identify a proper contradictor in such an application, so that the Court has the benefit of submissions made by a representative of debenture holders in respect of the application. At least at present, neither Trust Co nor the Receivers, to the extent that there is a question as to their independence from Trust Co, could adequately perform that role.
3. I should add that Trust Co accepted that it should not play a role in approving or assessing remuneration and expenses of the Special Purpose Receivers in respect of proceedings which they are responsible for bringing, inter alia, against it. Trust Co raised the possibility that an assessment as to the extent of remuneration due to the Special Purpose Receivers should take place more frequently than the six monthly intervals proposed. I am not satisfied that that is necessary, where such an assessment is likely to involve a significant commitment of resources by the Special Purpose Receivers in preparing evidence to be led before the Court and may also require disclosure of matters which would ordinarily be subject to legal professional privilege, albeit that such disclosure may be able to occur in a way that preserves that privilege. It seems to me that the position of debenture holders is adequately protected by the undertaking that has been given by the Special Purpose Receivers in respect of repayment of any remuneration paid to them, which is not approved by the Court.
4. The Special Purpose Receivers point out, and I accept, that it will generally only be necessary for the court to approve the payment of receivers' remuneration, rather than their disbursements, or costs and expenses: M Murray and J Harris, Keay's Insolvency: Personal and Corporate Law and Practice, (8th ed 2014, Lawbook Co) at [18.495]. The mechanism proposed by the Special Purpose Receivers and implemented by these orders is consistent with that noted by the Court in Cape v Redarb Pty Ltd (receiver and manager appointed) above at 421, as follows: "A further option is for the court to authorise the receiver to draw moneys as required to meet remuneration and out-of-pocket expenses, on the footing that the receiver will account for those drawings from time to time when his accounts are prepared. Such a course was adopted by Young CJ in Waldron v MG Securities (Australasia) Ltd where the accounting was ordered to occur every six months. In the present case, had the question of receiver's remuneration and reimbursement been expressly dealt with by earlier order of the court, we think it is likely that this course would have been adopted."
5. By order 6 of the February 2016 orders, I ordered that the Special Purpose Receivers may apply to the Supreme Court of New South Wales, upon 14 days' notice to the Receivers, for further moneys from the fund held by the Receivers to be made available for meeting adverse costs orders in the Banksia Proceedings (or security for costs in respect thereof) or further funding to conduct the Banksia Proceedings if the SPR Litigation Fund has been exhausted or is likely to be exhausted within the following 6 months. This order simply recognises the possibility of such an application, leaving its merits to be determined if it is ultimately brought. Order 7, which was not opposed by the Receivers, ensures that the fund held by the Receivers is applied by the Receivers only for the permitted payments, and does not fall beyond the specified minimum, without the Court's approval.

Direction as to whether Trust Co should be removed as trustee for debenture holders

1. In the application brought in the Supreme Court of Victoria, Messrs Lindholm and McCluskey as court-appointed liquidators of BSL also sought a direction that they are justified, notwithstanding s 283BD(c) of the Corporations Act, in not taking any further steps to cause BSL to remove or replace Trust Co as trustee of the trust deed for first ranking debenture stock dated 12 December 1994 (as amended from time to time). That relief is now sought from this Court, where the application for that direction has been cross-vested to this Court.
2. This direction is sought under s 479(3) of the Corporations Act. I summarised the scope of that section in Re MF Global Australia Ltd (in liq) [2012] NSWSC 994; (2012) 267 FLR 27 at [7] as follows: "Section 479(3) of the Corporations Act allows a liquidator to apply to the court for directions in relation to a matter arising under a winding up. The function of a liquidator's application for directions under this section is to give the liquidator advice as to the proper course of action for him or her to take in the liquidation: Sanderson v Classic Car Insurances Pty Ltd (1985) 10 ACLR 115 at 117; (1986) 4 ACLC 114; Re Ansett Australia Ltd (admins apptd) and Korda [2002] FCA 90; (2002) 115 FCR 409; 40 ACSR 433 at [46]. The Court may give directions that provide guidance on matters of law and the reasonableness of a contemplated exercise of discretion but will typically not do so where a matter relates to the making and implementation of a business or commercial decision, where no particular legal issue is raised and there is no attack on the propriety or reasonableness of the decision: Sanderson v Classic Car Insurances Pty Ltd above at 117; Re GB Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674 at 686-7; 5 ACSR 673; 9 ACLC 1291; Re Ansett Australia Ltd above at [65]; Re One.Tel Networks Holdings Pty Ltd [2001] NSWSC 1065; (2001) 40 ACSR 83 at [32]." A direction under this section protects the liquidator from liability for breach of duty or unreasonable behaviour if full disclosure was made to the court. Mr Izzo, who appeared for ASIC as amicus curiae, noted that the court's power to give a direction under s 479(3) was directed to a matter arising in the course of the winding up. I am satisfied that the relevant issue is such a matter, since it involves a question as to the steps to be taken by the court-appointed liquidators in performing their duties.
3. This application was brought on the basis of a statement of assumed facts (MFI 1), namely that: "1. At all material times Trust Co has remained trustee of BSL. 2. Section 283AC of the [Corporations Act] provides that a person may only act as trustee if the acting will not result in a conflict of interest or duty. 3. The debenture-holders of BSL instituted proceedings against Trust Co in December 2012. 4. The Liquidators were appointed by the Supreme Court of Victoria in June 2014 to, inter alia, investigate any conflicts of Trust Co and any claims by BSL against Trust Co. 5. The Liquidators of BSL publicly examined representatives of Trust Co in 2014 and instituted the BSL Trust Co Proceedings in March 2015. 6. Trust Co has asserted a contractual entitlement to be paid approximately $4 million from the assets of BSL. 7. The 30 September orders appointed the Liquidators Special Purpose Receivers over the BSL Proceeding and the Bolitho [Group] Proceeding[s]. 8. The consent orders provide for sufficient and independent funding for the Special Purpose Receivers to conduct the Banksia Proceedings." The court will often require that it be provided with advice from Counsel, in respect of legal issues, before making a direction of this kind. I did not consider it necessary to require such advice in this case.
4. Messrs Lindholm and McCluskey identified the question to be addressed as whether, in light of the assumed facts, the liquidators are justified in not taking steps to remove Trust Co, notwithstanding s 283BD of the Corporations Act. It is desirable first to refer to the relevant provisions of the Corporations Act, and then to identify the view which has been formed by the Messrs Lindholm and McCluskey, as expressed by Mr Hutley in submissions and confirmed by Mr Lindholm in his oral evidence given in the course of the application.
5. Section 283AC(1) of the Corporations Act specifies certain categories of persons who may be a trustee for the purposes of Part 2L of the Act and s 283AC(2) provides that: "A person may only be appointed or act as trustee (except to the extent provided for by section 283AD) if the appointment or acting will not result in a conflict of interest or duty. This subsection is not intended to affect any rule of law or equity." A contravention of s 283AC(2) by a trustee is an offence of strict liability under s 283AC(3). Section 283AD in turn provides that an existing trustee continues to act as the trustee until a new trustee is appointed and has taken office as trustee, despite any rule of law or equity to the contrary.
6. The scope of s 283AC(2) was considered in Australian Executor Trustees Ltd v Provident Capital Ltd (recs and mgrs apptd) (in liq) [2015] FCA 781; (2015) 107 ACSR 567, where Rares J advised a trustee that it was not disqualified from continuing to act as trustee under s 283AC(2) of the Act and that it was not justified, or obliged, to retire as trustee under the relevant trust deed provided that it did not take certain steps. His Honour there noted (at [5]-[6]) that a trustee has a number of substantive duties to perform under s 283BF of the Act, but those duties are suspended by s 283BG(a) while a borrower is under external administration, and that a trustee also has other relevant duties under s 283DA of the Act, which may be subsumed by the appointment of receivers. His Honour also expressed that view (at [19]-[20]) that the requirements of s 283AC(2) appeared to be "far more narrow than the situation at general law", although that provision did not affect any rule of law or equity and that: "The standard that the [Corporations Act] contemplates, particularly having regard to the creation in s 283AC(3) of an offence of strict liability, is of an actual conflict of interest or duty that is the product of the trustee having been appointed or continuing to act."
7. His Honour there addressed the issue whether a trustee, if it continued to act, would have a conflict of interest or duty where third parties were suing it or the liquidators were investigating any possible action that the borrower may have against it in respect of its conduct as trustee and under the trust deed; noted (at [23]) that he could not see any practical benefit to debenture holders in seeking to obtain a replacement trustee "in circumstances where the trust property is currently in the possession of the receivers as officers of the court"; and observed that the trustee would be able to continue to act in essentially a formal role, with no substantive active duties, and subject to certain limitations as to its exercise of a right of indemnity or exoneration against trust property. Although that decision dealt with a difficulty of a similar character to that which arises in this case, it did so from a different perspective, namely whether the trustee would contravene s 283AC of the Act. It did not address the question which arises here, and which could also potentially have arisen in that case, whether the borrower was obliged to seek to remove the trustee under s 283BD of the Act, although the trustee was not obliged to remove itself. That question squarely arises in this case.
8. The scope of the phrase "act as trustee" in ss 283AC(2) and 283AD of the Corporations Act is by no means clear, and that question was not fully addressed by the parties' submissions. Mr Hutley, in submissions, treated that phrase as directed to occupying the position of trustee and, on that reading, an entity would "act as trustee" even if it took no positive action, because, for example, it considered it could not properly take an action by reason of a conflict of interest or duty affecting it. An alternative view may be that s 283AC(2) of the Act has a narrower application and applies only to the extent that a trustee takes actions in that capacity. A third possibility is that whether a trustee has a conflict of interest or duty for the purposes of s 283AC of the Act is to be determined, not only by reference to its role as trustee and the existence of another, conflicting, duty or interest, but also by reference to the steps that may be taken to avoid that conflict, including, for example, by disclosure or refraining from acting in a particular case. Section 283AC may also be qualified, at least to some extent, by the express reference to s 283AD which provides for the existing trustee to continue to act until a new trustee is appointed. It seems to me to be preferable that I not express any view as to these issues of construction in dealing with this application, where it is not necessary for me to do so for the reasons noted below, and where they may or may not be in issue in the substantive proceedings between BSL and Trust Co.
9. Section 283BD of the Corporations Act in turn provides that a borrower must take "all reasonable steps" to replace a trustee under s 283AE of the Act as soon as practicable after the borrower becomes aware that the trustee cannot be a trustee under s 283AC of the Act. Section 283AE(2) of the Corporations Act provides that the court may terminate an existing trustee's appointment on the application of, inter alia, the borrower (relevantly, BSL) if the existing trustee cannot be trustee under s 283AC.
10. Putting aside the questions as to the scope of s 283AC of the Act that I have noted above, and assuming for the sake of argument that Trust Co cannot now be a trustee under s 283AC of the Act, it would follow that BSL has become aware of that matter, and it would be obliged to take all reasonable steps to replace Trust Co as trustee under s 283BD(c) of the Act. There is a further question whether s 283BD imposes an unqualified obligation to take the relevant steps to remove the trustee if the conflict exists, although the steps taken need only be reasonable in character, or allows a borrower to conclude that taking no such steps constitutes taking "reasonable steps" to replace the trustee, if a conflict is not significant or is capable of being managed. The latter construction of that section would allow a borrower to determine not to remove the trustee in the particular case, undermining the apparent obligation in that section to remove a conflicted trustee, and leaving open the possibility that a borrower could choose not to bring the issue before the court for determination under s 283AE of the Act. On balance, I would be inclined to the former construction, although it is also not necessary to express a final view given the conclusion that I reach on other grounds below.
11. Messrs Lindholm's and McCluskey's position is that Trust Co is in fact acting as trustee and that it is in fact conflicted. However, they submit that it is not necessary to determine whether in fact Trust Co has breached s 283AC in remaining as trustee to give the direction that they seek, and all that is necessary to support that direction is a conclusion that, if there was any conflict, the combined effect of the various orders has the result that conflict is neutralised and any removal of Trust Co as trustee is unnecessary. In particular, they submit that the combined effect of their appointment as liquidators of BSL by the Supreme Court of Victoria, their appointment as special purpose receivers by the September orders and the February 2016 orders is that Trust Co does not have any continuing capacity to interfere or influence, directly or indirectly, in any way with the conduct of the Banksia Proceedings and, given the stage the Banksia Proceedings have reached, it is preferable that the cost and delay attendant in removing and replacing Trust Co be avoided if any possible conflict has otherwise been neutralised. In oral submissions, Mr Hutley submitted that: "to go through the expense of seeking the removal of the trustee and its replacement by another organisation or persons who would have to themselves then undertake time and expense to assess the position of the trust seems to be a sterile exercise having regard to the fact that the trustee is all but inert now." (T12) Mr Lindholm confirmed that submission accurately reflected the liquidators' view in oral evidence (T14).
12. It seems to me that it is not necessary to determine the complex questions as to the scope of ss 283AC and 283AD of the Corporations Act to which I have referred above in order to determine whether the direction sought by the Messrs Lindholm and McCluskey should be given and it is preferable that I do not do so in the circumstances. I assume, for the sake of argument and without deciding, that the sections have their strictest construction and that Trust Co would be "acting as trustee" for the purposes of s 283AC of the Act if it held that role but refrained from acting by reason of a conflict, and that the requirement to take "reasonable steps" to remove the trustee in s 283BD does not permit a decision by a borrower to take no steps to remove a trustee in that situation. On that assumption, BSL is obliged to apply to the court to remove Trust Co as trustee even if, in the relevant circumstances, the court would not make such an order under s 283AE of the Act, and a failure to do so would potentially amount to a contravention of the Corporations Act by BSL.
13. However, it does not follow that Messrs Lindholm and McCluskey are under an absolute duty to cause BSL to comply with s 283BD of the Act, if it was construed in that manner, where to do so would be either pointless, if the court would not make an order removing Trust Co in any event, or the making of that application and its potential outcome would be disadvantageous to BSL and debenture holders. In Australian Securities & Investments Commission v Maxwell [2006] NSWSC 1052; (2006) 59 ACSR 373 at [103], Brereton J noted that the question whether a director's failure to cause a company to comply with the Corporations Act amounted to a breach of director's duties would depend on the risk of potential exposure to liability by reason of non-compliance and any countervailing potential benefits. It seems to me that, by analogy, there may be some, possibly exceptional, circumstances in which a liquidator would be justified in not taking a step to cause a company to comply with the Act, although the failure to take that step would give rise to a contravention of the Act by the company, if the risks of non-compliance were limited and the costs or practical disadvantages of compliance were significant. No doubt, a liquidator should not generally take that course without at least first seeking a direction from the court that he or she is justified in doing so.
14. On the assumption that a failure to apply for Trust Co's removal would cause BSL to contravene s 283BD of the Act in this case, it seems to me that this would be one such exceptional circumstance. It seems to me that no useful purpose could be served by Messrs Lindholm and McCluskey causing an application to be made by BSL to the Court for the removal of Trust Co where they have concluded that that course is not in debenture holders' interests, they would properly draw that view and the reasons for it to the Court's attention in any such application and the Court would then be entitled to decline to make the order sought in the exercise of its discretion. The costs of such an application may well be significant, given the complexity of the issues noted above as to the scope of ss 283AC and 283AD of the Corporations Act, and the need to identify a replacement trustee and persuade it to accept appointment in the midst of complex litigation affecting BSL. There is also a real question whether such an application, if brought, would in any event lead to an order for Trust Co's removal if that would not promote the interests of debenture holders.
15. It therefore seems to me that the direction sought by Messrs Lindholm and McCluskey should be made, where they have formed the view, as independent and court-appointed liquidators, that the practical difficulties and costs likely to be involved in replacing Trust Co, given the limited scope of its present role, outweigh the benefits to debenture holders of doing so. For these reasons, I am satisfied that I should make the direction sought. That direction has effect, of course, only on the basis of the correctness of the assumed facts by reference to which it has been made and absent any material change in circumstances.
16. AccordingIy, I propose to make the following additional order, subject to hearing the parties as to its form: "Pursuant to s 479(3) of the Corporations Act 2001 (Cth), direct that Messrs Lindholm and McCluskey are justified, in light of the orders made by the Court on 30 September 2015 and 29 February 2016, notwithstanding s 283BD(c) of the Corporations Act, in not taking further steps to cause Banksia Securities Limited (receivers and managers appointed) (in liq) to remove or replace The Trust Company (Nominees) Limited as trustee for debenture holders under a trust deed for first ranking debenture stock dated 12 December 1994 (as amended from time to time)."
17. I will also hear the parties as to costs.

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