Australian Securities and Investments Commission v Edensor Nominees Pty Ltd

Federal Court of Australia|2022-10-17|Before: McEvoy J

Counsel for the applicants: Mr Sam Hay KC with Ms Sophie Kearney

ORDERS VID 280 of 2022 IN THE MATTER OF AN APPLICATION BY SALVATORE ALGERI AND ROBERT WOODS AS JOINT AND SEVERAL LIQUIDATORS OF GEM MANAGEMENT GROUP PTY LTD (IN LIQUIDATION) AND VKK INVESTMENTS UNIT TRUST BETWEEN: SALVATORE ALGERI AND ROBERT WOODS AS JOINT AND SEVERAL LIQUIDATORS OF GEM MANAGEMENT GROUP PTY LTD (IN LIQUIDATION) AND VKK INVESTMENTS UNIT TRUST Applicants

order made by: MCEVOY J DATE OF ORDER: 17 October 2022

THE COURT NOTES THAT: In these orders:

Claimants means any person who has a Claim;
Claim means: (a) in respect of unitholders in VKK Investment Unit Trust (the Trust) (individually, a Unitholder, collectively, the Unitholders), the total amount contributed by a Unitholder from its own funds to the Trust as established by that member pursuant to the proof of claim process conducted under order 4 below; (b) in respect of investors in the sub-trusts (collectively, the Sub-Trusts) established by any of the Unitholders (individually, a Sub-Trust Investor, collectively, the Sub-Trust Investors), the total amount contributed by a Sub-Trust Investor from its own funds to the Trust, any of the Sub-Trusts or otherwise in circumstances which may establish a claim on the Common Fund Account (see order 1(c) below) as established by that member pursuant to the proof of claim process conducted under order 4 below; and (c) in respect of all other persons, any claim on the Common Fund Account which can be established pursuant to the proof of claim process conducted under order 4 below;
Current Unsecured Trade Creditors means the 27 parties identified by the liquidators who have unsecured trade creditor claims totalling $2,122,745.69, as set out in schedule 1 to these orders and any other unsecured trade creditor claim admitted by the liquidators; and
Liquidation Fund means the net proceeds of sale of the property located at 64 Hutton Road, Keysborough Victoria, less the liquidator's remuneration and legal costs.

THE COURT ORDERS THAT:

Pursuant to s 90-15 of the Insolvency Practice Schedule (Corporations) contained in Schedule 2 to the Corporations Act 2001 (Cth), the applicants (together, the liquidators) are justified and acting reasonably in paying the following amounts out of the assets of the Trust in the following order of priority: (a) the liquidators' remuneration (as approved by the Court), disbursements and legal costs, including those: (i) properly incurred in distributing the Liquidation Fund in accordance with the method set out in these orders; and (ii) of and incidental to this application. (b) the Current Unsecured Trade Creditors in full to the extent that their claims are admitted by the liquidators; and (c) the balance into a bank account held in the name of the liquidators and designated as the "Common Fund" account (the Common Fund Account).
For the purposes of effecting the distribution in accordance with order 1(b) above: (a) the liquidators shall conduct a proof of claim process in relation to the Current Unsecured Trade Creditors in accordance with Part 5.6 of the Corporations Regulations 2001 (Cth); and (b) on or before 4.00pm on 18 October 2022, the liquidators shall call for proofs of claim to be lodged by the Current Unsecured Trade Creditors on or before 4.00pm on 8 November 2022.
Pursuant to s 90-15 of the Insolvency Practice Schedule and subject to order 4 below, the liquidators are justified and acting reasonably in making distributions out of the funds in the Common Fund Account to Claimants, rateably, in amounts determined by the liquidators to be the amount of their respective Claims.
For the purposes of effecting distributions in accordance with order 2 above, the liquidators shall conduct a proof of claim process in the following manner: (a) on or before 4.00pm on 18 October 2022, the liquidators shall call for proofs of claim to be lodged on or before 4.00pm on 8 November 2022 by letter sent to: (i) each Unitholder; and (ii) each other person who has asserted a Claim or that the liquidators otherwise consider may have a Claim; which letter is also to be posted on the page of the liquidators' website concerning the Trust; (b) on or before 4.00pm on 6 December 2022, the liquidators shall, in writing to each Claimant: (i) admit all or part of the proof of claim submitted by the Claimant; (ii) reject all or part of the proof of claim submitted by the Claimant; or (iii) require further evidence in support of the proof of claim submitted by the Claimant; (c) if the liquidators give notice in writing to a Claimant that further evidence is required in support of the proof of claim submitted by the Claimant under order 4(b) above, the period set by that order is taken not to have begun to run until: (i) the day on which the liquidators receive a sufficient written answer to their notice; or (ii) the day on which the liquidators decide to reject a claim because of a Claimant's failure to provide further evidence requested (which decision shall only be made after allowing a Claimant a period of 2 weeks to provide further evidence); (d) within 7 days after the liquidators have rejected all or part of a proof of claim, the liquidators must: (i) notify the Claimant of the grounds for that rejection in writing; and (ii) give notice to the Claimant at the same time: A. that the Claimant may appeal to the Court against the rejection within the time specified in the notice, being not less than 14 days after service of the notice, or such further period as the Court allows; and B. that unless the Claimant appeals in accordance with order 4(d)(ii)(A) above, the amount of his or her Claim will be assessed in accordance with the liquidators' endorsement on the Claimant's proof.
If the liquidators do not receive a proof of claim from a Unitholder or other person who has previously asserted a Claim to the liquidators or that the liquidators otherwise consider has or may have a Claim in accordance with order 4(a) above, the liquidators may rely on any information from the relevant Unitholder, or other person, that they currently have in their possession.
A Claimant may appeal against the liquidators' rejection of their proof of claim within: (a) 14 days; or (b) any further period allowed by the Court.
Pursuant to s 63 and/or s 63A of the Trustee Act 1958 (Vic) or s 23 of the Federal Court of Australia Act 1976 (Cth) the liquidators have the power to distribute the funds in the Common Fund Account in accordance with these orders.
Pursuant to s 1318(2) of the Corporations Act and/or section 67 of the Trustee Act, the liquidators be relieved from any liability (including personal liability) for having distributed the funds in the Common Fund Account in accordance with these orders.
The liquidators have liberty to apply. SCHEDULE Current Unsecured Trade Creditors Name Amount ($) Capital Kitchen 238 DLA Piper Australia 234,254 Dr Sayyad Mohiddin 816,000 Guildfords Business Consultants Pty Ltd 54,313 Heang Choung Taing 320,733 Heang Choung Taing 2,778 HTN Partners 825 Huy Taing 10,449 Huy Taing 257,128 Huy Taing 14,000 Keysborough South Landowners Group 75,924 Khay Suong Taing Keysborough Pty Ltd 126,656 Lao Holdings 5,004 OneLedger 41,300 Qi R (Kevin) Mo 48,675 Stanford Livestock Victoria 12,970 VKK Management Group Pty Ltd (deregistered) 90,750 Investor funds paid toward legal fees for VKK 10,750 Total: 2,122,746

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

MCEVOY J: 1 Before the Court is an originating process filed on 25 May 2022. Salvatore Algeri and Robert Scott Woods (collectively, the liquidators) make application under s 90-15 of the Insolvency Practice Schedule (Corporations) contained in Schedule 2 of the Corporations Act 2001 (Cth), s 1318 of the Corporations Act, and ss 63 and/or 63A and 67 of the Trustee Act 1958 (Vic) for orders determining questions arising in the liquidation of Gem Management Group Pty Ltd (ACN 143 095 774) (in liquidation) (the Company). 2 The liquidators seek orders concerning the distribution of assets of a trust, being the net proceeds of sale of a property owned by the trust, less remuneration and legal costs (the Liquidation Fund). Specifically, they seek orders pursuant to: (a) s 90-15 of the Insolvency Practice Schedule, that they are justified in adopting their proposed course of action (and are entitled to their remuneration, costs and expenses); (b) s 63 and/or s 63A of the Trustee Act or s 23 of the Federal Court of Australia Act 1976 (Cth) granting them the necessary power to adopt their proposed course of action; and (c) s 1318 of the Corporations Act and/or s 67 of the Trustee Act relieving them from liability for adopting their proposed course of action. 3 The orders are sought in circumstances where the liquidators have conducted investigations to determine the interests of various investors in the trust. Notwithstanding their careful investigations however, the liquidators cannot be certain that their conclusions are correct. 4 The liquidators rely on the following material in support of their application: (a) in relation to the orders sought, the affidavits of : (i) Robert Scott Woods sworn on 20 May 2022 (the Woods Affidavit); (ii) Gregory James McKenzie sworn on 20 May 2022; (iii) Robert Scott Woods sworn on 29 July 2022; and (iv) Isabella Kesara Pierri sworn on 29 July 2022 (the Pierri Affidavit); and (b) in relation to service of the documents and correspondence with interested parties, the affidavits of: (i) Isabella Cardaci sworn on 12 July 2022; (ii) Isabella Kesara Pierri and Isabella Cardaci, each sworn on 12 July 2022; (iii) Isabella Cardaci sworn on 29 July 2022; and (iv) Isabella Kesara Pierri and Isabella Cardaci each sworn on 29 July 2022. 5 The applicants have also filed detailed and comprehensive written submissions dated 29 July 2022 in support of their application. I have drawn from these submissions extensively in the preparation of these reasons. 6 The precise orders sought by the applicants are set out in annexure IKP-3 to the Pierri Affidavit. For the reasons that follow, orders will be made substantially in the terms sought.

THE CONTEXT OF THE LIQUIDATION 7 Until 20 April 2018, the Company was the corporate trustee of VKK Investments Unit Trust (the Trust). In its capacity as trustee of the Trust, the Company owned a property located at 64 Hutton Road, Keysborough Victoria (the Property) and appears to have operated an unregistered managed investment scheme (the Scheme). On 20 April 2018, on the application of the Australian Securities and Investments Commission (ASIC), the liquidators were appointed joint and several liquidators of the Company and the Scheme and trustees of the Trust. 8 After their appointment, the liquidators commenced work on the task of determining the interests of the investors who contributed to the purchase of the Property. That task was extremely complex, as the records maintained by the directors of the Company were substantially incomplete and unreliable, and the liquidators faced challenges in their communications with the investors. To attempt to work out the sums that investors had contributed to the purchase, maintenance and development of the Property, the liquidators had to reconstruct the records that they were able to obtain and take steps to corroborate the information from other sources. 9 The Trust was established on 9 January 2007 with Mr Eang Kang as trustee. It was apparently established for the purposes of completing a property development, which was to be funded by investors. On 22 March 2007, Mr Kang (as trustee of the Trust) entered into a contract to purchase the Property for $21.4 million, payable over three years. 10 In around May to June 2010 the Company was appointed as trustee of the Trust. As insufficient funds had been raised to complete the purchase of the Property, the Company issued an information memorandum inviting prospective investors to participate in the Scheme to fund the purchase and rezoning of the Property as an investor in the Trust. 11 The Property settled on 31 March 2011, with the Company having raised $27,063,944.80. This comprised: (a) $18,019,325.00 from investors; (b) $3,522,619.75 from loans made by Mr Kang and Mr Khay Suong Taing; and (c) $5,522,000.00 from a loan from Woodlane Pty Ltd, which was secured by a mortgage over the Property (the Woodlane Loan). 12 Between December 2014 and November 2016, various other loans were entered into by the Company in relation to repaying the Woodlane Loan, and otherwise. 13 On 20 April 2018, the liquidators were appointed to the Company and to the Trust. On 5 June 2018, the Property was sold by Principled Mortgage Investments Pty Ltd, as mortgagee, for a sale price of $30,000,000. 14 By 20 May 2022, the secured creditors of the Company and the Trust had been paid and the balance of the Liquidation Fund, being the monies held by the liquidators for distribution among the unsecured creditors and investors (subject to further costs to be incurred), was $10,926,513.34.

THE LIQUIDATORS' INVESTIGATIONS 15 As is apparent from the Woods Affidavit, the liquidators have conducted extensive investigations in an attempt to determine, as best they could, the extent of each investor's contribution to the assets of the Scheme. The liquidators' investigations revealed the following in relation to the contributions made to the Trust (or intended to be made to the Trust): (a) there were only 15 investors who own units in the Trust (the Unitholders); (b) the prices paid or contributed to the Trust for units acquired by the Unitholders varied significantly, apparently depending on the relationship the directors of the Company had with the relevant investor and on when the relevant investment was made; (c) after agreeing to acquire units in the Trust, 11 of the 15 Unitholders then each established their own unit trusts (collectively, the Sub-Trusts) and promoted and sold units in those Sub-Trusts to other investors (collectively, the Sub-Trust Investors) as a way of either raising funds to enable the Unitholders to pay the Trust for those units, or to make a profit (and nine of those Unitholders did not contribute any funds of their own to acquire units in the Trust, but instead used funds wholly raised from Sub-Trust Investors); (d) the amounts paid or sourced by the Unitholders which were ultimately received by the Trust totalled $23,990,295, which comprised: (i) $885,000, from three investors who paid funds to the Trust or its associates; (ii) $19,582,675, from those investors who sourced funds for their units in the Trust from the Sub-Trust Investors; and (iii) $3,522,620, from directors and their entities who had made loans to the Trust (including for the deposit to purchase the Property), where those loans were then converted to units in the Trust on or around 31 March 2011; and (e) many Sub-Trust Investors: (i) believed they were investing directly in the Trust, rather than in the Sub-Trusts; (ii) were unsophisticated investors and appeared to be unaware of what their investment in fact consisted and entitled them to, were otherwise misled by the directors of the Company and the Sub-Trusts as to how their funds were to be applied, and/or were only made aware that they had invested in a Sub-Trust, rather than the Trust, by 'after the fact' correspondence; and (iii) paid funds (totalling $9,814,300) to the Sub-Trusts or directors of the Company, or other parties at their direction, which were not received by the Trust (as far as the liquidators have been able to determine). 16 As part of the liquidators' investigations, various records have been created that analyse and summarise the information that has been obtained and which enables an investor or another interested party critically to assess their conclusions. Those records include: (a) the Investor Spreadsheet, which comprises a summary of the details the liquidators discovered about each investor's investment; (b) schedules disclosing the amounts contributed toward the purchase, development and maintenance of the Property by the Unitholders and Sub-Trust Investors; (c) the "working documents" for each investor's investment, which contains: (i) a list of all the documents already available from the records of the Company and the Trust, as well as the documents subsequently provided by the Unitholders, the Sub-Trust Investors and other parties; (ii) a summary of the communications held with the relevant Sub-Trusts and the investors regarding their investment; (iii) an analysis of all the information and documents available; and (iv) a summary of each investor's investment based on the analysis conducted; (d) a diagram showing the structure of the Scheme, the Unitholders, the Sub-Trusts and the Sub-Trust Investors and summaries for each of the Unitholders and the Sub-Trusts; (e) a schedule (extracted from the Investor Spreadsheet) which shows those Unitholders who funded their investments in the Trust by using funds invested by Sub-Trust Investors (rather than their own funds); (f) a collation of examples of the application forms filled in by investors and the receipts issued by the trust account of TF Grundy Lawyer (which some of the investment funds were paid into); and (g) a chart setting out the amounts paid by investors in total, the amount that was paid to the Trust, and the amounts paid by subsequent owners to purchase units in the Trust. 17 The liquidators' task in determining with any certainty who had an interest in the Liquidation Fund or in what proportions was impeded by reason of: (a) the "very poor" state of the records maintained by the directors of the Company, which were "grossly inadequate, outdated, contained many inaccuracies and inconsistencies and did not record all necessary information"; (b) the manner in which many investors invested, or thought they had invested, which was haphazard and poorly documented (if at all); (c) the fact that English is the second language for many investors, the consequent difficulty in obtaining more information and documents from them, cultural matters going to the level of trust the investors had instilled in the operators of the Scheme, and the need to spend significant time explaining the true context of it and the liquidation process; and (d) the consequent difficulty in establishing whether any Sub-Trust Investors might have any interest in the Trust and which (if any) parties may have entitlements as unsecured creditors. 18 The liquidators have been conscious to ensure that their investigation has been sufficient to enable them to propose an appropriate distribution method which did not become disproportionate, given that the costs incurred will ultimately be borne by investors. By 20 May 2022 they were in a position to propose such a distribution method, and they commenced this proceeding for that purpose.

THE APPLICATION 19 The application and relevant court documents have been served on ASIC and all creditors and investors (to the extent their contact details were known). 20 Prior to the first hearing in this proceeding on 14 July 2022, when the Court made orders for the filing of any further material both in support of, and in opposition to, the application, Deloitte Financial Advisory Pty Ltd (Deloitte), assisting the liquidators, corresponded with various creditors and investors in relation to the application. However, no creditors or investors filed any material in opposition to the application or any notice of appearance prior to the first hearing. 21 After the first hearing staff at Deloitte undertook further enquiries and steps, including placing an advertisement in the Business section of The Weekend Australian newspaper, which was published on 23 July 2022, to try to ensure that the proceeding was brought to the attention of all interested persons. There are currently only four investors and one creditor whom, despite best efforts having been made, Deloitte has not been able to contact or otherwise obtain assurance that they are aware of this proceeding. 22 When the matter was called on for hearing on 4 October 2022, no party appeared in opposition to the application being made by the liquidators.

RELEVANT PRINCIPLES 23 The liquidators submit, and I accept, that their application is not novel, and that the orders they seek are supported by authority. 24 They refer, in particular, to Australian Securities Investments Commissioner v Letten (No 7) (2010) 190 FCR 59, where Gordon J considered an application brought by the receivers appointed to the property of 21 unregistered managed investment schemes as to the appropriate method of distribution of the assets of those schemes. The relevant issue for determination by her Honour was how the assets the receivers held should be applied. The receivers formed the view that the assets of the different schemes should be pooled, and, after paying specified amounts in priority, any surplus should be placed in a common fund for distribution rateably between any claimants who had a claim: Letten at 64-65 [3]. In considering this, the first matter in issue was the pooling question. While the liquidators do not seek a pooling order in the current proceeding, they note that the views expressed by Gordon J in this context are relevant. 25 Her Honour found that, because of the way the schemes had been conducted, it was not possible to say what the net assets of any particular scheme were. There were many inter-scheme transactions and it was unclear what assets were acquired by what scheme using whose money: Letten at 130 [309(1)]. The receivers gave evidence of the difficulties they faced in trying to trace investor contributions to particular schemes: Letten at 111-112 [249]-[250]. The receivers' attempts prior to the application had been unsuccessful for a number of reasons, including that the payments were made through common bank accounts and were not separated for each scheme, a number of the schemes were oversubscribed (and the oversubscriptions were not refunded or returned to investors) and a significant proportion of investor contributions appeared to have been used to pay distributions to investors in other schemes: Letten at 111-112 [250]. The tracing process was further complicated and, in some cases, rendered impossible, due to the lack of reliable financial and accounting data: Letten at 112 [250(6)], 112-113 [252]-[257]. On this basis the receivers concluded that if they were required to attempt to trace all the relevant transactions through reconstructing the accounts, the exercise would cost approximately $18 million, which exceeded the possible fund available and was thus prohibitive: Letten at 113 [258]. 26 On this basis Gordon J accepted that any further tracing should not be attempted: Letten at 114 [260]. Her Honour then considered the power of the Court to make the pooling directions sought in relation to the property of the managed investment schemes: Letten at 114-119 [261]-[274]. Her Honour concluded that the Court had the necessary power on the basis that the investors had suffered a "common misfortune" and any method of distribution should reflect that fact and that given "the difficulties identified in unscrambling the affairs of the [s]chemes, no rational person would undertake or engage in that task": Letten at 136-137 [335]. 27 The second matter in dispute in Letten was the appropriate method of distribution from the pooled funds. Justice Gordon considered various methods which could be applied to distributing beneficiaries' monies from a mixed fund: Letten at 119-122 [275]-[286]. The receivers sought orders for a "rateable distribution", whereby the beneficiaries of the trust or trusts are each entitled to an equitable charge or lien on the whole of the remaining unused common fund and the distribution is made proportionately to the claims as assessed by the receivers: Letten at 121 [282]. 28 The receivers made the following submissions as to why the other methods of distribution would not be appropriate (see Letten at 123 [289]): (a) the rule in Devaynes v Noble (1816) 1 Mer 572 (being "first in first out": Letten at 120 [276]-[277]) was inappropriate as it was impossible fully to trace all funds contributed: Letten at 123 [290]; (b) the lowest intermediate balance rule (which provides that tracing through a mixed fund cannot occur for any sum that exceeds the lowest intermediate balance in the fund during the interval between the original contribution and the time when a claim with respect to that contribution is being made against the fund: Letten at 120-121 [278]-[279]) was inappropriate as the bank accounts were often in overdraft and so it would likely result in the overwhelming majority of investors having no right to trace into them: Letten at 123 [291]; (c) the 'North American Model' (in which a withdrawal from the mixed fund is allocated in the same proportions as the different beneficiaries bear to each other at the moment before the withdrawal is made: Letten at 121 [280]) was inappropriate given the difficulties in tracing and also because the bank accounts were, without authorisation, used in a comingled way and so the vast majority of withdrawals may constitute unauthorised withdrawals: Letten at 123 [292]; (d) the intention-based approach (in which the balance remaining in mixed funds is distributed among the beneficiaries pro rata in proportion to the contribution of each beneficiary: see Letten at 121 [281]), was inappropriate as: (i) it was not clear how an intention-based approach could address the issue that the assets were dealt with in a comingled way, resulting in investors from one scheme having claims against assets of other schemes; and nor was it clear how this approach could address the issue that, as many schemes were oversubscribed and in breach of trust, investors' contributions were redeployed to fund other schemes; and (ii) as it was not possible accurately to determine the quantum of intercompany or inter-scheme claims, these would be ignored under an intention-based approach; all of which would lead to arbitrary and unfair outcomes: Letten at 123-124 [293]-[294]. 29 Various investors made submissions in Letten as to the appropriate distribution method, as follows: (a) one group of investors, called the 'Light Interests', submitted that the fairest approach was a modified intention-based approach, as if a particular scheme failed and suffered a loss that was a loss specific to the risk a particular investor took and any distribution should reflect that risk: Letten at 129-130 [306]-[308]. Her Honour found that this analysis ignored key factual aspects of the scheme arrangements, including the inability to trace the source of funds to purchase particular assets or investor contributions, the oversubscription of various schemes and the significant use of one scheme's money to pay investors in another scheme's distributions: Letten at 130-131 [309]; (b) another group of investors submitted that "it would be manifestly unjust to hold investors to a regime based on their 'original intentions' in circumstances where investors had a limited understanding, awareness or appreciation of the investments they were making": Letten at 131 [310]. Contrary to the Light Interests' submissions, for the most part, this was not a case of sophisticated investors making a calculated risk, and, to the extent it was, such sophisticated investors were misled as to basic matters of their investments: Letten at 131 [310]. 30 The receivers submitted that a rateable distribution was not only supported by authority but was also the most pragmatic approach: Letten at 124 [295]. They further submitted that their proposed method of distribution gave "due recognition" to the proprietary and other claims which investors in each of the schemes would have against assets acquired for the purposes of other schemes and providing value to those claims, and additionally, this method was the fairest and in accordance with the maxim that "equality is equity": Letten at 124 [295]. 31 In Letten, Gordon J referred to various other cases in which a rateable distribution had been ordered, generally where there were concerns that the cost of conducting further investigations would be disproportionate to the funds available for distribution: Letten at 121-122 [283]-[286], 136 [333]; referring to Australian Securities and Investments Commission v Nelson (2003) 44 ACSR 719 (Austin J); Australian Securities and Investments Commission v Enterprise Solutions 2000 Pty Ltd [2001] QSC 082 (Chesterman J); Re French Caledonia Travel Services Pty Ltd (in Liq) (2003) 59 NSWLR 361 (Austin J); Australian Securities Investments Commission v Tasman Investment Management Ltd (2006) 202 FLR 343 (Austin J). The liquidators in the present proceeding submit that this would also be the case here. 32 In Letten, Gordon J made the orders the receivers sought, being that the surplus from the pooled funds should be distributed rateably, with the distributions made proportionally to the claims as assessed by the receivers: Letten at 137 [336].

THE APPROPRIATE DISTRIBUTION METHOD TO BE ADOPTED 33 As the liquidators submit, this case concerns the assets of a single trust, rather than those of 21 investment schemes. However, as is also submitted, key aspects of the Letten situation are analogous to aspects of the current proceeding, including the following: (a) unreliable financial and accounting data which hindered the ready determination of the investors' entitlements: Letten at 112 [254]; (b) this was not a matter of sophisticated investors taking calculated risks and, to the extent it was, those receiving the funds misled the investors as to basic matters of their investments: Letten at 131 [310]; and (c) even though the investors may fall within different classes (being different schemes in Letten and either the Trust or different Sub-Trusts in the present case), they had all suffered a "common misfortune": Letten at 132 [313], citing Lehman Brothers International (Europe) (in admin) v CRC Credit Fund Ltd [2010] EWCA Civ 917 (Arden LJ); and therefore, taking a strict view of who had invested directly into the relevant fund, be it the particular scheme as in Letten or the actual Trust in this case, may be unfair in the circumstances. In the liquidators' submission, adopting such a view would also be unfair here. 34 One distinction between the present case and Letten, so the liquidators submit, is that the subject matter is the liquidation of a trustee company, and accordingly the provisions of the Trustee Act can operate to empower the liquidators to deal with the assets as they propose. Section 63 of the Trustee Act empowers the Court, if it considers it expedient, to confer any necessary power on a trustee for the distribution of a trust's assets, and s 63A empowers the Court to enlarge the powers of the trustees managing a trust's property: see the discussion of this Court's accrued jurisdiction to hear applications under relevant State legislation where claims under both Federal and State legislation arise from a substantially similar substratum of facts in Hodges v Waters (No 7) (2015) 232 FCR 97 at 107-108 [40]-[48] (Perram J), where this Court granted relief under the Trustee Act 1925 (NSW), and generally Australian Securities and Investments Commission v Edensor Nominees Pty Ltd (2001) 204 CLR 559, at 587-588 [58] and 590 [65] (Gleeson CJ, Gaudron and Gummow JJ); Re Wakim; Ex parte McNally (1999) 198 CLR 511 at 546 [25] (Gleeson CJ), 546 [26] (Gaudron J), 563-564 [73]-[76] (McHugh J) and 583-584 [135]-[136] (Gummow and Hayne JJ) and Stack v Coast Securities (No. 9) Pty Ltd (1983) 154 CLR 261 at 290 (Mason, Brennan and Deane JJ). Further or alternatively, s 23 of the Federal Court of Australia Act empowers the Court to make such orders as it thinks appropriate. On these bases, so the liquidators say, the Court can be satisfied that it has the power to make the orders sought. 35 The question then becomes whether the Court should decide to make the orders sought. The liquidators submit that there are three possible distribution methods open to them: (a) distribution pursuant to the deed which establishes the Trust (the trust deed method); (b) distribution according to funds actually paid to the Trust (the trust contribution method); or (c) a pro rata distribution of funds paid by the Unitholders and Sub-Trust Investors to invest in the Trust or Sub-Trusts (the pro rata distribution method). 36 According to the liquidators, each of these methods would see the liquidators' costs and Current Unsecured Trade Creditors being paid in priority to the investors. The liquidators submit that this should not be controversial. However, the three methods then differ in relation to how the balance of the Liquidation Fund is distributed after payment of those priority amounts. For the following reasons the liquidators submit that the pro rata distribution method is the most appropriate to adopt.

The trust deed method 37 The trust deed method would require that the funds held by the Company be distributed on a pro rata basis to Unitholders. However, the liquidators consider that the distribution as contemplated by the Trust Deed is inappropriate as it fails to take into account: (a) the fact that most Unitholders did not contribute any funds of their own for the units they acquired and currently hold in the Trust; (b) the interests of the Sub-Trust Investors who contributed funds which were either directly or indirectly paid to the Trust; and (c) the differing prices payable by each of the Unitholders for the units they acquired in the Trust. 38 The liquidators submitted that this method would require them to determine who is entitled to be treated as a Unitholder and whether any other parties (such as Sub-Trust Investors) would be entitled to be treated as an unsecured creditor of the Company. In circumstances where it is clear that the Sub-Trust Investors contributed significant funds to the Trust, it is artificial and inappropriate to ignore their role, and may in fact cause further complications in the distribution process if they seek to make claims as unsecured creditors of the Trust, which may rank in priority to the Unitholders who did in fact contribute funds to the Trust.

The trust contribution method 39 Under this method, after payment of the liquidators' further costs and payment of the Current Unsecured Trade Creditors' claims, the balance of the Liquidation Fund would be paid to the investors whose funds were actually paid to the Trust (either as Unitholders, Sub-Trust Investors or otherwise). This distribution would be on a pro rata basis of the amount contributed by each investor. 40 While the liquidators submit that this method is prima facie the fairest for those whose funds were actually paid to the Trust, they contend that it would not recognise those who intended to invest in the Trust but did not directly do so, and there is a risk that it could be undermined if those latter investors successfully made claims as unsecured creditors of the Trust, which may rank in advance of the entitlements of Unitholders or Sub-Trust Investors whose funds were paid to the Trust.

The pro rata distribution method 41 The liquidators submit that under this method, after payment of the liquidators' further costs and payment of the Current Unsecured Trade Creditors' claims, the balance of the Liquidation Fund would be paid to the investors who intended to invest in the Scheme, regardless of the method by which they did so or whether the funds contributed were ultimately paid to the Trust, and any other persons having unsecured creditor claims of any kind against the Trust or the Company. In contrast to the trust deed method and the trust contribution method, this distribution would be on a pro rata basis of the amount assessed by the liquidators to have been paid by the investor, not by reference to: (a) the number of units acquired or held by an investor (in the Trust or the Sub-Trusts); or (b) the amount of those funds which were ultimately paid to the Trust. 42 This method recognises the difficulty posed in determining the intention behind any investments and tracing those funds. On that basis it collapses the classes of investors so as to remove any distinction, which would be unfair in circumstances where it appears most if not all investors intended to invest in the same Scheme. As with the investors in Letten, the investors here shared a "common misfortune" and to the extent that the funds they contributed were not paid to the Trust, that was the result of mismanagement of the Trust by the Company: see Letten at 132 [313], citing Lehman Brothers. That being said, this proposed distribution method also appropriately and fairly allows for trade creditors to be prioritised, given that those creditors advanced funds or provided goods or services with the intention of being repaid a certain amount which was not dependent upon the Scheme's success. 43 This method would mean that investors whose funds have not directly contributed to the Trust will be entitled to receive a distribution from the Trust. In addition, such persons may have claims against other parties (being the ones who mismanaged or redirected the funds), and so there is a potential unnecessary dissipation of Trust assets in paying them. However, where it is clear that tracing funds with complete certainty is difficult or perhaps impossible, and there was the same intention generally between the investors to invest in the Scheme, despite this potential issue the pro rata distribution method is still the one which is most likely to do the greatest equity for the greatest number. Thus, the liquidators submit that this method ought to be adopted. 44 It is also said that this distribution method is consistent with ASIC's assessment of the Trust, given that the Sub- Trust Investors: (a) are members of the Trust for the purpose of the definition of 'managed investment scheme' in s 9 of the Corporations Act and for the purpose of s 601ED of the Corporations Act; and (b) hold an entitlement to the benefits produced by the Trust.

THE PROPOSED ORDERS 45 The orders proposed by the liquidators are designed to achieve a number of aims, including to: (a) empower the liquidators to distribute the funds in accordance with the pro rata distribution method; (b) protect the liquidators against any potential adverse consequences of doing so; and (c) set in place a mechanism which ensures that the investors have an opportunity to comment upon the appropriateness of the proposed distribution method or the specific amount that is proposed to be paid to them, and/or provide any further evidence they want the liquidators to take into account in determining the final distribution. 46 The steps are analogous to a proof of debt process in a straightforward liquidation and impose primary responsibility for determining the final distribution figures upon the liquidators rather than the Court, while still affording the investors an opportunity to be heard by the Court if they wish to. The orders sought accord with the orders made by the Court in Letten, and prescribe a process that is efficient and proportionate while ensuring that the investors' rights are protected. 47 Additionally, the proposed orders make it clear to the Court, the Investors, the Sub-Trust Investors and any other interested party, that the liquidators intend to treat the contributions by the Sub-Trust Investors as contributions to the Scheme in relation to which the Sub-Trust Investors are entitled to claim.

CONCLUSION 48 For the reasons set out in the liquidators' submissions and canvased above, I accept that the pro rata distribution method is the fairest in the circumstances, and orders will be made substantially in the terms sought by the liquidators as set out at the commencement of these reasons. I certify that the preceding forty-eight (48) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice McEvoy.

Corporations Act 2001(Cth)ss 9, 601ED, 1318

Trustee Act 1958(Vic)ss 63, 63A, 67

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Judgment (17 paragraphs)

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