Australian Securities and Investments Commission v Marco

BACKGROUND 5 The Administrators rely on three affidavits affirmed by Mr Shaw on: (a) 27 October 2020; (b) 14 March 2021 (the Second Shaw Affidavit ); and (c) 5 May 2021 (the Third Shaw Affidavit). 6 The Liquidators rely on the Second and Third Shaw Affidavits and also an affidavit of Mr Brauer, sworn and filed on 24 July 2020, which was read in support of the substantive winding up proceeding the subject of Marco (No 6). Mr Brauer's affidavit annexes the Interim Receivers' Report which was prepared and filed in accordance with the orders I made in Marco (No 3) which sets out the results of the Interim Receivers' investigations into the affairs of the defendants. 7 Between at least 1 January 2014 and 31 October 2018 (when ASIC commenced these proceedings and asset preservation orders were made over all of the defendants' assets), the defendants operated a managed investment scheme whereby investors would execute a Declarations of Trust with Mr Marco, by which Mr Marco guaranteed very attractive returns on maturity of the investment. The vast majority of investor funds were pooled in Mr Marco's personal bank accounts, and representations were made to investors that lucrative returns would be generated by Mr Marco's access and application of investor funds to overseas 'Private Placement Programmes'. These programmes purportedly provided access to lucrative arbitrage transactions involving banking instruments in the US and Europe. Investor funds were also transferred by Mr Marco to AMS which purchased real property with those funds: Marco (No 6) (at [11]). 8 From 31 October 2018 to 7 December 2020, all of the assets of the defendants were subject to asset preservation orders which restrained the defendants from dealing with any of their property and from incurring new liabilities. From 27 May 2020, all of those assets were also placed under the control of the Interim Receivers, who were, on 7 December 2020, appointed as the Liquidators (and receivers) of the property of the Scheme on a final basis. During the interim receivership, the Interim Receivers were ordered to identify, preserve and secure the defendants' assets as well as investigate and provide the Receivers' Report to the Court which, amongst other things: (a) identified the assets and liabilities of each of the defendants including AMS; and (b) provided an opinion as to the solvency of each of the defendants and the likely return to creditors, including investors, in the event that the Scheme were wound up. 9 As to AMS specifically, the directors of the company are Mr Marco and his son Damon Marco. Mr Marco is the sole shareholder. The extensive investigations of the Liquidators (previously as Interim Receivers) and the Administrators reveal that AMS never traded in its own right and that it was 'essentially propped up by numerous transfers of investor funds from Mr Marco': Marco (No 6) (at [78]-[79] and [83]). 10 By a trust deed executed in July 2013, AMS became trustee of the AMS Trust. The specified beneficiaries of the AMS Trust are Mr Marco and his wife; the general beneficiaries are other members of the Marco family. Mr Marco is the appointor of the AMS Trust: Marco (No 3) (at [44]) and Marco (No 6) (at [12]). In the Receivers' Report, the view is expressed that AMS held all of its assets in its capacity as trustee of the AMS Trust. As I noted in Marco (No 6) (at [79]): In their Report, the Interim Receivers stated that: The Receivers have not identified any evidence to suggest that [AMS] traded in its own capacity. The Australian Business Number used by AMS was registered to the [AMS Trust] and the property business appears to have been operated exclusively through the [AMS Trust]. Mr Marco has also stated that AMS undertook no activities in its own right. And further that: AMS should be considered an extension of Mr Marco's business and therefore both entries [sic - entities] should be reviewed on a consolidated basis. 11 By operation of the AMS Trust deed, AMS ceased to be trustee of the AMS Trust consequent upon the appointment of the Administrators. Mr Marco, as appointor, does not appear to have appointed a new trustee to fill the vacancy caused by AMS' voluntary administration, and now liquidation. 12 As at the date of its vacation of the trusteeship of the AMS Trust, 24 September 2020, AMS was the legal owner of the following assets (the Property): Property held in the name of AMS Receiver's Estimated Realisable Value Cash at bank $8,512 Loans receivable $237,400 159 Scarborough Beach Road $1,460,000 177 Scarborough Beach Road $1,420,000 8 McDonald Street West, Osborne Park $925,000 6/182 McDonald Street, Joondanna $270,000 171A Edinboro Street, Joondanna $550,000 171B Edinboro Street, Joondanna $530,000 262 Stirling Highway, Claremont $1,260,000 2/264 Stirling Highway, Claremont $370,000 3/264 Stirling Highway, Claremont $380,000 4/264 Stirling Highway, Claremont $380,000 5/264 Stirling Highway, Claremont $825,000 Total: $8,615,912

13 The Administrators and the Liquidators agree that the assets listed above are the only assets from which the Administrators could draw an entitlement (if any) to remuneration. Both parties also agree that AMS held the Property on trust, however the exact nature of the trust on which the Property was actually held is disputed. 14 Upon their appointment to AMS, the Administrators set the following events in motion: (a) on 29 September 2020 the Administrators produced their Initial Report to creditors; (b) on 7 October 2020, the first meeting of creditors of AMS was held; (c) on 16 October 2020, Mr Marco, being a director of AMS, delivered a proposal for a Deed of Company Arrangement (DOCA). Mr Marco's DOCA proposal was later amended (see Marco (No 6) at [45]-[53]); (d) a substantial Committee of Inspection (COI) was formed, comprising 12 persons including Mr Brauer; (e) on 18 October 2020 the Administrators produced their Major Report to creditors which contained detailed analysis and opinions as to the affairs of AMS, including a recommendation on Mr Marco's first DOCA proposal (the Original DOCA). The recommendation expressed by the Administrators was that creditors should not vote in favour of the Original DOCA; (f) on 22 October 2020, a meeting of the COI for AMS was held at which numerous concerns were aired about the Original DOCA and the prospect of an investor-led DOCA was foreshadowed. On this basis, and on the request of ASIC, the Administrators recommended that the second meeting of creditors be adjourned to 26 November 2020 (see Marco (No 6) at [51]); (g) on 23 October 2020, Mr Marco's First Revised DOCA was circulated to creditors; (h) on 24 October 2020, a solicitor for an investor in the Scheme advised that a further 'investor-led' DOCA proposal would be delivered; (i) on 26 October 2020, the second meeting of creditors, where the creditors would be allowed to vote on the fate of AMS, was adjourned until 26 November 2020; (j) on 28 and 29 October 2020, the final hearing of ASIC's application to wind up the Scheme took place; (k) on 18 November 2020, Mr Marco's Second Revised DOCA was circulated to creditors together with the Administrators' Supplementary Report to creditors which recommended that creditors vote in favour of the Second Revised DOCA (see Marco (No 6) at [54]-[56]) (l) on 26 November 2020, the second meeting of the creditors was held and, despite the Administrators' recommendation, the Second Revised DOCA was not approved and no investor-led DOCA proposal ever materialised. Although a majority of creditors by number voted to approve the Second Revised DOCA, a majority of creditors by value voted against. The meeting chairman, Mr Shaw, exercised his casting vote not to approve the DOCA. The creditors also voted not to approve the Administrators' remuneration. By operation of s 439(c) and s 446A of the Corporations Act, the Administrators were converted to be the joint and several voluntary liquidators of AMS; and (m) by my order of 7 December 2020, that appointment of those liquidators was terminated and the then existing Interim Receivers were appointed as Liquidators over the entire Scheme operated by the defendants (as defined in Marco (No 6)). 15 At no time was there any challenge to the appointment of the Administrators and no challenge is raised to their standing to bring the remuneration application. The only objection to the application has been from the Liquidators, although the Liquidators make clear that there is more widespread opposition among Scheme investors.

THE ISSUES AS FRAMED BY THE PARTIES 16 The Liquidators' objection, in summary form, is that there is no property from which the Administrators can draw their remuneration because: (a) they, as Interim Receivers, were in control of the Property at the time of the appointment of the Administrators; (b) the Administrators had no role to play with respect to the Property; (c) the Administrators did not and could not have incurred any remuneration in caring for, preserving, recovering or realising the Property; and accordingly (d) there is no available property out of which remuneration can be paid. 17 Broadly speaking, the Administrators argue that each of these four elements of the Liquidators' objection is flawed in fact and/or at law on the basis: (a) the Liquidators' control over the Property is not determinative as to whether the Administrators have a right of exoneration from the Property; (b) in fact, the Administrators had a role to play in respect of the Property and they performed that role; (c) the Liquidators misstate the test as to whether a right of exoneration exists as it is a question of whether liabilities were incurred on trust business; and (d) as a matter of undisputed fact, the Property exists and was, and is, held on trust by AMS and, as a matter of law, it is available to AMS as trustee and thus the Administrators in respect of its right of exoneration. 18 In addition to considering these arguments, it will be necessary to reach conclusions on a number of issues which appear not to have been addressed by the parties despite the extensive written submissions. Both parties have remarked at various stages in this litigation as to the significant complexity of Mr Marco's Scheme and the unusual nature of his business activities and arrangements with investors. The vast corpus of evidence that has been put before the Court reveals that the Scheme was operated with almost complete disregard or ignorance of the legal and equitable principles which governed Mr Marco's relationship with investors, particularly with respect to the law of trusts. Given the focus of ASIC's regulatory action on establishing contraventions of the Corporations Act, reaching a conclusion on a number of those issues was not pursued in the principal application as it was not there necessary. 19 The intervention of insolvency practitioners however has brought these issues to the fore, and added the additional layer of complexity that presents when the activities of a corporate trustee are subject to insolvency laws that are principally directed to companies that trade or hold assets in their own right. In a very short period of time, the Administrators have resolved to carry out a very large body of work based on their own assessment of the precise legal and equitable nature of the arrangements and transactions that constituted the Scheme. They have expended apparently significant effort, and now claim commensurate remuneration, for these activities. 20 At no point was direction sought from the Court for the purpose of either confirming the assumptions on which the Administrators proceeded, or justifying the activities that were based on those assumptions. This, in circumstances where a substantial amount of the work was directed to consideration of a DOCA which could not have been executed without approval of the Court even if it had been approved by creditors. The consequence, in the unusual circumstances of this case, is that there has now been significant duplication in the work of two sets of insolvency practitioners with only marginal benefit to investors (at best) when compared with the quantum of costs and remuneration now claimed. It would seem that there would be some scope for this outcome to have been mitigated given the Court's ample supervisory power. But that said, on the face of matters, the statute required this work to be performed absent some court intervention.

STATUTORY PROVISIONS 21 The Administrators seek a determination as to their remuneration from the Property pursuant to s 60-10(1)(c) of the IPSC. That section provides as follows: 60-10 Remuneration determinations Remuneration determinations (1) A determination, specifying remuneration that an external administrator of a company (other than an external administrator in a members' voluntary winding up) is entitled to receive for necessary work properly performed by the external administrator in relation to the external administration, may be made: (a) by resolution of the creditors; or (b) if there is a committee of inspection and a determination is not made under paragraph (a) - by the committee of inspection; or (c) if a determination is not made under paragraph (a) or (b) - by the Court. Note: For determinations made by the Court, see also section 60 12 (matters to which the Court must have regard). (Emphasis added.) 22 The preceding section, s 60-5, confirms an external administrator's entitlement to remuneration in the following terms: 60-5 External administrator's remuneration Remuneration in accordance with remuneration determinations (1) An external administrator of a company is entitled to receive remuneration for necessary work properly performed by the external administrator in relation to the external administration, in accordance with the remuneration determinations (if any) for the external administrator (see section 60-10). 23 That entitlement to remuneration is secured by a statutory right of indemnity over the 'company's property' under s 443D(b) of the Corporations Act as follows: 443D Right of indemnity The administrator of a company under administration is entitled to be indemnified out of the company's property (other than any PPSA retention of title property subject to a PPSA security interest that is perfected within the meaning of the Personal Property Securities Act 2009) for: … (b) the remuneration to which he or she is entitled under Division 60 of Schedule 2 (external administrator's remuneration). 24 Section 443F creates a statutory lien over the company's property for the purpose of the indemnity provided under s 443D. 25 Finally, in relation to the references to the 'company's property' in ss 443D and 443F, the word 'property' is defined in s 9 of the Corporations Act as follows: property means any legal or equitable estate or interest (whether present or future and whether vested or contingent) in real or personal property of any description and includes a thing in action, and: (a) in Part 5.3A (administration) - has a meaning affected by section 435B … 26 Section 435B expands the definition of 'property' for the purposes of Pt 5.3A to include 'any PPSA retention of title of the company.' It has no relevant application in this case.

THE CAPACITY IN WHICH AMS HELD ITS ASSETS 27 There is a fundamental need to identify, with some precision, the capacity in which AMS held its assets. There is significant difficulty however in giving sensible legal characterisation to the conduct of the defendants, whose operation of the Scheme paid little regard for the legal and equitable obligations they assumed by the receipt of investor funds. This is particularly so in the present application where neither the Administrators nor the Liquidators have any direct interest in the Scheme and have made very limited submissions on the issue. Although both parties agree that all of the Property was held by AMS on trust and not for its own benefit, the nature and terms of the trust or trusts is disputed. 28 There are two different types of trust which are potentially relevant. The first is the AMS Trust, being the third defendant, which is a family trust of which the beneficiaries are the Marco family. The documentary record would suggest that the Property is held by AMS as trustee for the AMS Trust. This is because, as noted in the Receivers' Report, '[t]he Australian Business Number used by AMS was registered to the [AMS Trust] and the property business appears to have been operated exclusively through the [AMS Trust]'. By virtue of an ipso facto clause in the AMS Trust Deed however, the appointment of the Administrators had the effect of vacating the office of trustee of the AMS Trust. 29 On this basis, the Liquidators contend that AMS held the Property as bare trustee of the AMS Trust, with powers limited strictly to the protection and preservation of the Property: Jones v Matrix Partners Pty Ltd [2018] FCAFC 40; (2018) 260 FCR 310 per Allsop CJ (at [33]); Caterpillar Financial Australia Limited v Ovens Nominees Pty Ltd [2011] FCA 677 per Gordon J (at [26]); see also my discussion of the point in Re Substar Holdings Pty Ltd (in liq) [2020] FCA 1863 (at [27]-[28]). 30 It is thus contended by the Liquidators that, although a bare trustee retains its right of exoneration or indemnity from trust assets, that right is limited to liabilities incurred in the protection and preservation of the trust property. In circumstances where the Liquidators (then as Interim Receivers) were in control of the Property for the entirety of the Administrators' appointment, it is contended that none of the Administrators' activities was directed to their limited duties as bare trustee and thus cannot be claimed under the trustee's indemnity. In reply submissions, the Administrators accept that 'one way or another' AMS holds the Property as bare trustee, but they contend it is somewhat beside the point because AMS' only activity was to hold the Property on trust such that all of its business was trust business. I will return to this submission in due course; it is necessary first to consider AMS' position a little further. 31 The line of reasoning proffered by the Liquidators overlooks the second set of trust relationships that featured in Mr Marco's Scheme, namely, the trusts established each time Mr Marco executed a Declaration of Trust to facilitate the receipt of funds from an investor in his Scheme. In each instance an express trust was established when investor funds were advanced and protected by that Declaration of Trust. Following an action for recovery brought against Mr Marco by a number of investors, it has been confirmed that the Declaration of Trust established an express trust between Mr Marco as trustee and the investor as beneficiary: Markopoulus v Marco [2020] WASC 79. As Tottle J concluded in that decision (at [49]-[51] and [58]): 49 I am satisfied that the language the parties used in the Declarations of Trust manifested a clear intention to create an express trust. Central to this conclusion is that the parties chose to execute a document titled 'Declaration of Trust' which provided that the moneys would be held 'in trust' for the 'beneficiaries'. Such language was, to adopt Brereton J's words in Re Courtenay House Capital Trading Group, 'unambiguous and explicit' and is decisive. 50 The fact that the parties agreed a minimum guaranteed rate of interest does not displace the intention to create a trust. This is particularly so in circumstances where the named beneficiary was entitled to all interest or income earned on the investment beyond the agreed minimum rate. 51 Assuming in Mr Marco's favour that the Declarations of Trust could be construed as contemplating that the plaintiffs' funds would be pooled with Mr Marco's own funds and the funds of other investors such pooling would not be sufficient to displace the existence of a trust relationship. As Brereton J noted at [26], 'particularly in the context of managed investment schemes, the idea of trust money being 'pooled' for the purposes of trading, and even being used to meet certain obligations of the trustee, even in connection with other clients, is established.' … 58 The effect of Mr Marco's evidence as to the way in which he operated his business is that 'most' other investors had executed a Declaration of Trust and that he pooled the funds of those who invested with him. Mr Marco's counsel accepted that the terms on which he invested funds for Ms Lockett and Mr Williams were the same as the terms on which he invested funds for Mr Markopoulus. Despite the absence of documentation, it is a reasonable inference that the relationship between Mr Marco and Ms Lockett and Mr Williams was the same as that between Mr Marco and Mrs Markopoulus and Tonpose: that is, it was a relationship of trust. This inference was accepted by Mr Marco's counsel as being a necessary consequence of a finding that the funds of Mrs Markopoulus and Tonpose were held on trust. In effect, Mr Marco relied on the 'same position' that was taken in relation to the Mrs Markopoulus and Tonpose express trusts. For the reasons already stated, Mr Marco is unable to establish a triable issue on the basis of the contentions about his subjective intention and summary judgment should be given for Ms Lockett and Mr Williams. (Emphasis in original, citations omitted.) 32 I respectfully agree with this conclusion: see also Marco (No 3) (at [77]). The same findings were reached by Henry J in Baxter Global Investments Pty Ltd v Marco [2020] NSWSC 1293 (at [46]-[52]). 33 It is to be noted however that AMS was not joined as a defendant in the proceedings the subject of Markopolous, and the finding of a trustee-beneficiary relationship in that decision concerned only the express trust established between Mr Marco and each investor by the Declarations of Trust (Investor Trusts). Similarly, although the plaintiff investors in Baxter Global also sought relief against AMS on the basis that it had received all or part of the relevant trust funds, and held those funds as constructive trustee for the plaintiff's benefit, that aspect of the claim could not be pursued because Mr Marco did not appear at the hearing and was not available for cross-examination: Baxter Global (at [14]). 34 On the agreed evidence, AMS did not trade on its own account at any time, nor did it hold a beneficial interest in any of the Property. With the exception of a $600,000 bank loan, AMS purchased all of the Property using investors' funds that were transferred to it by Mr Marco. Despite the fact that Mr Marco mixed the funds he received under each Investor Trust with his personal funds and funds from every other Investor Trust, there is no reason to think that the investors lost the protection of a trust (such as that may be in practice), simply because Mr Marco transmitted their funds to the entity which he controlled, namely AMS. Those trust funds, which AMS received, were all necessarily impressed with the trusts established under the Declarations of Trust. By transferring funds advanced by investors to Mr Marco, the trust obligations were not removed. 35 It is also not disputed that Mr Marco considered AMS to be an 'extension of his own business dealings': Marco (No 6) (at [79] and [101]). Thus, when considering the nature of AMS' position with respect to the Property, purchased with trust funds advanced to it by Mr Marco, AMS must be treated as the corporate alter ego of Mr Marco as trustee of the Investor Trusts. 36 As the Full Court (Finn, Stone, Perram JJ) stated in Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6; (2012) 200 FCR 296 (at [242]-[243]): 242. It is accepted in this country that Lord Selborne's ex tempore observations in Barnes v Addy did not provide an exhaustive statement of the circumstances in which, and the bases on which, a third party's participation in another's breach of fiduciary duty or breach of trust, could render that person accountable in equity as a "constructive trustee" (to use the commonly adopted but often unhelpful formula): Farah Constructions at [161]. 243. The fact findings made in this case reveal, potentially, four quite different manifestations of such participation. Each type warrants present note. The first, is where the third party is the corporate creature, vehicle, or alter ego of wrongdoing fiduciaries who use it to secure the profits of, or to inflict the losses by, their breach of fiduciary duty… In these cases the corporate vehicle is fully liable for the profits made from, and the losses inflicted by, the fiduciary's wrong. The liability itself is explained commonly on the basis that "company had full knowledge of all of the facts": Cook at 565; it is the alter ego of the fiduciary with a "transmitted fiduciary obligation": Timber Engineering at [11]; or that it "jointly participated" in the breach: CMS Dolphin at [103]. Liability does not turn on the need to show "dishonesty", although it often provides the reason for the interposition of the company. Proof of a breach of fiduciary duty will suffice: Green v Bestobell at 40. And, as was said in CMS Dolphin (at [104]), it is "rather artificial" to use Barnes v Addy to explain this liability. (Emphasis added.) 37 As trustee of the Investor Trusts, Mr Marco owed fiduciary obligations to each investor and those obligations were necessarily imposed upon AMS as the recipient of trust funds, and as the alter ego of Mr Marco as trustee. There are however a number of respects in which the conduct of Mr Marco and AMS differs from the category of case described in the passage from Grimaldi quoted above. 38 First, by virtue of the Court-ordered winding up of the Scheme and the forthcoming distribution to investors of funds from available assets, and, it would seem, Mr Marco's decision not to contest the claim in Baxter Global, no finding has yet been made that AMS received the funds from Mr Marco in breach of the Investor Trusts or Mr Marco's fiduciary obligations. Such a finding does not arise for consideration on this application, however it is to be noted that the Declarations of Trust, although brief, listed the 'Investment Type' as 'Private Placement'. As Henry J observed in Baxter Global (at [49]) (and I respectfully concur with her Honour): 49 Third, in my view, the surrounding circumstances known to the parties, as evidenced by their discussions and the terms of the ['Private Placement'] material sent by Mr Marco to Mr Batchelar, support the conclusion that ownership of the principal sums was to be retained by the plaintiffs and that they were to remain in Mr Marco's bank account for a specific and limited purpose, consistent with the creation of a trust relationship: Byrnes v Kendle at [117]-[118] ([Heydon] and Crennan JJ). During his discussions with Mr Batchelar, Mr Marco referred to sums advanced by investors "as their funds"; to the funds that Mr Batchelar or his related entities would invest as "Mr Batchelar's funds"; and "your funds" which were to be held and remain in "my bank account" in Perth. The ['Private Placement'] document attached to Mr Marco's 29 January 2013 email also refers to "the client's asset" and that funds blocked in a bank account "would not be moved, transferred or withdrawn". (Emphasis added.) 39 Secondly, whether or not the transfer of investor funds from Mr Marco to AMS breached the Investor Trusts, it must also be recognised that, although those funds were mixed and converted into the Property, for all intents and purposes AMS acted as trustee of that Property and does not appear to have itself taken any steps to secure profits for Mr Marco or inflict losses on the investors. Although the documentary record would suggest that AMS held the Property as trustee of the AMS Trust for the Marco family, the evidence does not suggest that the AMS Trust was actually performed. Rather, as noted in the Receivers' Report, rental income generated from certain of the Property was paid back to Mr Marco and was one of the few income streams of the Scheme. The Receivers' Report also records Mr Marco's representations to the effect that the Property was purchased to 'hedge' the Scheme's 'Private Placement' activities: The nature of the private placement market meant that there was an expectation that it would take a number of years before significant profits and returns were achieved by the business. Therefore, other assets were purchased (such as real property) which were intended to provide ready access to funds and an income stream to meet returns payable to investors. (Emphasis added.) 40 Thus, there is difficulty in reaching a conclusion that AMS held the Property as constructive trustee for the investors solely by analogy with the category of case described in Grimaldi (at [243]). That reasoning is grounded in the imposition of a constructive trust to secure an equitable remedy, whether personal or proprietary, against the offending trustee who has breached his fiduciary obligations. As noted, it is inappropriate to consider those anterior issues in this application. 41 There are however, other circumstances in which a constructive trust, which is sometimes considered to be more institutional in character, rather than strictly remedial, can arise. As Millet LJ observed in Paragon Finance plc v DB Thakerar & Co (a firm) [1999] 1 All ER 400 (at 408-409): Regrettably, however, the expressions "constructive trust" and "constructive trustee" have been used by equity lawyers to describe two entirely different situations. The first covers those cases already mentioned, where the defendant, though not expressly appointed as trustee, has assumed the duties of a trustee by a lawful transaction which was independent of and preceded the breach of trust and is not impeached by the plaintiff. The second covers those cases where the trust obligation arises as a direct consequence of the unlawful transaction which is impeached by the plaintiff. A constructive trust arises by operation of law whenever the circumstances are such that it would be unconscionable for the owner of property (usually but not necessarily the legal estate) to assert his own beneficial interest in the property and deny the beneficial interest of another. In the first class of case, however, the constructive trustee really is a trustee. He does not receive the trust property in his own right but by a transaction by which both parties intend to create a trust from the outset and which is not impugned by the plaintiff. His possession of the property is coloured from the first by the trust and confidence by means of which he obtained it, and his subsequent appropriation of the property to his own use is a breach of that trust… (Emphasis added.) 42 Although in Australia the distinction between institutional and remedial constructive trusts is perhaps not as clearly delineated (Muschinski v Dodds (1985) 160 CLR 583 per Deane J at 612-614), it is nevertheless the case that a constructive trust will arise upon proof of particular facts in certain contexts where a party receives trust property and the denial of the existing beneficial interest would be unconscionable: Staatz v Berry (No 3) [2019] FCA 924; (2019) 138 ACSR 231 per Derrington J (at [164]); see also the discussion in Imam Ali Islamic Centre v Imam Ali Islamic Centre Inc [2018] VSC 413 per McMillan J (at [396]-[406]); Grimaldi (at [504] and the authorities cited therein); Shiu Shing Sze Tu v Lowe [2014] NSWCA 462; (2014) NSWLR 317 per Gleeson JA (at [150]-[155]). It is also relevant in this case that a finding is at the very least open (though I do not need to decide the point either way), that AMS' possession of the Property was not intended to adversely affect the interests of investors in the Scheme. As Ormiston JA said in Nolan v Nolan [2004] VSCA 109 (at [60]): … A person becomes an institutional constructive trustee because there is evidence from which it may be inferred either that that person intended to hold property on behalf of others or that he or she should have had such an intention. If, however, the person intends to act adversely to other persons having a right in the property, then it could not be said that that person then acts as trustee, whatever other remedies might be had against that person, which might comprehend the declaration of a remedial constructive trust at the appropriate time. 43 The conclusion to be drawn from this analysis is that, upon receiving the investor funds from Mr Marco, AMS held those funds, and the Property purchased with them, on some form of constructive trusts for the investors in the Scheme. That is so because regardless of whether a breach of trust is established that grounds the imposition of a constructive trust to secure an equitable remedy against AMS, the circumstances of AMS' receipt of the trust funds and subsequent holding of those funds in the form of the Property are such that AMS intended to hold the Property on trust. It is not necessary to decide between these two possibilities at this stage; the distinctions between these two forms of constructive trust that bears upon the operation of limitations periods and the interests of third party creditors do not arise in this case: see, for instance, Staatz v Berry (at [160]-[165]). 44 Contrary to the Liquidators' submissions, the Property purchased by AMS never entered the AMS Trust because it was, at all times, clothed by the prior equitable rights and interests of the investors by virtue of the Investor Trusts. The operation of the ipso facto clause in the AMS Trust Deed does not therefore have any bearing on AMS' duties as trustee of the Property. In the highly unusual circumstances of this case, in which Mr Marco failed to conduct his Scheme on the basis that he was, in effect, the trustee of more than one hundred individual Investor Trusts, it is apt to recall the 'traditional concern of equity with substance rather than form': Muschinski per Deane J (at 613).

A TRUSTEE'S RIGHT OF EXONERATION 45 The parties' submissions were substantially directed to whether the Administrators' entitlement to remuneration out of the Property is grounded in a trustee's right of exoneration from trust assets. No link was drawn between this well-recognised right in a trustee and the statutory entitlement of an external administrator to remuneration under s 60-5 of the IPSC. Accordingly, each issue is addressed in turn below. 46 A trustee is prima facie entitled to use trust funds to discharge debts that were properly incurred by the trustee in the course of trust business, thereby exonerating himself or herself from any personal liability incurred as trustee: Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth [2019] HCA 20; (2019) 268 CLR 524 per Kiefel CJ, Keane and Edelman JJ (at [31]); Matrix Partners per Allsop CJ (at [35]). The right of exoneration is secured by an equitable lien or charge over the assets of the trust and confers a proprietary interest in the trust property in favour of the trustee. In Carter Holt, Kiefel CJ, Keane and Edelman JJ said (at [32]-[33]): 32 The power of exoneration, like that of reimbursement, has been described as conferring upon the trustee "a proprietary interest" in the trust assets. These labels, "trust assets" and the trustee's "proprietary interest", describe the combination and effect of the legal and equitable rights which the trustee holds on trust. Hence, where a trustee has legal title, as well as equitable or statutory powers of indemnity that are concerned with ways in which the legal title can be used, the legal title is not independent of those powers of indemnity. The legal title held by the trustee has thus been described as subject to an equitable charge or lien in favour of the trustee to secure the powers of indemnity. As this Court explained in Chief Commissioner of Stamp Duties (NSW) v Buckle, the "trust assets" are subject to competing "proprietary rights, in order of priority, of the trustee and the beneficiaries". The trustee's rights take priority over those of the beneficiaries to the extent of the trustee's powers of indemnity. Where the "trust assets" need to be sold to reimburse or exonerate the trustee, the beneficiaries' rights have lower priority than the trustee's rights. A court may authorise the sale of assets held by the trustee so as to satisfy the power of indemnity, as a step in the process of the trustee exonerating itself from authorised liabilities, in the same manner as any other equitable charge. 33 This well-established priority that the trustee's rights have over the equitable rights of the beneficiaries was justified in In re Johnson; Shearman v Robinson by Jessel MR on the basis that: "it would not be right that the cestui que trust should get the benefit of the trade without paying the liabilities; therefore the Court says to him, You shall not set up a trustee who may be a man of straw, and make him a bankrupt to avoid the responsibility of the assets for carrying on the trade". (Emphasis added, citations omitted.) 47 Similarly, Bell, Gageler and Nettle JJ said in the same decision (at [80] and [82]-[83]): 80 A corporate trustee's right to be indemnified out of the assets of the trust confers "property" for the purposes of the Corporations Act. As was stated by the plurality in Octavo Investments Pty Ltd v Knight, although a trustee who enters into business transactions as trustee is personally liable for debts incurred in the course of those transactions, the trustee is entitled to be indemnified (whether by recoupment or exoneration) out of the trust assets against such liabilities, and thus enjoys a beneficial interest in those assets. The corollary, as was stated unanimously in Chief Commissioner of Stamp Duties (NSW) v Buckle, is that the trustee does not hold the trust assets solely for the benefit of the beneficiaries to the extent of that right of indemnity. … 82 As has been understood at least since Maitland's explication of the trust, a trustee as legal owner of the trust assets has all the powers incidental to ownership subject only to the power of the beneficiaries to compel the trustee to exercise the trustee's powers in accordance with the terms of trust. Inasmuch as a court of equity will aid the beneficiaries in the enforcement of the terms of trust, the beneficiaries are described, especially in revenue contexts, as having a beneficial interest in, or occasionally even beneficial ownership of, the trust assets. The beneficiaries' interest is not, however, to be conceived of as cut out of the trustee's legal estate but rather as engrafted onto it as a restriction on the manner in which the trustee may deal with trust asset. 83 The trustee also has a right to be indemnified out of the trust assets in respect of liabilities properly incurred in the execution of the trust, which takes priority over the beneficiaries' claim on the trust assets. Until that right has been satisfied, the beneficiaries cannot compel the trustee to exercise the trustee's powers as legal owner of the trust assets for their benefit. A court of equity will assist the trustee to realise trust assets to satisfy the trustee's right of indemnity, in priority to the beneficiaries' interests, and thus it is said that the trustee has an equitable charge or lien over the trust assets. It is not, however, a charge or lien comparable to a synallagmatic security interest over property of another. It arises endogenously as an incident of the office of trustee in respect of the trust assets. (Emphasis added.) 48 The right of exoneration is principally directed towards indemnifying a trustee against liabilities incurred in the course of administering the trust, rather than remunerating a trustee for his/her time and trouble, for which there is no ordinary entitlement: Re Sutherland [2004] NSWSC 798; (2004) 50 ACSR 297 per Campbell J (at [11]). In the case of an insolvent corporate trustee however, there arises the question of whether a liquidator is entitled to be remunerated for work done in the exercise of the trustee company's indemnity so as to realise the assets of the trust for the payment of trust creditors. Courts have consistently held that a liquidator is entitled to remuneration out of trust assets in such circumstances, and the rationale was explained by King CJ in Re Suco Gold Pty Ltd (1983) 33 SASR 99 (at 110): It is now necessary to consider the position of the liquidator's costs, expenses and remuneration in the light of the above principles. Although I have not found myself able to agree with certain of the reasoning in Re Enhill Pty Ltd, it is, as a decision of the Full Supreme Court of Victoria, a highly persuasive authority for the proposition that the liquidator's costs, expenses and remuneration may be paid out of the trust property. There are clearly strong practical considerations in favour of such a course. Unless that course can be followed, the liquidation of a trustee company without assets of its own cannot proceed. It seems to me that that course can be justified by reference to the obligations of the trustee company arising out of the carrying on of the business authorized by the trusts. It is part of the duty of the trustee company to incur debts for the purposes of the trust businesses and, of course, pay those debts. Upon winding up those debts can only be paid in accordance with the provisions of the Companies Act. This requires necessarily that there be a liquidator and that he incur costs and expenses and be paid remuneration. (Emphasis added, citations omitted.) 49 Since the decision in Re Suco, a substantial body of authority has developed, not always consistently, on the question of a liquidator's entitlement to remuneration in the winding up of an insolvent corporate trustee; particularly, how claims for remuneration are to be resolved where a company incurs liabilities both on trust and in its own right, and the extent to which 'general liquidation work' is referrable to trust business. A helpful, with respect, summary of the current position on these questions was set out by Brereton J in Re AAA Financial Intelligence Ltd (in liquidation) ACN 093 616 445 [2014] NSWSC 1004 (at [13]), and cited with approval by Gleeson J in Kelly, in the matter of Halifax Investment Services Pty Ltd (in liquidation) (No 6) [2019] FCA 2111 (at [6]): (1) Where the company is trustee of a trading trust and has no other activities, the liquidators are entitled to be paid their costs and expenses, whether for administering the trust assets or for "general liquidation work", out of the trust assets: Re Suco Gold Pty Ltd (1993) 33 SASR 99; 7 ACLR 873; Grime Carter & Co Pty Ltd v Whytes Furniture (Dubbo) Pty Ltd [1983] 1 NSWLR 158; Re French Caledonia Travel Service Pty Ltd (in liq) [2003] NSWSC 1008; (2003) 59 NSWLR 361; Bastion v Gideon Investments Pty Ltd (in liq) (2000) 35 ACSR 466 at 480 [70]; In the matter of North Food Catering Pty Ltd [2014] NSWSC 77 . (2) Where the company does not act solely as trustee, costs and expenses referable to work done in relation to trust assets which may nonetheless be considered as having been done for the purpose of winding up the company ought ordinarily be borne primarily by the (non-trust) property of the company, to the extent that the assets permit: Re GB Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674 at 685-689; Re Greater West Insurance Brokers Pty Ltd [2001] NSWSC 825; (2001) 39 ACSR 301; French Caledonia at [209]. (3) At least where the non-trust assets do not permit that course, and perhaps even when they do, a liquidator is entitled to be indemnified out of trust assets for his costs and expenses, but only to the extent that they are referable to administering the trust assets: 13 Coromandel Place Pty Ltd v CL Custodians Pty Ltd (in liq) (1999) 30 ACSR 377 at 385; French Caledonia at [211], [213]. This is pursuant to the court's equitable jurisdiction to allow a trustee remuneration costs and expenses out of trust assets, which extends to a person such as a liquidator who is, for practical purposes, controlling a trustee: Berkeley Applegate (Investment Consultants) Ltd; Harris v Conway [1989] Ch 32 at 50-51; Re Application of Sutherland [2004] NSWSC 798; (2004) 50 ACSR 297; Trio Capital Ltd (Admin App) v ACT Superannuation Management Pty Ltd [2010] NSWSC 941; (2010) 79 ACSR 425; In re MF Global Australia Ltd (in liq) (No 2) [2012] NSWSC 1426, [55]; Alphena Pty Ltd (in liq) v PS Securities Pty Ltd atf Joseph Family Trust [2013] NSWSC 447; (2013) 94 ACSR 160. (4) In principle, where the liquidator does work which would entitle him both to remuneration as liquidator by the company, and recovery from the trust assets, there are two funds liable and there should be contribution between them. However, where there are no assets of the company available, it is unnecessary to consider the question of contribution. If a liquidator has done work which is attributable equally to the winding up of the company and the administration of trust assets, and there are no assets of the company at all to meet his expenses in doing so, the expenses are payable solely from the trust assets: French Caledonia at [212]. (5) Where the liquidator is administering, through the company of which he/she is liquidator, more than one trust, the liquidator is not entitled to charge the beneficiaries of one trust with the costs and expenses incurred in relation to the other, although where allocation is not possible a pari passu allocation may be permitted: Re Suco Gold at 882-3; 13 Coromandel at 386. (Emphasis added.) 50 The present facts align most closely with the first category of case from the cited passage above, namely, where a company is the trustee of a 'trading trust' and carries on no other activities. There is some debate as to whether AMS was in fact the trustee of a 'trading trust', with the Liquidators contending that AMS was nothing more than a holding company for real property which did not trade and had no activities. In Re GB Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674, McClelland J considered a liquidator's remuneration claim in the winding up of a company that had received client funds on trust for the purpose of investing those funds and said (at 686): In the present case, the company did not (at least to any significant extent) either carry on a business as trustee, or incur debts in that capacity. The primary rationale of Re Suco Gold Pty Ltd (In Liq) therefore has no present application. 51 In holding the Property, AMS did however incur some liabilities, and the Administrators' Major Report records 14 unsecured creditors in the sum of $143,230.77. Most of these creditors are those commonly associated with the holding of real estate and include various city councils, telecommunications providers and a utility provider. Clearly, on the authorities cited above, the Administrators would be entitled to remuneration for work performed in realising the Property in the exercise of AMS' right of exoneration. AMS' indemnity as trustee would rank in priority to the rights of the beneficiaries to the extent of those debts and remuneration reasonably incurred in discharging them. However, as will be discussed further below, the Administrators' work was substantially directed to investigations into the affairs of the Scheme more broadly and the adjudication of claims of the investors in the Scheme as contingent creditors for the purpose of voting on a DOCA. 52 There is a further difficulty with drawing an analogy between this case and the first category in AAA Financial. That is because AMS' receipt of investor funds did not create only one constructive trust of which every investor was a beneficiary. It instead created a multitude of constructive trusts referrable to each investor's transfer of funds to Mr Marco under each Investor Trust and Mr Marco's subsequent transfer of the whole or part of those funds to AMS. There is no evidence of any single over-arching trust business. It may well be impossible to trace the investor funds into the Property in any meaningful way, but the fact remains nonetheless that AMS's trustee obligations were in respect of multiple, and most likely a very significant number, of individual trusts. Thus, a further difficulty arises in that an administrator or liquidator is not generally entitled to charge the beneficiaries of one trust with the liabilities incurred in the administration of another trust unless an apportionment is not possible, in which case a parri passu distribution may be appropriate: Re Suco (at 882-3); 13 Coromandel Place Pty Ltd v CL Custodians Pty Ltd (In Liq) [1999] FCA 144; (1999) 30 ACSR 377 (at 386). No materials or arguments have been advanced to support such an exercise in this instance. 53 In any event and leaving this issue to one side, the primary point of difference between the Liquidators and the Administrators arises on the question of whether any link between 'general liquidation work' and the administration of the trust property must be demonstrated in the cases where a corporate trustee carries on no activities in its own right and holds all of its assets on trust. The Administrators contend that in such circumstances, all work carried out by a liquidator or external administrator can be remunerated from the trust assets because all activities carried out are in the performance or administration of the trust. They rely on the observations of Kennedy J in Re Mackie Group Pty Ltd (in liq) [2017] VSC 477; (2017) 122 ACSR 537 (at [59]-[62]): 59 It therefore appears that there is strong authority in favour of the proposition that the liquidators of a company which is the trustee of a trading trust with no other activities, are entitled to be paid their costs and expenses whether for administering trust assets or for general liquidation work. This appears to be based on the proposition that the liquidator, in winding up a corporate trustee, carries on the trustee's duty of managing the trust business for the benefit of the trust. 60 Even if this is wrong, the principles in Re Universal have been relied upon to justify such an order. Thus, in the recent decision of Riordan J in Freelance Global Ltd (in liq) v Bensted, His Honour noted that the application of the salvage principle entitled a liquidator acting reasonably to be indemnified out of trust assets for its costs and expenses in identifying or attempting to identify trust assets; recovering or attempting to recover trust assets; realising or attempting to realise trust assets; protecting or attempting to protect trust assets; and distributing trust assets to those beneficially entitled to them. 61 In the current case the liquidators have engaged in work so as to complete financial statements to identify assets; have taken steps to recover amounts owed to the trust; have adjudicated claims; and have taken advice to ensure that trust funds are distributed to those entitled to them. Given some of the complexities raised by the operation of the trust, they have also deemed it necessary to obtain various advices. 62 I am satisfied that the work generally needed to be done in the interests of the beneficiaries such that remuneration should be awarded. There also appears to be no alternative if the trust is to be properly determined. (Citations omitted.) 54 They similarly rely on Re Fearndale Holdings Pty Ltd (in liq) (recs & mgrs apptd) [2020] NSWSC 901 where Black J considered the relevant authorities at [25]-[29] and particularly cited the decision in Bastion v Gideon Investments Pty Ltd [2000] NSWSC 939; (2000) 35 ACSR 466 where Austin J said (at [70]-[71]): [70] The remainder of the liquidator's costs and expenses have been incurred by him in investigating the affairs of the company as its liquidator. In the Grime Carter case (at 542) McLelland J held that the liquidator of a company which was a trading trustee is entitled to apply trust assets in satisfaction of the costs and expenses of the winding up, including the liquidator's remuneration - at any rate where, as in that case and the present case, all of the assets and liabilities of the company are trust assets and trust liabilities. In reaching this conclusion, he preferred the judgment of the Full Court of the Supreme Court of Victoria in Re Enhill Pty Ltd [1983] 1 VR 561; (1982) 7 ACLR 8 to the judgment of Needham J in Re Byrne Australia Pty Ltd [1981] 2 NSWLR 394; (1981) 5 ACLR 475. That conclusion now appears to be generally accepted, although the reasoning was, in my respectful opinion, better articulated by his Honour in the G B Nathan case (at 685-6, citing Re Suco Gold Pty Ltd (in liq) (1983) 33 SASR 99; 7 ACLR 873) than in the Grime Carter case at 542. [71] In light of these principles, and my opinion that all the assets of the company should be treated as trust assets, the liquidator is entitled to be paid his reasonable remuneration, costs and expenses both for the work done to date as liquidator (including the costs of these applications), and the work done to date on behalf of the trust, out of the assets of the company. I propose to make an order that the amount of the liquidator's remuneration, costs and expenses to date be determined by the registrar, but I shall hear any further submissions that the liquidator may wish to make on that matter. 55 The Liquidators however, contend that while it will in most circumstances be the case that the general work of a liquidator will coincide with the administration of the trust property where the full extent of the company's activities was that of trustee, this will not always be the case. They submit that in the present case, there is a clear disconnect between activities referrable to the Property held by AMS (which was at all times during the Administrators' appointment, controlled by the Interim Receivers), and general activities referrable to the external administration of the company, such as the holding of meetings and the adjudication of claims for voting purposes to consider a DOCA. They rely on the reasoning of Finkelstein J in 13 Coromandel (at [32]-[35]): 32 What of the case where the trustee does not carry on the business of trustee but nevertheless holds property on trust? That was the position in Re G B Nathan & Co Pty Ltd (in liq) (1991) 5 ACSR 673. There, the company had received funds from investors on terms that they would be invested in the money market; by loans to institutions and by the purchase of bills of exchange. At the time of its winding up the company held certain money and securities on trust for its clients. The liquidator applied for directions as to whether he was entitled to deal with the money and the securities by passing them on to the claimants without further investigation and whether he could deduct therefrom the cost, charges and expenses of the winding up. McLelland J gave certain directions concerning the manner in which the money and securities were to be dealt with and then turned to consider the question of the liquidator's costs. As to this his Honour said (at 687): "Where, as appears to be the position in the present case, the company holds assets on what are virtually bare trusts for other persons, there seems to be no sufficient reason why the liquidator should not simply cause the company to comply with any demand by the beneficial owners to transfer the assets to them, thus giving effect to, and terminating, the trusts. In such a case, the work of the liquidator in causing those assets to be transferred to those entitled to them wears the double aspect of work properly carried out for the purposes of the winding up, as well as work carried out in the 'administration' of the trusts. It seems to me that to the extent that there is a conflict between the views of Gibson J in Berkeley Applegate (No 3) and the views of Needham J in Crest Realty . . . as to the duties of a liquidator in relation to trust property held by the company, the views of Needham J are to be preferred, at least where 'administration' is confined to the process of identifying the trust assets and those entitled to them and taking such steps as may be appropriate in the circumstances for the purpose of divesting from the company the trust assets and any continuing obligations in relation to them, all of which processes may fairly be comprehended in 'winding up the affairs of the company'." However, as there were sufficient assets of the company to meet the liquidator's claim for costs, there was no need for any order against the trust assets. 33 The difference of opinion between Gibson J in Re Berkeley Applegate (Investment Consultants) Ltd (No 3) (1989) 5 BCC 803 and Needham J in Re Crest Realty Pty Ltd (No 2) (in liq) [1977] 1 NSWLR 664 to which McLelland J referred concerned which of the activities undertaken by a liquidator of a trust company could be characterised as work related to the winding up of the company and which could be described as work that related to the administration of trust assets. Gibson J suggested that there is a reasonably clear distinction between the two classes of activity, whereas Needham J tended to the view that a good deal of the liquidator's work would ordinarily fit within both categories. The importance of the distinction is that work that is solely concerned with the winding up and not with the administration of trust assets can not ordinarily be charged against those assets. 34 These cases establish, clearly enough in my opinion, that provided a liquidator is acting reasonably he is entitled to be indemnified out of trust assets for his costs and expenses in carrying out the following activities: identifying or attempting to identify trust assets; recovering or attempting to recover trust assets; realising or attempting to realise trust assets; protecting or attempting to protect trust assets; distributing trust assets to the persons beneficially entitled to them. 35 The position is a little more involved as regards work done and expenses incurred in what may be described as general liquidation matters. If that work is unrelated to the beneficiaries and their claims it is difficult to see how the cost could be charged against their assets. In the case of a company that has carried on the business of trustee it might be that much of the work involved in the liquidation is chargeable against trust assets if it can be shown that the liquidation is necessary for the proper administration of the trust. But it is unlikely that this will be so where the company did not act solely as trustee or at least did not act in that capacity to a significant extent. In that event, the liquidator will be required to estimate those of his costs that are attributable to the administration of trust property and only those costs will be charged against the trust assets. (Emphasis added.) 56 The substance of this approach in 13 Coromandel has been followed in a number of cases including Re Sutherland; Re French Caledonia Travel Service Pty Ltd (in liq) [2003] NSWSC 1008; (2003) 59 NSWLR 361 (at [211] and [213]); Re Dalewon Pty Ltd [2010] QSC 311; (2010) 79 ACSR 530; Alphena Pty Ltd (In Liq) v PS Securities Pty Ltd [2013] NSWSC 447; (2013) 9 ASTLR 63 (at [62]); Re AAA Financial (at [13]); Re BBY Ltd (in liq) (No 3) [2018] NSWSC 1718 (at [38]); and Tang v Wright (No 3) [2020] FCA 1122 (at [23]).

DO THE ADMINISTRATORS HAVE A RIGHT OF EXONERATION? 57 In my view, it is unnecessary to resolve the disputed point of principle between the parties as to whether the right of exoneration, and by extension remuneration of an insolvency practitioner, extends to all work carried out in the administration of an insolvent trustee, regardless of whether such work is referrable to the trust property. That is because in this case, the Administrators never acquired a right of exoneration and so could not be said to have performed any activities in the exercise of such a right. 58 First, it is important to reiterate that the right of exoneration belongs to the trustee. The liquidators or administrators of an insolvent corporate trustee do not themselves become the trustee upon their appointment and nor does the trust property vest in them. Rather, they replace the directors who formerly controlled the trustee: Octavo Investments Pty Ltd v Knight [1979] HCA 61; (1979) 144 CLR 360 per Stephen, Mason, Aickin and Wilson JJ (at 371); see also French Caledonia Travel (at [201]), 13 Coromandel (at 384) and AAA Financial (at 13). 59 Secondly, following the decisions in Carter Holt and Matrix Partners, it is now settled that a trustee's right of indemnity and the proprietary interest which it confers on the trustee, is 'property' for the purposes of the Corporations Act. Indeed, where all of a company's assets are held on trust, the trustee's right of indemnity is the only property which is beneficially owned by the company. As Allsop CJ said in Matrix Partners (at [79]-[82]): 79 The right of exoneration and the lien in its support are property of the company which is the trustee. One need go no further than Octavo Investments for that proposition. The creditors are not beneficiaries of a trust in which the right of exoneration is held on trust for them. It is the property of the trustee. But that does not mean that it is a proprietary interest unattended by inhering equitable obligation. Its nature and character are that it is exercisable only to pay trust creditors. 80 How then does the Corporations Act affect these principles? 81 Analysed in the way I have, the right of exoneration is property within the meaning of s 9 of the Corporations Act: … [A]ny legal or equitable estate or interest (whether present or future and whether vested or contingent) in real or personal property of any description and includes a thing in action … 82 Upon the intervention of insolvency and the appointment of a liquidator, the liquidator takes control of the property of the company. That includes the assets of the trust for the purpose of indemnification - by recoupment or exoneration. (Emphasis added.) 60 In Carter Holt, Kiefel CJ, Keane and Edelman JJ said (at [27]-[28]): 27 The reason that rights held on trust by an insolvent company or bankrupt individual are generally excluded from division amongst the creditors of the company or of the bankrupt individual is that a liquidator's power over the rights of an insolvent company and the statutory assignment of rights in bankruptcy have always been concerned only with those rights that enure in law "for the benefit of" the "personal estate" of the bankrupt or insolvent person, even if in some cases that legal benefit might not be a "practical benefit". By contrast, other than as permitted by rules of law or the terms of the trust, the trustee owes a "personal obligation to deal with the trust property for the benefit of the beneficiaries, and this obligation must be annexed to the trust property". The trustee does not generally have any entitlement to deal with the rights held on trust for the trustee's own benefit. Courts of law took notice of the trust because "it would be absurd" for rights to have vested in bankruptcy "for no other purpose but in order that there may be a bill in equity brought against [the trustee in bankruptcy]". Hence, rights held on trust were, and are, generally excluded from inclusion in the statutory concepts of the "property" of the bankrupt or the "property" of the insolvent company. 28 However, the general principle that excludes those rights held on trust from division among creditors does not apply to the extent to which a trustee is permitted to benefit personally by "deriv[ing] any benefit" from the rights held on trust. One means by which a trustee can benefit personally from the trust rights is the trustee's power to use those trust rights to indemnify itself from liabilities. The existence of that "right of indemnity" means that, to the extent of the power, the trust rights are "no longer property held solely in the interests of the beneficiaries of the trust". (Citations omitted and emphasis added.) 61 Similarly, Bell, Gageler and Nettle JJ said (at [95]): The position under the Corporations Act is comparable. The liquidator of a company assumes control of the company's assets subject to equities, and, accordingly, must deal with assets held by the company as trustee in accordance with the terms of trust. But to the extent that the company has a beneficial interest in the trust assets, as it has by reason of the company's right of indemnity in respect of properly incurred trust obligations, the trust assets are property of the company available for the payment of creditors. … (Citations omitted and Emphasis added.) 62 Thus, to the extent of any liabilities incurred in the administration of the trust on which AMS held the Property, AMS was entitled to exonerate itself from the Property and indeed, retained a beneficial interest in the Property to that extent. That interest is 'property' for the purposes of the Corporations Act. 63 The difficulty for the Administrators in seeking remuneration under AMS' right of exoneration is that all of AMS' assets, including both the Property which it held on trust and its own beneficial interest to the extent of any trust liabilities, has been in the possession of, and controlled by, the Interim Receivers since the orders made in Marco (No 3), some four months prior to the Administrators' appointment. The relevant parts of the orders provide as follows: 7. Pursuant to s 1101B(5) of the Corporations Act and until further order, Mr Kirman and Mr Brauer be appointed as receivers or receivers and managers (Corporate Receivers), without security, of the property (as defined in the Corporations Act), whether within or outside the State of Western Australia, of the second and third defendants (Corporate Property). 8. The Corporate Receivers have, in respect of the Corporate Property, the following powers: (a) the power to do all things necessary or convenient to be done for or in connection with, or as incidental to, the identification, preservation and securing of all of the Corporate Property for the benefit of potential creditors; (b) without limiting the generality of the power in the preceding sub-paragraph, the power to enter into possession and take control of the Corporate Property to the extent that the exercise of the power is reasonably necessary to achieve the purposes set out in the preceding sub-paragraph (Emphasis added and in the original.) 64 The evident effect of the above orders was to transfer possession and control of all of AMS' property to the Interim Receivers for the purpose, relevantly, of 'securing all of the Corporate Property for the benefit of potential creditors'. As the analysis above confirms, the 'Corporate Property' included AMS' proprietary interest in the Property to the extent of its right of exoneration and indemnity. Thus, not only did the Administrators never have control of, and could not, therefore, incur any liabilities with respect to the Property, they similarly never possessed any right to be exonerated from such liabilities. That right, and the proprietary interest it confers on AMS as trustee, was at all relevant times controlled and possessed by the Interim Receivers, along with the Property itself. 65 This conclusion is reinforced when consideration is given to the purpose for which the orders transferring possession and control to the Interim Receivers was made. That purpose was to secure all of AMS' property for the benefit of potential creditors, and such a purpose could only be achieved by the Interim Receivers if, in addition to taking possession of all of the Property (held on trust), they also acquired the AMS' right of exoneration and indemnity from the Property to discharge liabilities owing to creditors. Indeed, it would be a perverse result if the right of exoneration had in fact remained in control of AMS itself (i.e., Mr Marco) despite the orders made in Marco (No 3), and had then passed to the Administrators upon their appointment. 66 Accordingly, the Administrators are unable to have recourse to AMS' right of exoneration for the purposes of their entitlement to remuneration. It is not possible for any of their activities to have been in the exercise of a right which they never possessed.

DOES THE STATUTORY ENTITLEMENT TO REMUNERATION APPLY? 67 The Administrators' application proceeds exclusively on the basis that the Court should make a remuneration determination in their favour under s 60-10(1)(c) of the IPSC because they have an entitlement to remuneration under AMS' right of exoneration. I have ruled against them on this argument; that right and indemnity was at all relevant times in the possession of the Interim Receivers such that it could not have been exercised by the Administrators. However, in my view, this is not the end of the inquiry. 68 Neither party appears to have considered whether AMS is nonetheless entitled to remuneration by virtue of s 60-5(1) of the IPSC which would appear to operate precisely to that effect. That section has been set out above but warrants repeating: 60-5 External administrator's remuneration Remuneration in accordance with remuneration determinations (1) An external administrator of a company is entitled to receive remuneration for necessary work properly performed by the external administrator in relation to the external administration, in accordance with the remuneration determinations (if any) for the external administrator (see section 60 10). 69 This entitlement to remuneration is secured by a statutory indemnity and lien over the company's property by virtue of ss 443D and 443F. However, the corollary of the reasoning in the previous section is that this indemnity and lien does not touch the Property held on trust (or trusts) for the investors. The reference to the 'company's property' in those sections refers only to property beneficially owned by the company: see Carter Holt (at [25]-[28]). The result is that these statutory mechanisms for securing the Administrators' entitlement to remuneration do not assist them in this case. 70 Nevertheless, the entitlement under s 60-5 of the IPSC is not expressed to be subject to the security mechanisms in ss 443D and 443F. The language of the section does not permit a reading that the entitlement is lost simply because those protections are not available. Nor is there any reason to think that the entitlement is lost simply because the Administrators were appointed to a company that operated solely as a trustee. Indeed, Black J in Fearndale Holdings allowed an application under ss 60-5 and 60-12 of the IPSC for approval of an administrator's remuneration for work undertaken in the administration of a corporate trustee. 71 There are a number of decisions which would appear to suggest that the court's approval of an administrator's remuneration from trust property is based primarily in the discretionary exercise of the court's inherent jurisdiction in the administration of trusts: Trio Capital Limited (Admin App) v ACT Superannuation Management Pty Ltd [2010] NSWSC 941 per Palmer J (at [16] and [20]-[23]) and Re Sutherland per Campbell J (at [9]-[17]). Importantly however, those cases were decided prior to the introduction of Div 60 of the IPSC. The previous mechanism for remuneration was contained in s 449E of the Corporations Act which entitled an administrator to receive 'such remuneration as is determined… by the Court'. It did not confer on an administrator, as s 60-5 of the IPSC now does, an entitlement to remuneration independently of any determination made by the Court as to the quantum of that remuneration. The language of s 60-5 does not condition an administrator's entitlement by reference to the availability of a company's assets or the discretion of the Court. It simply entitles an administrator to receive 'remuneration for necessary work properly performed… in relation to the external administration…'. 72 It is not possible to conclude, as would be necessary for the Liquidators to succeed, that none of the Administrators' activities was necessary work in relation to the external administration of AMS. Nor could it be said that none of the work was 'properly performed'. Upon their appointment, the Administrators were required by statute to perform certain work. Of course, this says nothing about the quantum of any remuneration determination ultimately made by the Court, on which the Court retains a clear discretion, having regard to the factors set out in s 60-12 of the IPSC. 73 For these reasons, order 1 of the Administrators' application should be made. They are entitled, pursuant to s 60-5 of the IPSC, to be remunerated out of the Property, being the assets legally owned by AMS, for necessary work properly performed in the external administration of AMS. As noted, on the face of matters, the statute required the Administrators to perform the work they did.

THE WORK CARRIED OUT BY THE ADMINISTRATORS 74 The Administrators are entitled to be remunerated from the Property. It would be highly desirable for all involved if agreement can be reached on the question of quantum and I will make an order referring the balance of the application to mediation to this end. If agreement cannot be reached, the matter will be referred back to the Court, however the following general observations should act as a guide to the parties in this regard. 75 The Administrators have put on extensive evidence going to the categorisation of the various activities they undertook during their relatively short appointment to AMS, as well as a quantification of the remuneration they claim by reference to hours worked and rates charged. 76 In the Second Shaw Affidavit, the Administrators have provided a breakdown of the activities they have undertaken into 15 separate categories with amounts claimed under each category as follows: (a) preparing reports to creditors - $344,738.50; (b) adjudicating proofs of debt including investor claims and receiving proofs of debt - $200,653.50; (c) meetings of creditors including minutes and preparation - $138,695.00; (d) reporting to and dealing with the COI, including meetings and minutes - $40,116.00; (e) other creditor correspondence - $39,842.50; (f) day one tasks for 'VA' and 'CVL' including collection information (i.e. books and records requests not related to investments) - no amount claimed; (g) ASIC lodgements - $8,316.50; (h) administrative tasks and general discussion with directors - no amount claimed; (i) DOCA related tasks - $63,094.00; (j) ASIC Court proceedings - $37,346.50; (k) investigating voidable transactions, insolvent trading and director offences including preparing a report pursuant to s 438D of the Corporations Act - $20,913.00; (l) investigating assets - $41,211.50; (m) investigating investments and Private Placement Programmes - $75,706; (n) auditing and reviewing the KPMG Report (see Marco (No 6) at [19]) - no amount is claimed; and (o) dealing with the Interim Receivers and ASIC including answering their questions - $40,581.50. 77 The total of the above amounts comes to $1,051,214.50 (excl. GST) and the Administrators have applied a 15% discount to this amount and seek only $893,532.30. They also seek disbursements in the sum of $257,277. 78 As can be seen, more than half of the remuneration is claimed for work in preparing reports to creditors and adjudicating proofs of debt, including investor claims. In relation to the reports to creditors, Mr Shaw deposes to the fact that the complexities of AMS' operations and the 'inextricable link' between the affairs of AMS and Mr Marco resulted in his signing off on the largest report to creditors that Mr Shaw has ever undertaken. He says this was also due to the need to undertake specific investigations into the unusual nature of AMS' operations including: (a) investigations into potential recoveries from 'Private Placement Programs' as requested by the investors; and (b) detailed investigations and reporting regarding the various DOCA proposals at ASIC's request. 79 It should be observed however that a separate sum of $75,706 is separately claimed specifically in relation to investigations into Mr Marco's 'Private Placement' activities. On this point, while it is uncontroversial that the Scheme operated by Mr Marco was highly complex, on at least one view, the activities of AMS would appear to be relatively straightforward; it received funds from Mr Marco and purchased real property with those funds and, on its entry into administration, it had unsecured creditors in the sum of just under $150,000. Although this Court, the Liquidators and Mr Marco himself have, over the course of this litigation, repeatedly stated the proposition that AMS was an extension of Mr Marco's business dealings, this shorthand description can only be taken so far as a matter of law. While they were both clearly involved in and operated the Scheme, they remain two separate entities with distinct legal personality that undertook very different activities in relation to the Scheme. While it is of course appropriate for an administrator to investigate the affairs of a company's director(s), there is no evidence that AMS itself engaged in Mr Marco's 'Private Placement' activities, nor is there any suggestion that AMS received any income generated from 'Private Placement' at all, or had any interest or entitlement to any outcome from these purported investments. AMS simply received investor funds and used those funds to purchase the Property. 80 On this basis, and at this preliminary stage, given that it was Mr Marco alone and not Mr Marco on behalf of AMS who engaged in private placement activities, it is unclear why the Administrators should have expended time and effort investigating matters that would appear to be unrelated to the activities of the company to which they were appointed, and rather the personal activities of one of its directors. 81 Similarly, I hold concerns about the extent to which the Administrators' activities were devoted to entertaining various iterations of DOCA proposals from Mr Marco. While the Administrators are of course bound by the Corporation Act to investigate a company's affairs and form an opinion under s 438A as to whether it is in the interests of creditors to execute a DOCA, there are number of reasons to question the conduct in this regard. 82 First and most significantly, the timing of the Administrators' appointment was highly unusual. The Administrators assumed their office only a month prior to the final hearing of ASIC's winding up application for the Scheme as a whole. In addition, AMS' assets were subject to the asset preservation orders and the Interim Receivers were appointed to the Property. This meant that even if one of Mr Marco's DOCA proposals had been approved by a majority vote, it could not have been executed without Court approval. Indeed, every iteration of the Mr Marco's DOCA included conditions precedent that included revocation or variation of the asset preservation orders and either ASIC's application being unsuccessful or orders being made by the Court to facilitate the DOCA. 83 In this context, the Administrators purportedly proceeded to expend some 496 hours (for which they now claim around $200,653.5), receiving proofs of debt and adjudicating those debts for the purposes of enabling creditors to vote at the second meeting of creditors. Mr Shaw deposes to the fact that the Administrators adjudicated 218 proofs of debt on two different bases and investigated and reported the Administrators' views with respect to the status of investors as creditors of AMS, including by way of circulation of a proposed methodology, upon requests made by creditors either by way of: (a) written correspondence; and (b) oral requests at meeting of the creditors or at the COI. 84 As to the status of investors, the Administrators decided to treat the investors, who are beneficiaries of the Investor Trusts, as contingent creditors of AMS. Their reasoning for this course is explained in their Major Report: As a starting point, if the sole document relevant to investors is a Declaration of Trust (in the standard form held by the Administrators), the Court in decisions of Markopoulus & Ors v Marco CIV 1431/2019 and Baxter Global Investments & Or v Marco & Ors - NSWC 2020/53867 make clear that, the relationship of those investors vis-à-vis Mr Marco is one of express trust, but that this does not preclude there also being a debtor-creditor relationship. The relationship between the Company and investors is then more complex because, based on the Administrators' investigations to date, it appears the Declarations of Trust only referred to Mr Marco as an individual. We take the view that, due to the way money was transferred from investors to Mr Marco and then to the Company, it is possible that investors are contingent creditors of the Company arising out of the imposition of a constructive trust. On that basis, investors were recognised and participated upon the Initial Meeting. Further or separately, we have identified that some or all investors may claim standing as creditors of the Company arising out of separate causes of action based in tort or statute. Individual PODs will be assessed upon receipt. Accordingly for the purposes of this report, we have indicated that investors would have a claim against the Company, which would be one out of statute or tort and accordingly would be contingent creditors for this claim. For the purposes of including them in the estimated return in Section 10 of this report, we have included their claim as $260,025,876 which is explained in Section 5.10.2 of this report. Ultimately, the status of investors as creditors, and how much a POD may be admitted to vote for, turns on the facts disclosed to/ uncovered by us in the time before the second meeting. Small differences in Declarations of Trust, other documents or oral statements between specific investors and the Company (via Mr Marco or another agent) may prove important. The use of this information will allow us to form a just estimate, as is required under the Corporations Regulation 5.6.23(2) to allow creditors to vote in respect of a contingent claim. 85 While one of the bases upon which the Administrators treated investors as contingent creditors of AMS has been at least in part confirmed by these reasons, I retain doubts about the appropriateness of expending an extraordinary amount of time and effort adjudicating the complex equitable claims of investors in the administration of AMS. I express this doubt having regard to the: (a) fact that every investor's principal claim was against Mr Marco who owned assets additional to AMS', and it being doubtful whether all the assets of the Scheme could have been administered through the administration of the AMS as they have been done by the Liquidators upon the winding up of the Scheme; (b) vast quantum of the investor claims compared to the value of the Property; (c) fact that the adjudication was only a 'just estimate' for voting purposes in circumstances where any approved DOCA would have required court approval; and (d) different kind of interest that a beneficiary with an equitable right to delivery up of trust property from a constructive trustee has from that of a standard trade creditor of a company. 86 The Administrators' reasoning in the Major Report also appears to have overlooked the fact that, rather than a single constructive trust, AMS is almost certainly the trustee of a very significant number of constructive trusts referrable to each individual Investor Trust. As noted, this has implications for the way in which liabilities are incurred and discharged from trust property. 87 I must reiterate that the concerns and doubts now expressed are preliminary views only, that have been formed without the benefit of fulsome debate or specific responsive evidence. These views have however been somewhat strengthened by the fact that, in considering this application, I have been unable to turn up any precedent or case in which: (a) the voluntary administrator of a company that has no activities except the holding of property on trust (or trusts) has proceeded to propose a DOCA to a meeting of creditors; and (b) the beneficiaries of the trusts were treated as creditors of the company for voting purposes. 88 Indeed, a substantial portion of the cases cited by both parties on this application concern insolvency practitioners who applied to the Court for directions and justification in adopting courses of action that were considerably less contentious than the activities undertaken by the Administrators in this case. In circumstances where the asset preservation orders and existing receivership made it clear that any DOCA would require court approval, and given the complexity of Mr Marco's Scheme, it should have been clear to the Administrators that seeking directions from the Court would have been the most appropriate way forward. Indeed, the fact that ASIC's winding up proceedings were at an advanced stage and only a month away from trial should have been reason enough to give the Administrators pause. Instead, two sets of insolvency practitioners have now spent a vast amount of time and expense investigating Mr Marco's Scheme. Any marginal benefit the Court has gained by a 'second opinion' on what is by any measure a complex scheme, is completely overborne by the detriment to investors who must bear the significant costs of duplicated investigations and insolvency processes before recouping what they can from what is already a severely inadequate pool of funds remaining in the Scheme.

CONCLUSION 89 A declaration will be made to the effect that the Administrators are entitled to remuneration out of the Property as defined at [12] of these reasons. 90 I stress that permitting the Administrators to claim some remuneration is by no means a rubber stamp for the very significant sum claimed, especially when compared with the charges raised by the Interim Receivers/Liquidators over corresponding periods. The quantification, however, is a separate issue. I am persuaded that, at least in the first instance, it would be desirable for this issue to be referred to mediation and determination by a Registrar of the Court. If the question of quantum cannot be agreed at mediation, it will be brought back to the Court for resolution. Costs of this application should be reserved to the mediation or to further order of the Court. I certify that the preceding ninety (90) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice McKerracher.