Australian Securities and Investments Commission v John McKenney Consulting Pty Ltd and Ors [2002] VSC 527

6. The Lifestyle Group of companies was controlled and owned by Mr Jon McKenney and comprised 54 companies in total. The companies were concerned with a managed investment scheme. Eleven of the 54 companies were placed under voluntary administration. Mr David Lockwood and Mr Laurence Fitzgerald were appointed joint administrators over ten of these companies, namely, Lifestyle Box Hill Pty Ltd, Lifestyle Beaumaris Pty Ltd, 4 Lisa Close Pty Ltd, 24 Jersey Street Pty Ltd, Lifestyle Bennetts Lane Pty Ltd, Lifestyle Templestowe Pty Ltd, Lifestyle-Hall Pty Ltd, Lifestyle Property Investments, Lifestyle Brunswick Pty Ltd, Lifestyle Kennan Pty Ltd and Lifestyle Residential Constructions Pty Ltd (collectively referred to as the "Lockwood companies"). Mr Lofthouse was appointed as sole administrator over the eleventh company, namely Lifestyle Vermont Pty Ltd.

9. At the time of the appointment of the administrators Mr Clyde White had already been appointed as liquidator to several other companies in the Lifestyle Group, namely Lifestyle Property Group Pty Ltd on 28 June 2000, on the application of the Deputy Commissioner of Taxation, and a further six companies, namely, Lifestyle Property Investments Pty Ltd, Lifestyle Armadale Pty Ltd, Lifestyle Earls Court Pty Ltd, Lifestyle Kensington Place Pty Ltd, Lifestyle Sovereign Place Pty Ltd, LPI Holdings Pty Ltd on 13 July 2000, on the application of the Australian Securities and Investments Commission ("ASIC"). ASIC commenced proceedings on 26 July 2000, in relation to the winding up the companies under administration, which was opposed by the administrators. On 7 August 2000 a winding up order under s.601EE of the Corporations Act 2000, on the grounds that an unregistered managed investment scheme was operated through each or any of the companies in the group, was made by this Court ending the voluntary administrations and appointing the liquidator of the companies already subject to winding up, Mr White, as liquidator of the remaining companies in the Lifestyle Group.

12. It is important to observe that the application by ASIC for the winding up of the companies subject to administration was an opposed application at which the administrators were represented. However, upon the court indicating its decision, namely, to accede to the application of ASIC and order the winding up of the relevant companies the parties discussed and formulated the form of order among themselves. These events culminated in the winding up orders together with consequential orders made on 7 August 2000. The winding up order provided for the winding up of specific companies pursuant to s.461(1)(k) of the Corporations Law, the appointment of Mr White as liquidator and, also, for the winding up of an unregistered management investment scheme. Mr White was appointed liquidator, also, of the scheme.

15. The winding up orders encompassed an order to the effect that the assets of the companies within the Lifestyle Group were to be pooled and the remuneration and costs of the administrators and ASIC were to be paid as a matter of priority and in accord with ss.449E, 443A and s.556 of the Corporations Law (now Corporations Act 2000). The remuneration and cost order provided:

"5. The proper remuneration of the Administrators under s.449E of the Corporations Law and the proper cost and expenses of the Administrators under s.443A of the Corporations Law and the administrators and the plaintiff's proper costs of this application to be paid in the priority set out in s.556 of the Corporations Law as costs in the winding up of the companies referred to in the Schedule to this order and of the Scheme."

19. There was no opposition or resistance by the liquidators, the administrators or ASIC to the making of the pooling order. The liquidator was involved it seems in the original application by ASIC by virtue of his prior appointment as liquidator to other companies within the Lifestyle Group. There was no appeal against the pooling order made on 7 August 2000.

22. The administrators have, as yet, not been paid in accordance with the Court ordered remuneration. The joint administrators, Messrs Fitzgerald and Lockwood, claim $189,797.27, which sum comprises $135,235.52 in respect of their remuneration and $54,675.51 in respect of their legal costs. The sole administrator, Mr Lofthouse, claims the additional sum of $10,000 with respect to his costs.

25. It may be readily comprehended that the administrations and, later, the winding up of the companies has proved difficult given their volume, interconnection and complexity. The various companies owned and controlled by McKenney were utilised by him for investment purposes with different investors and it would appear that to some extent there was a sharing or pooling of funds between the various companies. In any event, after the orders were made for the winding up of the companies that were previously the subject of administration, the liquidator set about the winding up of those companies and endeavoured, so far as practicable, to deal with each company separately. A further observation is warranted. The pooling order in this instance was made at the behest of the parties on 7 August 2000 and, as already observed, was without opposition or resistance. However, in an affidavit, the liquidator deposed that he did not comprehend that the orders made on 7 August 2000 resulted in a pooling order and, hence, conducted the liquidations of each company separately. Consequently, the liquidator had not sought the approval of a pooled meeting of creditors when he entered into litigation loan agreements and had his remuneration and disbursements fixed in the course of the winding up of the various companies. Rather, the liquidator convened a meeting of the creditors of each of the individual companies. The liquidator has paid out $527,751.06 of which $375,528.81 constitutes remuneration and disbursements paid to himself from total funds recovered from all of the companies in the Lifestyle Group in the sum of $729,720.29. It is to be observed that the remuneration of the liquidator was the subject of ongoing review by him. There remains in the hands of the liquidator the sum of $201,969.23 which represents funds currently in the bank, $28,042.05 of which is being held on trust pending the resolution of a separate, unrelated dispute. The liquidator further claims that $497,704.90 remains outstanding in terms of his remuneration and disbursements. Furthermore, the liquidator has recovered only the total sum of $4,286.64 from the companies that were under administration. The balance of recovered moneys was recouped from the other companies during the course of the winding up.

28. Upon the liquidator informing the administrators of his approach, namely, that he had dealt with each of the companies separately and did not consider a pooling order entitled the administrators to their costs from the total funds recovered by him, the matter of the winding up of the companies returned to the court on 21 June 2002 for clarification of the parties' respective positions. Thus, over two years had elapsed from the date of the making of the pooling order. In a ruling on 26 July 2002 I clarified, so far as it was necessary to do so, that the Court order made on 7 August 2000 was a pooling order. Thereafter, the liquidator understood his position. The matter was adjourned for some time to enable the liquidator to consider the future management of the winding up of the various companies. However, he was concerned that he had conducted himself as if a pooling order had not been made. As a consequence, the liquidator returned to the court seeking orders to validate his actions to date in the winding up of the companies.

31. The orders presently sought by the liquidator are that the Court declares the actions of the liquidator up to 26 July 2002 not invalid by reason that there were no "pooled" resolutions by creditors . As a consequence, an issue arose as to whether it is the liquidator or administrators who should have priority in terms of the payment of remuneration and costs. The liquidator claims that there are insufficient funds to pay the administrators' remuneration. The administrators assert priority and claim the liquidator should pay any shortfall. ASIC is simply anxious to ensure that its costs are paid.

34. In summary, there are three primary issues to be considered. The first relates to the effect of any equitable or statutory liens on the position of the administrators and liquidator in respect of their remuneration and costs. The second issue flows on from the first and relates to whether the liquidator should conclude the winding up before acting in accord with the pooling order of 7 August 2000. In effect, the liquidator says that payment of any costs to the administrators should await the completion of the winding up. On the other hand, the administrators say they ought have the benefit of the pooling order and be paid now. The third issue is in respect of the discretionary power of the Court under s.1322 of the Corporations Act relating to irregularities, and whether the Court should rectify any deficiencies in the conduct of the liquidator subsequent to the pooling order of 7 August 2000.

38. The liquidator's position in relation to when remuneration is to be paid involved argument concerning equitable and statutory liens over company property. The liquidator contended that the administrators' equitable lien, which provided them with the status of secured creditors in relation to their remuneration and costs, extended only to those assets realised under their administration which amount to the sum of $3,998.06 in relation to Lifestyle Residential Constructions Pty Ltd and the sum of $288.58 in respect of Lifestyle Brunswick Pty Ltd. These were the only moneys recovered by the administrators in the course of their administrations.

41. Of course, the administrators' statutory lien arises from s.443F of the Corporations Act 2000 and extends to the "company's property". Counsel for the liquidator argued for a construction of the expression "company's property" to the effect that the statutory lien extends to assets realised in the windings up of those companies formerly under administration but is subject to the liquidator's equitable lien over those same assets. It was submitted that the liquidator's equitable lien takes priority over the administrators' statutory lien on the basis that it would be unconscionable for the administrators to take the fruits of the liquidator's labour in recovering the assets without paying for that labour as held in Re Universal Distributing Co Ltd (in liq).[1] A useful starting point occurs at the observations of Dixon J in that case:[2]

"If a creditor whose debt is secured over the assets of the company come in and have his rights decided in the winding up, he is entitled to be paid principal and interest out of the fund produced by the assets encumbered by his debt after the deduction of the costs, charges and expenses incidental to the realization of such assets (In re Marine Mansions Co.). The security is paramount to the general costs and expenses of the liquidation, but the expenses attendant upon the realization of the fund affected by the security must be borne by it (In re Oriental Hotels Co.; Perry v. Oriental Hotels Co.). The debenture-holders are creditors who have a specific right to the property for the purpose of paying their debts. But if it is realized in the winding up, a proceeding to which they are thus parties, the proceeds must bear the cost of the realization just as if they had begun a suit for its realization or had themselves realized it without suit (cf. In re Regent's Canal Ironworks Co.; Ex parte Grissell); and see Batten v. Wedgwood Coal and Iron Co.). In applying this principle, only those expenses appear to have been thrown against the fund belonging to the debenture-holders which have been reasonably incurred in the care, preservation and realization of the property. In the present case the liquidator has employed a material part of his time and energies in recovering moneys, both uncalled capital and debts, which enare for the debenture-holder, and in so far as these services increase the remuneration which he receives, I see no reason why the burden should not be thrown upon the proceeds. The question is not whether moneys available for unsecured creditors should be relieved at the expense of the security. In such a case it may be said that the service of collecting enough to discharge the debenture must in any event be performed in order that a surplus may then arise in which the unsecured creditors may participate. The question in the present case is whether the liquidator can charge against the fund passing through his hands as between himself and the person to whom it is payable, so much of the remuneration fixed for work done in the winding up as is referable to the calling in and conversion of the assets producing the fund. I see no reason why remuneration for work done for the exclusive purpose of raising the fund should not be charged upon it."

45. The liquidator relied on a schedule which listed the eleven companies from where the recoveries were made, the remuneration paid to the liquidator and the administrators' claim to remuneration, excluding legal costs. Of the Lockwood companies, the assets that have been realised in the windings up and to which the administrators' statutory lien attaches are the sum of $44,923.99 in respect of Lifestyle Beaumaris, and the sum of $28,511.31 in relation to Lifestyle Residential Constructions, less the amount relating to the administrators' equitable lien. It must be recalled that these amounts were recovered in the windings up of companies previously under administration. The administrators recovered the total sum of only $3,998.06 in relation to Lifestyle Residential Constructions and $288.58 in respect of Lifestyle Brunswick. The statutory lien did not apply to any of the other "Lockwood companies" as no assets were in existence or there were insufficient funds realised to pay the administrators' remuneration in which case the administrators' claim has the status of an unsecured priority creditor and s.556(1) of the Corporations Act 2000 applies. The liquidator contended that under s.556(1), payment to unsecured creditors could not eventuate until the prioritisation of claims is known, all funds available to the liquidator are known and all claims have been quantified, particularly given that the liquidator has and will have an equitable lien in relation to any future recoveries. It was also submitted by counsel for the liquidator that the winding up of the 54 companies would not be finalised for several years.

48. Counsel for the liquidator also argued that as there were no assets in relation to Lifestyle Vermont, Mr Lofthouse could not claim a statutory lien. The liquidator claimed that there was no evidence to show that any further recoveries would be made, although in oral submissions counsel was hopeful that some of the recoveries being proceeded with would bear fruit.

51. In an affidavit, the liquidator deposed that his failure to obtain "pooled" approval from creditors for his actions had not prejudiced the creditors for three reasons. First, without litigation funding, there would have been no recoveries due to a lack of funds in the liquidations. Secondly, there was the reluctance of creditors to provide the money for recovery proceedings, which precluded the pursuit of recoveries. Thirdly, the liquidator believed that a "pooled" meeting of creditors would have approved his conduct in relation to the litigation loans and his remuneration.

55. Mr J. Delany of counsel for the administrators sought orders that the liquidator pay, forthwith, from the realisation of assets of the scheme being in the sum of $201,969.23 and constituting funds currently in the bank (although $28,042.05 of that sum is currently being held in trust due to an unrelated dispute), as deposed in the liquidator's affidavit of 25 July 2002, the remuneration and costs of the administrators in the sum of $189,797.27 together with interest from 15 September 2000. The administrator argued its position on five grounds.

58. First, by reason of an informal agreement between the administrators, the liquidator and ASIC, an expectation was created that the administrators would be paid their remuneration. Moreover, Counsel submitted that none of the parties to the agreement contemplated the administrators would be required to wait until the conclusion of the winding up which may not occur until 2010. Evidence of the informal agreement was an affidavit of Mr White of 20 June 2002, in which he deposed that he knew that the administrators, Lockwood and Fitzgerald were seeking agreements to their fees and that ASIC was prepared to agree as well, and that he, Mr White, consequently had no reason to object to these fees.

61. Secondly, it was contended for the administrators that the parties to that informal agreement had not turned their minds to the effect of equitable or statutory liens at the time of making the agreement. Furthermore, looking to the impact of liens, particularly the statutory lien which encompassed the whole of the company's property including choses in action, it was impractical and difficult to identify entitlement as all of the property of each company would have to be ascertained. The evidence relied on was the affidavit of 4 August 2000 of Mr White, in which he deposed that he had not discovered any documentation to permit the tracing of investors' funds, as funds were raised and then pooled in one of the companies of the group, namely, LPI Holdings P/L, and employed where required. Mr White also deposed that were the entities to be treated separately, it would be impossible to distribute any recovered funds accurately due to the absence of records and the rollover of investments.

64. Counsel also relied on the affidavit of an ASIC officer Rachel Waldron as evidence of the difficulty of ascertaining property belonging to each company. Waldron deposed that there had been over-subscriptions in respect of individual property developments such as the sum of $170,000 in the company Bennett's Lane, with the intention of transferring investors' funds to other projects not yet begun and relating to other companies in the group. It was argued that such an over-subscribed amount would have to be considered as there was a right to claim it but the prospect of recovery was another matter and that investigating such inter-company transactions would be a cumbersome, unproductive and exhaustive process. It was submitted that the preferred option for the administrators was for the remuneration to be paid from the pooling of assets which had been recovered and which was also in accordance with the pooling order of this Court. In effect, the administrators urged a pragmatic outcome.

67. Thirdly, it was submitted, the liquidator in seeking the Court's indulgence in relation to validating the procedural irregularities that had occurred, should put before the Court evidence to show that there are insufficient funds to pay the administrators. To this end, the liquidator should establish that his costs and rates were reasonable and ought have been approved, and that his costs were no higher in conducting separate liquidations than had he acted in accordance with the pooling order. A funds flow statement which indicates on a chronological basis the funds recovered in the winding up and paid should also have been produced by the liquidator. However, Counsel for the administrator argued that if there were insufficient funds, in order to do equity between the parties any shortfall should be made up by the liquidator from his own funds as the administrators were entitled, either under the statutory lien or s.556, to be paid as money was recovered in the winding up.

70. Fourthly, it was submitted that the liquidator was not entitled to payment of remuneration where there were insufficient assets to pay the other costs and expenses of the winding up as the liquidator was in the best position in relation to knowledge of the likely outcome of the winding up of the companies.

73. Fifthly, it was submitted that by reason of the delay in bringing this matter to Court, the administrators have been disadvantaged financially since September 2000 and it was thus appropriate for the Court to rule in their favour. It was only after the administrators sought liberty to apply that the liquidator took steps to bring the matter to Court.

77. Mr Honey as solicitor for ASIC made a brief submission in relation to rectification, under s.1322 of the Corporations Act 2000, of the liquidator's conduct in respect of entering into litigation loan agreements and payment of remuneration. It was submitted that ASIC was concerned that the interests of all creditors be taken into consideration in this Court using its discretion under s.1322. Mr Honey argued that the litigation loan agreements were for the benefit of creditors but queried whether creditors would have approved payment of the liquidator's remuneration had they, properly, had material placed before them based on the pooling order. Otherwise, ASIC was concerned to see that its costs were paid.

82. The leading authority on the impact of the equitable lien on issues of priority is the Full Federal Court decision in Shirlaw v Taylor.[3] The case involved the interpretation of s.441 (now s.556) in assessing the relative priority of a provisional liquidator and a liquidator. The Court held that:

"In our view, upon the proper interpretation of s 441, when provisional liquidation is followed by a winding up, the equitable lien of the provisional liquidator remains as much of a secured debt as it does when there is no ensuing winding up. However, to the extent to which the available assets subjected to the lien are insufficient to satisfy it, the unsecured balance still due and owing to the provisional liquidator may be recouped out of the further assets brought into the winding up. But, by reason of s 441 (a) and (b), the entitlement of the provisional liquidator to recover out of those further assets is deferred to the costs, charges and expenses of the winding up in the course of which, as it happens, those assets will have been brought into the administration." (p.232)

86. The liquidator's equitable lien was extended to administrators in Commonwealth Bank of Australia v Butterrell.[4]

89. The liquidator's equitable lien, which covers his or her remuneration and expenses, over assets of the company under his or her control emanates from and survives appointment. This equitable lien was qualified in Re Sanitary Burial Assn[5] where it was held that the payment of the costs incurred by solicitors employed by the liquidator to do necessary work in the liquidation was to have priority over payment of the remuneration of the liquidator. However, the case concerned a voluntary liquidation and its application can be confined to solicitors' costs as no reference was made by the Court to extending priority to other costs and expenses.

93. The statutory lien arises out of s.443F(1) of the Corporations Act which provides:

"443 F(1) [Administrator's lien] To secure a right of indemnity under section 443D, the administrator has a lien on the company's property."

97. The right of indemnity under s.443D which covers debts and remuneration is expressed as follows:

"443D The administrator of a company under administration is entitled to be indemnified out of the company's property for: (a) debts for which the administrator is liable under Subdivision A or a remittance provision as defined in subsection 443BA(3): and (b) his or her remuneration as fixed under section 449E."

101. Under s 443E, the right of indemnity under s443D has priority over other debts, but is also subject to subject to section 556:

"443E(1) [Priority over debts unsecured or secured by floating charge] Subject to section 556, a right of indemnity under section 443D has priority over: (a) all the company's unsecured debts; and (b) subject to subsections (2) and (3) of this section, debts of the company secured by a floating charge on property of the company."

105. Section 449E provides for the fixing of an administrator's remuneration:

"449E (1) [Remuneration fixed by creditors' resolution or court]. The administrator of a company under administration, or of a deed of company arrangement, is entitled to: (a) such remuneration as is fixed by a resolution of the company's creditors passed at a meeting convened under section 439A, or under section 439A or 445F, as the case may be; or (b) if no remuneration is so fixed-such remuneration as the Court fixes on the application of the administrator. 449E (2) [Court may review and alter para (1)(a) remuneration] Where remuneration is fixed under paragraph (1)(a), the Court may, on the application of the administrator or of an officer, member or creditor of the company: (a) review the remuneration ; and (b) confirm, increase or reduce it."

109. In Weston and Another v Carling Constructions Pty Ltd (in prov liq) and Another,[6] Austin J considered the administrator's statutory lien and its effect on the equitable lien. The case involved joint administrators whose remuneration and disbursements had not been paid by the time their administration had come to an end and who claimed a lien over company property to secure their right of indemnity for their fees and disbursements. Austin J held that:

"The statutory lien confirms the position at general law, but does not replace the equitable principles. True it is that the statute, in establishing a statutory lien, could limit or qualify its scope and (expressly or by implication) the scope of the equitable lien as well. But in my opinion there is nothing in Pt 5.3A that does so. The statutory lien is conferred in unqualified terms by s.443F. The words `subject to section 556' qualify the priority of the administrator's statutory right of indemnity but not the scope of the statutory lien which supports it." (p.104)

"The words `subject to section 556' in s.443E do not diminish the administrator's right to recover, out of the assets of the company realised in the course of the administration, his or her remuneration as well as disbursements and recoupment for debts incurred during the course of the administration. But those words have the effect that if any additional assets are recovered by a subsequently-appointed provisional liquidator or liquidator, the administrator's priority to payment out of those additional assets is governed by s.556." (p.106)

117. His Honour determined that fees and remuneration, as opposed to disbursements and liabilities, were encompassed by s.556(2) which defined the term "deferred expenses", and that such expenses rank below various expenses relating to the liquidation. Moreover, Austin J held that "The deferred expenses of the administrator rank concurrently with the liquidator's deferred expenses. (at p.103)

120. In Cinema Plus Ltd v ANZ Banking Group,[7] the NSW Court of Appeal considered the scope of the statutory lien. The case concerned administrators and the claim that their liens over company property had priority over the right of the defendant bank to consolidate or combine bank accounts before the end of the administration, so that the bank, rather than the administrators, would have the benefit of the balance of funds in the consolidated account. Spigelman CJ interpreted the phrase "the company's property" in s.443F to mean that the administrator's lien attaches to the whole of the company's property, at the time that the right of indemnity arose, and includes choses in action. (p.528) It would appear that policy considerations underlie Spigelman CJ's construction as his Honour reasoned that the statutory scheme would not function effectively given that there would be reluctance to accept the office of administrator if administrators could not be assured indemnity or remuneration:

"If the practical value of the indemnity could be reduced by subsequent conduct of creditors which retrospectively exposed an administrator to personal liability or loss of remuneration, the statutory scheme would not operate effectively." (p.528)

124. The difficulty however arises in attempting to reconcile the attachment of the statutory lien to the whole of the company property at the time the right of indemnity arose compared with Weston v Carling Constructions where it was held by Austin J that the statutory lien covers those assets realised in the course of the administration. Commentators on corporate insolvency seem to suggest that the statutory indemnity applies to property of the company which comes under the control of the administrator, and where there are insufficient funds realised to cover the administrators' remuneration, it will become a deferred expense under s.556.[8] In my view, this is the correct approach.

128. Under s.1322(4) of the Corporations Act, a Court is empowered to rectify any procedural irregularities which have been committed and which relate to the Corporations Act 2000:

"1322(4) [Court may make orders] Subject to the following provisions of this section but without limiting the generality of any other provision of this Act, the Court may, on application by any interested person, make all of the following orders, either unconditionally or subject to such conditions as the Court imposes: (a) an order declaring that any act, matter or thing purporting to have been done, or any proceeding purporting to have been instituted or taken, under this Act or in relation to a corporation is not invalid by reason of any contravention of a provision of this Act or a provision of the constitution of a corporation;"

132. However, the power under s.1322(4) is not without qualification: rectification can occur but on condition that it does not cause substantial injustice, which takes into account the procedural irregularity itself and what injustice would result from validating the irregularity by order of the court. Such approach was taken by Santow J in Sutherland v Robert Bosch (Aust)P/L & Ors,[9] a case concerning the validity of the appointment of an administrator. Moreover, s.1322(4) enables the Court to declare any conduct or matter which purports to have been done within the canopy provided by the Corporations Act valid. However, as I have previously held in Re Inventive Marketing P/L (in liq),[10] another case involving whether an administrator had been validly appointed, this is not a discretion to be exercised lightly and evidence of prejudice to an affected party should be a factor in the Court's decision to use the power under s.1322.

135. In relation to the determination, by the court, of a liquidator's remuneration, it was held in Venetian Nominees v Conlan,[11] that the onus was on the liquidator to show that the remuneration claimed was fair and reasonable, and that merely listing the employees responsible for the work done, the hours worked and sums claimed may be inadequate. An itemised, detailed account of the work completed and verified in an affidavit was required.

138. The law relating to liens, however, is silent on the impact of any pooling order which appears to provide the complication in this matter before me. A pooling order was made in Dean-Willcocks v Soluble Solution Hydroponics P/L & Anor,[12] where Young J determined the conditions required for a court to impose a pooling order. These conditions included the exceptional case where the assets of a group of companies were so intermingled that it was impossible to assess the assets of each, creditors did not have to be consulted where it was impracticable to have a creditors meeting, and the assets could be pooled. The case of Dean-Willcocks which involved the Court's approval of a resolution passed by creditors of related companies, under voluntary administration, to consolidate the assets and liabilities of those companies, was applied in Re Charter Travel Co Ltd,[13] where Young J declared a pooling order on the court imposed liquidations of two related companies. Furthermore, His Honour expressed the object of the Supreme Court of NSW as being "anxious to see that liquidations are conducted with commercial efficiency and will not allow any technical rules to frustrate that attempt", and suggested that it may be beneficial for amendments to be made to the Corporations Law (now Corporations Act) enabling liquidators to consolidate assets and liabilities in appropriate cases. In Switch Telecommunications Pty Ltd (in liq); Ex parte Sherman,[14] Santow J suggested the function of a pooling order as a "valid arrangement made binding on all creditors, present or not, to participate in a combined pool of assets and liabilities with realisations, costs and distributions shared in an equitable manner". None of these authorities, however, consider the effect of liens on a pooling order.

142. Central to this application is the effect of the liens as they are the basis for the liquidators and administrators' right to remuneration. The law relating to liens outweighs considerations of the practical function of the pooling order. I am guided by the approach of Austin J in Weston. In applying _Weston (_which followed the Full Federal Court decision in Shirlaw) to this matter, I conclude that the administrators are entitled to be paid remuneration, together with interest which runs from the time when the amount is quantified, in relation to those assets of the Lockwood companies realised under their administration, in accord with their equitable lien. The administrators' statutory lien attaching to assets of the Lockwood companies realised in the winding up becomes subject to s 556 in which case the administrators' remuneration is a deferred expense and is to be paid after the other expenses, as provided for in s556 (1), are met. The equitable lien of the liquidator attaching to the realisation of assets in the winding up, takes priority over the administrators' statutory lien in accordance with the equity, in that it would be unconscionable for the administrators to benefit from the fruits of the liquidator's labour. The same position applies with respect to the single company of which Mr Lockwood is the sole administrator.

145. The pooling order of 7 August 2000 expressly provided for the "proper remuneration" of the administrators from a pooling of the assets in the winding up. However, the pooled assets amounting to the funds currently in the bank include the realisation of assets in two companies, namely LPI Holdings P/L and Lifestyle Property Finance P/L for the sums of $60,593.34 and $4,452.27 respectively, which were not part of the Lockwood companies and thus, to which the administrators' statutory lien does not attach. The payment of the administrators' remuneration from these funds would therefore be a departure from "proper remuneration".

148. As to the informal agreement between Mr White, the administrators and ASIC, Anthony Watson in an affidavit of 18 June 2002 deposed that the parties were aware that at the time of the agreement the administrators' fees were to be paid in accordance with the priorities set out in s.556 of the Corporations Act.

151. As for the costs of ASIC, it can be in no better position than the administrators in that the liquidator's lien has priority over those costs.

155. So far as s.1322 is concerned, I am satisfied that the liquidators did not intend any impropriety in not acting in accordance with the pooling order of 7 August 2000. I am also satisfied that no substantial injustice or prejudice would be inflicted on any creditor if I make orders validating the payment of the liquidator's remuneration, to which he is entitled by way of the equitable lien he has over assets realised in the winding up. However, I make these orders on condition that the liquidator provide detailed information showing that his costs and rates were reasonable and no higher in conducting separate liquidations, and that he provide a funds flow statement indicating on a chronological basis the funds recovered in the winding up.

158. The liquidator also proposed that the Lifestyle Property Group, which was ordered to be wound up separately and on application of the Deputy Commissioner of Taxation, become part of the winding up order of 7 August 2000. To this effect the liquidator relied on a letter from the Australian Taxation Office which offered no objection to this proposal. I will order accordingly.

161. I will direct the parties to prepare orders reflecting my reasons.

[1] [1933] HCA 2; (1933) 48 CLR 171

[3] [1991] FCA 415; (1993) 31 FCR 222

[4] (1994) 35 NSWLR 64

[5] [1900] 2 Ch 289

[6] [2000] NSWSC 693; [2000] 35 ACSR 100

[7] [2000] NSWCA 195; 49 NSWLR 513, at 528

[8] James O'Donovan, "Corporate Insolvency" (1994) 12 Company and Securities Law Journal 382, 384.

[9] [2000] NSWSC 32; (2000) 33 ACSR 680, 689

[10] [2000] VSC 432; 36 ACSR 206

[11] [1998] NSWSC 596; 16 ACLC 1,653

[12] (1997) 42 NSWLR 209

[13] (1997) 25 ACSR 337

[14] [2000] NSWSC 794; (2000) 157 FLR 158