These reasons concern the determination of remuneration and payment of disbursements and costs of Mr Cameron Shaw, Mr Richard Albarran and Mr Marcus Watters who were the voluntary administrators (and for a short time liquidators) of AMS Holdings (WA) Pty Ltd. Any remuneration and disbursements and costs are to be paid out of property of which AMS is the legal owner (whether or not held on trust) in accordance with a declaration the Court made in October 2021: Australian Securities and Investments Commission v Marco (No 9) [2021] FCA 1306.
The administrators seek a determination for remuneration of $982,885.53 (incl GST) and an order for payment of disbursements and costs in the sum of $313,208.92 (incl GST) under s 60-10 and s 90-15 of Schedule 2 - Insolvency Practice Schedule (Corporations) of the Corporations Act 2001 (Cth) for work performed in a 10-week period in late 2020. The current liquidators of AMS oppose the determination and orders sought.
At the time of the administrators' appointment in September 2020, ASIC, as plaintiff, had commenced these proceedings and was investigating a then alleged unregistered management investment scheme operated by one or more of Mr Marco, the first defendant, AMS, the second defendant, and AMS as trustee of the AMS Holdings Trust, the third defendant. At that time, AMS had no property available for payment of its creditors because it conducted no business of its own, all its property was notionally held on trust for the AMS Holdings Trust and, upon appointment of the administrators, AMS ceased to be trustee of that trust. Further, all assets of AMS and AMS as trustee were the subject of property preservation orders made in these proceedings and were under the control of the current liquidators of AMS who were then acting as Court appointed interim receivers over those assets. Therefore, the administrators were not in control of any assets of AMS (whether or not held on trust) at any time during the administration.
After the administrators' appointment, Mr Marco made a number of proposals that AMS enter into a deed of company arrangement. Under the terms of the DOCA proposals, the deed fund would comprise assets of Mr Marco, AMS as trustee, and members of Mr Marco's family. All these assets were derived from funds that investors in the alleged scheme had provided to Mr Marco. Completion of any executed DOCA was conditional upon ASIC failing to obtain the relief it sought in the proceedings and the Court dissolving or varying the asset preservation orders and otherwise making orders to give effect to the transfer of the assets the subject of the proposed deed fund. At the second meeting of creditors in November 2020, the creditors did not resolve that AMS execute a DOCA, but resolved that AMS be wound up.
Ultimately, in December 2020 ASIC was successful and that resulted in orders winding up the scheme. The Court appointed the current liquidators as receivers of the assets the subject of the asset preservation orders and liquidators of the scheme and AMS. The administrators, who had by then become liquidators of AMS by operation of s 446A of the Act, were removed as liquidators at the same time: Australian Securities and Investments Commission v Marco (No 6) [2020] FCA 1781.
Notwithstanding the evident absence of any property available to satisfy AMS's creditors and the manifest risk that the conditions of the DOCA proposal would not be satisfied, the administrators performed extensive and detailed work related to investigating assets of the proposed deed fund, assessing and forming an opinion on the merits of the DOCA proposals, convening and holding creditors meetings and reporting to and communicating with creditors. The main question is whether, in the circumstances of the administration, all that work was necessary and reasonable.
Regarding remuneration, there are three principal issues for determination.
Whether the administrators' investigation into the business, property and affairs of Mr Marco and AMS as trustee (the parties involved in the then alleged scheme) was necessary in the performance of their functions and duties under Pt 5.3A of the Act.
Whether fulfillment of the conditions for completion of any of the DOCA proposals was speculative.
Having regard to the resolution of issues (1) and (2), whether the following work the administrators performed was necessary and reasonable.
DOCA related tasks.
Investigating assets of Mr Marco and AMS as trustee (assets of the alleged scheme).
Adjudicating investor-creditors' proofs of debt for the second meeting of creditors.
Communicating with creditors (preparing reports to creditors, convening and holding meetings of creditors, and corresponding with creditors, including the creditors' committee of inspection (COI)).
Separately, the liquidators apply to re-open the declaration made in Marco (No 9) on the ground that it was an interlocutory order founded on a misapprehension of the law.
Broadly, that application raises four issues.
Whether the Court is empowered to re-open the proceedings before McKerracher J to consider varying or setting aside the declaration in para 1 of the orders in Marco (No 9) on the ground of misapprehension of the law.
Whether the orders in Marco (No 9) are final or interlocutory.
Whether the declaration in Marco (No 9) was founded upon a misapprehension of law to the effect that the administrators have an entitlement to remuneration and expenses under s 60-5 of the IPSC.
If there were a misapprehension of law, whether, as a matter of discretion, the Court should disturb its earlier orders and reconsider if it has power to order the payment of costs and disbursements out of trust property and, if so, if it should make such an order in the circumstances of this case.
Depending on the outcome of the application to re-open and, if re-opened the determination of the administrators' entitlement, if any, to payment of expenses and costs out of property AMS holds on trust, the liquidators oppose an order to the effect that the administrators are entitled to payment of legal costs out of the property of AMS. The issues arising on the question of disbursements and costs are as follows.
Whether the conditional costs agreement between the administrators and their solicitors is unenforceable because it fails to satisfy the requirements of s 323(3) of the Legal Profession Act 2007 (Qld) in that the agreement does not 'set out the circumstances that constitute the successful outcome of the matter to which it relates' and is not 'in plain language'.
If enforceable, whether, on the proper construction of the costs agreement, the administrators have incurred a liability to pay legal costs.
If enforceable, whether the administrators' legal costs were necessary and reasonable. (This issue turns on largely the same issues as the administrators' remuneration.)
If enforceable, in any event, whether an uplift of 25% for a 'successful outcome' is reasonable.
The administrators claim remuneration in 15 categories of work. For the reasons which follow, the principal issues concerning remuneration should be resolved against the administrators and their entitlement to remuneration for necessary work properly performed is determined under ss 60-5, 60-10 and 60-12 of the IPSC to be $100,192.26 (incl GST) for the four categories of work referred to later in these reasons. There will be no determination of the remuneration claimed in the remaining 11 other categories of work.
The administrators claim disbursements and costs for 11 items. For the reasons which follow, the liquidators' application to re-open should be refused. However, while the conditional costs agreement is enforceable and the administrators have and (or) will incur liability to pay legal fees under it, an uplift is not reasonable and the administrators have failed to demonstrate that the majority of the legal costs incurred are necessary and reasonable. The administrators' entitlement to payment for necessary and proper disbursements and costs is determined under s 90-15 of the IPSC to be $84,014.37 (incl GST). All disbursements and costs have been allowed in the amounts claimed except the amounts claimed for legal costs. In respect of legal costs, the administrators are entitled to $63,044.86 (incl GST) for the four categories of legal work referred to later in these reasons. There will be no determination of the legal costs for the remaining categories of legal work.
While no determination of remuneration or legal costs has been made in respect of a number of categories because I am not satisfied that the amount claimed is for necessary work properly performed or is reasonable, the administrators should be afforded a further opportunity to obtain a determination of reasonable remuneration and reasonable legal costs for certain work identified later in these reasons. Determination of those reasonable amounts, if any, will be referred to a Registrar to be undertaken in accordance with directions of the Court. Costs will be reserved. I will hear the parties on the form of those directions and on the question of costs.
[2]
Materials
It is common ground that the administrators carry the onus of demonstrating that the amount claimed for remuneration was for necessary work properly performed in relation to the external administration of AMS. Likewise, the administrators have the onus of demonstrating that amounts claimed for disbursements and costs were necessarily and properly incurred in relation to the external administration of AMS.
The administrators read and relied upon the following affidavits at the hearing.
Affidavit of Mr Shaw sworn 27 October 2020. That affidavit was read on the hearing for Marco (No 6). It describes the nature of the work the administrators had performed between their appointment and the date of that affidavit. Amongst other things, it exhibited a copy of the major report the administrators prepared and provided to creditors of AMS.
Affidavit of Mr Shaw sworn 16 March 2021. That affidavit adds to the description of the administrators' work up to 27 October 2020 and describes the nature of the work performed between 27 October 2020 and 7 December 2020. Mr Shaw deposes facts and expresses opinions to the effect that the work performed meets the criteria in s 60-12 of the IPSC.
Affidavit of Mr Shaw sworn 7 May 2021. Amongst other things, that affidavit deposes facts relating to compliance with earlier orders of the Court for substituted service of Form 16 under r 9.2 of the Federal Court (Corporations Rules) 2000 (Cth).
Affidavit of Mr Shaw sworn 13 January 2023. That affidavit describes the nature of the legal services provided to the administrators by their legal representatives (Thynne + Macartney) and the amounts charged for those services.
Affidavit of Mr Marc Maskell sworn 13 October 2022. That affidavit describes the legal services Thynne + Macartney provided to the administrators. Amongst other things, it exhibits a conditional costs agreement between the administrators and Thynne + Macartney dated 25 September 2020.
Affidavit of Mr Maskell sworn 17 January 2023. That affidavit purports to support the administrators' application for leave to amend the remuneration application. It describes the reasons for the amended remuneration application and, in particular, provides clarification and correction of the disbursements claimed. Amongst other things, Mr Maskell deposes facts in support of a contention that the condition of the costs agreement has been satisfied and, consequently, Thynne + Macartney is entitled to a 25% uplift on the fees charged to the administrators.
The liquidators read and relied upon the affidavit of Mr Robert Brauer sworn 24 July 2020. That affidavit was also read on the hearing for Marco (No 6). It exhibits a copy of a report the liquidators prepared, as interim receivers, dated 24 July 2020. That report is referred to in these reasons as the interim receivers' report.
Additionally, the administrators and liquidators made reference in their submissions to a report known as the 'KPMG report'. That report also formed part of the evidence before the Court upon which the judgment in Marco (No 6) is based. As the KPMG report was referred to by both the administrators and liquidators in submissions without objection, I consider that it is before the Court on the hearing of the remuneration application and I have had regard to that report. That report was an exhibit to the affidavit of Mr Luke Howman-Giles of 24 August 2020.
[3]
Legislative framework
It is convenient to start with an explanation of the relevant legislative framework under which the administrators and liquidators were appointed together with some well-established and uncontroversial legal principles that have a bearing on the external administration of AMS and winding up of the scheme. That framework and those principles form part of the objective context and circumstances of the administration of AMS.
[4]
Part 5.3A
Chapter 5 of the Act and Ch 5 of the Corporations Regulations 2001 (Cth) deal with the external administration of a company. The IPSC, which is in Sch 2 of the Act, and the Insolvency Practice Rules (Corporations) 2016 (Cth) also deal with external administration. Part 5.3A (administration of a company's affairs with a view to executing a DOCA) sits within Ch 5 of the Act. The Regulations, IPSC and IPRC also contain provisions dealing with administrations under Pt 5.3A of the Act.
Section 435A of the Act provides that the object of Pt 5.3A is to provide for the business property and affairs of an insolvent company to be administered in a way that maximises the chances of the company, or as much as possible of its business, continuing in existence, or if that is not possible, results in a better return for the company's creditors and members than would result from an immediate winding up of the company.
The directors of the company may appoint an administrator: s 436A. A liquidator or provisional liquidator may appoint an administrator. The administrator so appointed cannot be the liquidator or provisional liquidator without a resolution of creditors approving the appointment or leave of the Court: s 436B. A secured creditor may also appoint an administrator: s 436C. The administrator must convene a meeting of the company's creditors within eight business days after the administration begins (first creditors meeting) in order to determine whether to appoint a COI, and, if so, who are to be its members. The creditors may also pass a resolution at the first creditors meeting removing the administrator from office and appointing someone else as administrator: s 436E.
As soon as practicable after the administration of a company begins, the administrator must investigate the company's business, property, affairs and financial circumstances, and form an opinion about whether it would be in the interests of the company's creditors for the company to execute a DOCA, for the administration to end, or for the company to be wound up: s 438A. The company's directors must assist the administrator: s 438B. The administrators are entitled to the company's books: s 438C. The administrator must lodge reports and give information to ASIC if it appears that certain persons may have been involved in certain past indiscretions: s 438D.
The administrator must convene a meeting of the company's creditors within 25 business days, and hold that meeting between 20 and 30 business days of the administration beginning (second creditors meeting): s 439A(1) - (5). The Court may extend the period for convening the second creditors meeting if satisfied it would be in the best interest of the creditors to do so: s 439A(6)-(8). At the second creditors meeting the creditors may resolve to execute a DOCA specified in the resolution, that the administration should end, or that the company be wound up: s 439C.
In accordance with r 75-225 of the IPRC the notice accompanying a meeting convened under s 439A must be accompanied by a report (known as the major report). The major report is a report by the administrator about the company's business, property, affairs and financial circumstances and a statement setting out the administrator's opinion as to whether it would be in the creditor's interests to: (1) execute a DOCA; (2) wind up the company; or (3) terminate the administration, the reasons for the opinions, information that will enable the creditors to make an informed decision about the subject matter of the opinions and whether there are any transactions in respect of which money, property or other benefits may be recoverable by a liquidator under Pt 5.7B of the Act.
An administrator has certain rights and powers to assist and facilitate the objects of an administration and Pt 5.3A of the Act. Division 3 makes provision for the administrator to assume control of the company's affairs. Division 6 makes provision for the protection of the company's property during an administration. Division 7 addresses the rights of secured parties and owners and lessors of property. Division 8 confers additional powers on an administrator relating to directors, officers, execution of documents, bringing or defending proceedings, doing other things in the company's name and dealing with property of the company. Division 9 deals with an administrator's liability and indemnity for debts of the administration.
An administrator is liable for debts incurred in the performance or purported performance or exercise of any of the administrator's functions and powers for, amongst other things, services rendered and property hired: s 443A. Therefore, the administrator is personally liable for disbursements and other costs incurred in the performance or purported performance of the administrator's functions and powers.
The administrator 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) for, amongst other things, debts for which the administrator is personally liable under s 443A and remuneration to which the administrator is entitled under Div 60 of the IPSC: s 443D. That right of indemnity has priority over certain other debts: s 443E. The administrator also has a statutory lien to secure the right of indemnity: s 443F.
Division 10 deals with the execution and effect of a DOCA. Where the creditors resolve that the company execute a DOCA, the administrator must prepare an instrument setting out the terms of the deed and the company must execute it within 15 business days after the meeting or such further period as the Court allows on application: s 444A, s 444B. Amongst other things, a DOCA must specify the 'property of the company' (whether or not already owned by the company when it executes the deed) that is to be available to pay creditors' claims, the extent to which the company is to be released from its debts, the order in which proceeds of realising the property of the company are to be distributed among creditors bound by the deed and the day on or before which the claim must have arisen to be admissible under the deed: s 444A(4). Subject to certain exceptions relating to security interests, the deed binds all creditors of the company who have claims arising on or before the date for admissible claims specified in the deed: s 444C. The effect of these provisions is that a DOCA binds the company and its creditors. It does not bind third parties. It also does not bind the creditors to give up claims against a third party (a person other than the subject company): Lehman Brothers Holdings Inc v City of Swan [2010] HCA 11; (2010) 240 CLR 509 at [53] (French CJ, Gummow, Hayne and Kiefel JJ).
Although s 9 and s 435B of the Act give 'property' a wide meaning that extends to any legal or equitable estate of interest (whether present or future and whether vested or contingent) in real or personal property of any description, in an insolvency context, property that a company holds on trust is generally not available for distribution among the company's creditors. The company's property is subject to the equities and generally the company under administration cannot deal with trust property for its own benefit: Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth (Amerind) [2019] HCA 20; (2019) 268 CLR 524 at [24]-[28] (Kiefel CJ, Keane and Edelman JJ), [94]-[95] (Bell, Gageler and Nettle JJ).
Principles of equity may countenance variation of the terms upon which property is held on trust with the unanimous consent of the beneficiaries of the trust if all are sui juris and absolutely entitled to the trust property. Under the principle in Saunders v Vautier (1841) 4 Beav 115; (1841) 49 ER 282 (affirmed (1841) Cr & Ph 240; 41 ER 482), beneficiaries in that position are entitled to put an end to the trust and to require that the trust property be transferred to them. Their capacity to produce that result also enables them to require, as an alternative, that the property be held by the trustee upon varied trusts (or that it be transferred to a third person): Re Dion Investments Pty Ltd [2014] NSWCA 367: (2014) 87 NSWLR 753 at [46] (Barrett JA, Beazley P and Gleeson JA agreeing at [1] and [117]).
It follows that, subject to any right to an indemnity or exoneration out of trust property, property a company holds on trust is not available for distribution among the company's creditors and cannot be dealt with as 'property of the company' under a DOCA. However, in theory, trust property may become property of the company for the purposes of a DOCA if all beneficiaries consent to the transfer of the beneficial interest in that property to the company or to the company dealing with the property in a manner specified in the DOCA under the principle in Saunders v Vautier.
[5]
Chapter 5C
Chapter 5C of the Act and Ch 5C of Regulations deal with managed investment schemes.
A 'managed investment scheme' means, relevantly, a scheme that: (1) people contribute money or money's worth as consideration to acquire rights (interests) to benefits produced by the scheme; (2) any of the contributions are to be pooled or used in a common enterprise to produce financial benefits or benefits consisting of rights or interests in property for the people (members) who hold interest in the scheme; (3) the members do not have day-to-day control over the operation of the scheme; or a time-sharing scheme, but does not include, amongst other things, a body corporate (other than a body corporate that operates a time-sharing scheme): s 9 of the Act. Accordingly, Ch 5 and all other provisions relating to external administration of a company have no application to a managed investment scheme.
To register a managed investment scheme, a person must lodge an application with ASIC. The application must identify, amongst other things, the proposed responsible entity, the scheme's constitution and compliance plan: s 601EA. ASIC must register the scheme unless it appears to ASIC, amongst other things, that the proposed responsible entity does not meet the requirements of s 601FA (it must be a public company that holds an Australian financial services licence authorising it to operate a managed investment scheme), the scheme's constitution does not meet the requirements of s 601GA and s 601GB or the scheme's compliance plan does not meet the requirements of s 601HA: s 601EB.
Where a managed investment scheme is registered, the responsible entity is to operate the scheme and perform the functions conferred on it by the scheme's constitution and the Act: s 601FB(1). The responsible entity has power to appoint an agent: s 601FB(2), s 601FB(3). If an agent so appointed holds scheme property on behalf of the responsible entity and the agent is liable to indemnify the responsible entity against any loss or damage that the responsible entity suffers as a result of a wrongful or negligent act or omission of the agent relating to a failure by the responsible entity to perform its duties in relation to the scheme, any amount recovered under the indemnity forms part of the scheme property: s 601FB(4).
The responsible entity holds scheme property on trust for scheme members: s 601FC(2). In exercising its powers and carrying out its duties, amongst other things, the responsible entity must:
act honestly: s 601FC(1)(a); and
exercise the degree of care and diligence that a reasonable person would exercise if they were in the responsible entity's position: s 601FC(1)(b); and
act in the best interests of the members and, if there is a conflict between the members' interests and its own interests, give priority to the members' interests: s 601FC(1)(c); and
treat all members who hold interests in the same class equally and members who hold interests of a different class fairly: s 601FC(1)(d); and
not make use of information acquired through being the responsible entity to gain an improper advantage for itself or another person or cause a detriment to the members of the scheme: s 601FC(1)(e); and
ensure that scheme property is clearly identified as such and held separately from property of the responsible entity and property of any other scheme: s 601FC(1)(i); and
ensure that the scheme property is valued at regular intervals appropriate to the nature of the property: s 601FC(1)(j); and
ensure that all payments out of the scheme property are made in accordance with the scheme's constitution and the Act: s 601FC(1)(k).
A duty of the responsible entity under s 601FC(1) or s 601FC(2) overrides any conflicting duty an officer or employee of the responsible entity has under Pt 2D.1 of the Act: s 601FC(3). Officers and employees of the responsible entity have similar duties to those of the responsible entity: s 601FD, s 601FE.
Relevantly, if the company that is a registered scheme's responsible entity is under administration or has executed a DOCA that has not terminated, a provision of the scheme's constitution, or of another instrument, is void against the administrator of the company or the deed if it purports to deny the company a right to be indemnified out of the scheme property that the company would have had if it were not being wound up, were not under administration or had not executed a DOCA. A right of the company to be indemnified out of the scheme property may only be exercised by the administrator of the company or the deed: s 601FH.
Relevantly, a managed investment scheme must be registered under s 601EB if it has more than 20 members: s 601ED(1)(a). A person must not operate a managed investment scheme that is required to be registered if it is not registered: s 601ED(5). If a person operates a managed investment scheme in contravention of s 601ED(5), amongst others, ASIC may apply to the Court to have the scheme wound up: s 601EE(1). The Court may make any orders it considers appropriate for the winding up of the scheme: s 601EE(2).
A registered managed investment scheme may be wound up in accordance with the provisions of Pt 5C.9 of the Act. There is no equivalent to Pt 5.3A in Ch 5C of the Act.
Where the court concludes that a person has been operating an unregistered managed investment scheme, typically the operator or a person associated with the operator of that scheme will be found to hold property of the scheme on trust for the members (investors) of the scheme. Where the scheme is insolvent and the remaining assets are insufficient to meet the claims of all investors in the scheme, then there will frequently be a contest between investors or different groups of investors in relation to the appropriate manner to divide and distribute the remaining property of the scheme. Bell P described such a contest as 'a classic insolvency conundrum' in Caron v Jahani (No 2) [2020] NSWCA 117; (2020) 102 NSWLR 537 at [7] in reference to an unregistered managed investment scheme operated by Courtenay House Capital Trading Group Pty Ltd and Courtenay House Pty Ltd. At the time of the administrators' appointment, there had been many other reported decisions dealing with such contests and the appropriate method of distribution of a limited mixed fund against which many investors in an insolvent unregistered managed investment scheme had proprietary claims: e.g., Australian Securities and Investments Commission v Letten (No 20) [2012] FCA 1283; (2012) 92 ACSR 630; Re Courtenay House Capital Trading Group Pty Ltd (in liq) [2020] NSWSC 780; (2020) 147 ACSR 1.
[6]
Objects of Part 5.3A and Chapter 5C
The object of Pt 5.3A is not concerned with the administration of an insolvent managed investment scheme (registered or unregistered) or with the continuation of the business of such a scheme or the return to investors of such a scheme. While an operator of an insolvent managed investment scheme (or trustee of an insolvent trust) may be a company and that company may be insolvent and the subject of an administration under Pt 5.3A, the assets the operator (or trustee) hold on behalf of investors (or beneficiaries) are not property and business of the insolvent company and are not directly available to satisfy the debts of creditors of the company.
Chapter 7 of the Act and Ch 7 of the Regulations deal with financial services and markets. The object of Ch 7 is set out in s 760A of the Act and is to promote:
confident and informed decision making by consumers of financial products and services while facilitating efficiency, flexibility and innovation in the provision of those products and services; and
(aa) the provision of financial products to consumers of financial products; and
fairness, honesty and professionalism by those who provide financial services; and
fair, orderly and transparent markets for financial products; and
the reduction of systemic risk and the provision of fair and effective services by clearing and settlement facilities.
An interest in a registered or unregistered managed investment scheme is a financial product: s 764A(1)(b), s 764A(1)(ba). As already mentioned, a responsible entity of a scheme must hold an Australian financial services licence. A person who carries on a financial services business must hold an AFSL covering the provision of the financial services: s 911A. A person can only provide financial services on behalf of another person who carries on a financial services business if the principal holds an AFSL: s 911B.
Broadly, amongst other things, Ch 7 regulates the provision of financial products and financial services. Part 7.6 deals with licensing of providers of financial services and authorised representatives. General duties and obligations are imposed on a holder of an AFSL. The grant of an AFSL is subject to certain criteria including a fit and proper person test. Providers of financial services are subject to ASIC supervision and discipline (banning or disqualification orders). There are also provisions regulating professional standards, compliance and registration of persons providing financial services. Part 7.7 regulates financial services disclosure and the provision of financial advice. In general, retail clients are to be provided with a financial services guide, a statement of advice and certain other information. Part 7.7A makes provision for obligations to act in the best interests of clients and regulates remuneration. Part 7.8 regulates other conduct connected with financial products and financial services other than financial product disclosure, including dealing with client money and other property. Part 7.9 regulates financial product disclosure and other provisions relating to the issue, sale and purchase of financial products. Part 7.9A grants ASIC powers to act proactively to reduce the risk of significant detriment to retail clients resulting from financial products. Part 7.10 deals with market misconduct and other prohibited conduct relating to financial products and financial services. ASIC has responsibility for regulating compliance with and investigating potential contraventions of Ch 7.
It follows that registration of managed investment schemes, when required, is an important part of the overall legislative framework for the regulation of financial products and financial services. Within that framework, the power of ASIC to investigate and apply for unregistered managed investment schemes to be wound up is an important part of the public policy reflected in the objects of Ch 7 of the Act. That public policy may be undermined if a company operating or involved in the operation of an unregistered managed investment scheme were permitted to avoid investigation or liability for contraventions of the Act by executing a DOCA under Pt 5.3A even if its creditors are also investors or members of an unregistered managed investment scheme and the creditors support the DOCA.
In Eco Heat (Vic) Pty Ltd v Syndicate Forty Four Pty Ltd (Subject to Deed of Company Arrangement) [2018] VSC 156 orders were made terminating a DOCA under s 445D(1)(g) of the Act (some other reason) on grounds that included that the deed was contrary to commercial morality and public policy, in circumstances where the administrators had expressed the view that the deed was not in the best interests of the creditors and that the company under administration may have been involved in operating a Ponzi scheme or unregistered managed investment scheme. Sifris J observed (at [74]) that in the circumstances, the DOCA was not simply a private matter between the promotors of the scheme, the company and the company's creditors. His Honour continued:
75 The operation of a Ponzi scheme and/or an unregistered MIS are serious matters. They require investigation. As pointed out there is a sufficient basis for such investigation. The existence of this basis is in my view sufficient given the very small return. If the returns were much higher, the position may be different when the required balancing act is undertaken. However this is not the case.
76 The is an obvious public interest in ensuring that funds advanced to promoters for investment purposes are protected and safe. In the last ten to twenty years investors have lost substantial funds and the law has developed in such a way so as to afford as much protection as possible. There were forty five Syndicate Companies and millions of dollars. The loss is over $16m. What when wrong and why are important issues affecting the public, public policy, regulation, commercial morality, and indeed the Investors despite their position. The issues cannot simply be ignored or swept under the carpet. The loss of the right to investigate is a very important matter in the circumstances of this case.
The investigation that was lost through the DOCA was that which a liquidator of the company would have been able to undertake into the possible existence of a Ponzi scheme and (or) unregistered managed investment scheme and into what had happened to the investors' funds. The loss of the ability to investigate was also linked to the likely return to creditors/investors. Sifris J was not convinced that the creditors/investors would be worse off under a liquidation given that the return to creditors under the deed was relatively modest. In those circumstances, delayed return to creditors/investors was also warranted because a thorough investigation of what happened to the investors' funds might yield greater recovery and returns.
The observations of Sifris J are not confined to circumstances in which creditors have resolved that the company should execute a DOCA and ASIC has not commenced an investigation into a potential contravention of s 601ED(5) by the company. Where there are grounds for an investigation (or an investigation is taking place) into a possible or probable operation of an unregistered managed investment scheme, far more is at stake than continuation of the 'business' of the company under administration or otherwise achieving a better return for the company's creditors and members than would result from an immediate winding up of the company. The investigation and unwinding of unregistered schemes are an important matter of public policy, as reflected in Ch 5C and Ch 7 of the Act, in that they promote confident and informed decision making by consumers of financial products and services, fairness, honesty and professionalism by those who provide financial services and fair, orderly and transparent markets for financial products.
ASIC has extensive powers to carry out an investigation under Pt 3 of the Australian Securities and Investments Commission Act 2001 (Cth) where it has reason to suspect that there may have been committed, amongst other things, a contravention of the Act: s 13(1) of the ASIC Act. Where ASIC is investigating or has investigated under Div 1 of Pt 3 of the ASIC Act matters connected with the affairs of a company ASIC may apply to the Court for winding up of the company under s 464 of the Act. ASIC may also apply to have a company that is involved in operating an unregistered managed investment scheme wound up under s 461(1)(k) of the Act. An application to wind up a company under these provisions is founded upon public interest where there have been contraventions of the Act and (or) failures to comply with the company's statutory and constitutional requirements resulting in a justifiable lack of confidence in the conduct and management of the company's affairs: e.g., Australian Securities Commission v AS Nominees Ltd [1995] FCA 1663; (1995) 62 FCR 504 at 530G-531G (Finn J); Australian Securities and Investments Commission v Pegasus Leveraged Options Group Pty Ltd [2002] NSWSC 310; (2002) 41 ACSR 561 at [95]-[98]; Marco (No 6) at [127]. Where applicable, the paramountcy of the public interest in winding up a company, as opposed to its continuing existence and business, is reflected in the Court's power to terminate a DOCA under s 445D(1)(g) of the Act: see, e.g., TiVo, Inc v Vivo International Corporation Pty Ltd [2014] FCA 789; (2014) 9 BFRA 583 at [58]-[62] (Gordon J).
[7]
Insolvency Practice Schedule (Corporations)
External administrations commencing after 1 September 2017 are regulated by the IPSC: s 1581 of the Act; reg 10.25.01 and Sch 13 of the Regulations. Division 60 of the IPSC applies to all external administrators, which s 5-20 defines to include administrators and liquidators.
[8]
External administrators' remuneration
Section 60-5 of the IPSC provides:
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).
Remuneration for external administrators if no remuneration determination made
(2) If no remuneration determination is made in relation to necessary work properly performed by the external administrator of a company in relation to the external administration, the administrator is entitled to receive reasonable remuneration for the work. However, that remuneration must not exceed the maximum default amount.
Section 60-15 of the IPSC describes the maximum default amount for the purposes of s 60-5(2). As of September to December 2020, that amount was $5,388.00 (excl GST).
Section 60-10 of the IPSC provides for the determination referred to in s 60-5(1), relevantly, 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.
…
(3) A determination under this section may specify remuneration that the external administrator is entitled to receive in either or both of the following ways:
(a) by specifying an amount of remuneration;
(b) by specifying a method for working out an amount of remuneration.
…
Section 60-12 of the IPSC provides:
60-12 Matters to which the Court must have regard
In making a remuneration determination under paragraph 60-10(1)(c) or (2)(b), or reviewing a remuneration determination under section 60-11, the Court must have regard to whether the remuneration is reasonable, taking into account any or all of the following matters:
(a) the extent to which the work by the external administrator was necessary and properly performed;
(b) the extent to which the work likely to be performed by the external administrator is likely to be necessary and properly performed;
(c) the period during which the work was, or is likely to be, performed by the external administrator;
(d) the quality of the work performed, or likely to be performed, by the external administrator;
(e) the complexity (or otherwise) of the work performed, or likely to be performed, by the external administrator;
(f) the extent (if any) to which the external administrator was, or is likely to be, required to deal with extraordinary issues;
(g) the extent (if any) to which the external administrator was, or is likely to be, required to accept a higher level of risk or responsibility than is usually the case;
(h) the value and nature of any property dealt with, or likely to be dealt with, by the external administrator;
(i) the number, attributes and conduct, or the likely number, attributes and conduct, of the creditors;
(j) if the remuneration is worked out wholly or partly on a time-cost basis - the time properly taken, or likely to be properly taken, by the external administrator in performing the work;
(k) whether the external administrator was, or is likely to be, required to deal with one or more controllers, or one or more managing controllers;
(l) if:
(i) a review has been carried out under Subdivision C of Division 90 (review by another registered liquidator) into a matter that relates to the external administration; and
(ii) the matter is, or includes, remuneration of the external administrator;
the contents of the report on the review that relate to that matter;
(m) any other relevant matters.
[9]
External administrators' costs and expenses
There is a distinction between 'remuneration' and 'disbursements' or costs and expenses an administrator incurs during an external administration of a company. It is common ground that the concept of 'remuneration' to which the administrators are entitled under s 60-5 and that can be the subject of a determination under s 60-10 of the IPSC does not include disbursements. That point was settled by the Full Court of the Supreme Court of Western Australia in Venetian Nominees Pty Ltd v Conlan (1998) 20 WAR 96 at 100 (Kennedy and Ipp JJ, Wallwork J agreeing at 108). See, also, Re Korda; in the matter of Stockford Ltd [2004] FCA 1682; (2004) 140 FCR 424 at [50] (Finkelstein J); Re Huxtable, in the matter of Timeshare Resort Club Ltd (in liq) [2010] FCA 673; (2010) 187 FCR 13 at [36]-[41] (Barker J); Deputy Commissioner of Taxation v Starpicket Pty Ltd (No 2) [2013] FCA 699 at [15] (Gordon J).
In Venetian Nominees the Full Court of the Supreme Court of Western Australia held that the disbursements of a provisional liquidator should not be determined under s 473(2) of the then Corporations Law as part of his 'remuneration'. Section 473(2) of the Corporations Law made it a requirement for a provisional liquidator's remuneration to be determined by the court. Absent a determination by the court there was no entitlement to be paid remuneration. The Full Court contrasted the absence of an entitlement to be paid remuneration with the 'right' of a provisional liquidator as the company's agent to 'reimbursement from the company of all of his [or her] expenses'. Accordingly, the Full Court reasoned that 'there would seem to be no requirement for the disbursements incurred by a provisional liquidator being "determined", although no doubt they can be challenged.': Venetian Nominees at 100-101. Venetian Nominees has been followed in this Court and applied to s 449E of the Act before that provision was repealed: e.g., Timeshare Resort Club at [36]-[43] (Barker J); Re Korda at [50] (Finkelstein J); Owen, in the matter of Rivercity Motorway Pty Limited (Administrators Appointed) (Receivers and Managers Appointed) v Madden (No 2) [2012] FCA 312 at [15], [18] (Logan J) and s 60-12 of the IPSC: e.g., Higgins v JSS Logistics Pty Ltd (in liq) [2022] FCA 1320 at [18] (Jackson J); Kelly, in the matter of Halifax Investment Services Pty Ltd (in liquidation) (No 9) [2020] FCA 925 at [32] (Gleeson J). It is common ground that, notwithstanding these decisions concerned provisions of legislation that have been repealed, the Court also has no power to determine the administrators' costs, expenses, and disbursements under and s 60-10 of the IPSC: e.g., Re Fearndale Holdings Pty Ltd (in liq) (receivers and managers appointed) [2020] NSWSC 901 at [30] (Black J).
In the ordinary course of events, an external administrator would be in control of the property of a company and pay disbursements the administrator has incurred (for which the administrator is personally liable under s 443A) out of that property through recourse to the indemnity in s 443D of the Act. Although, as noted in Venetian Nominees (at 101), the right to reimbursement from the company of costs and expenses may be challenged. In this case, the liquidators, and not the administrators, are in control of the property of the company and the liquidators contend that the administrators are not entitled to the disbursements claimed. In substance, the right to reimbursement is under challenge before any amount is paid out of the property rather than after such payment has been made. As a consequence, the administrators seek an order of the Court as to the amount, if any, the liquidators must allow and pay to the administrators out of the property of the company.
Division 90 of the IPSC deals with review of the external administration of a company. Section 90-20 provides, amongst other things, that a person with a financial interest in the external administration of a company, such as the administrators in this case, may apply for an order of the Court under s 90-15. It is common ground that the Court has power to declare any amount in which the liquidators should allow the administrators' disbursements under s 90-15 of the IPSC. It also appears to be common ground, subject to the question of re-opening, that the administrators are entitled to necessary and reasonable costs and expenses incurred in relation to the administration.
[10]
The administrators' claim for remuneration and disbursements
The administrators' evidence in support of their application breaks the work performed down into 15 categories. The time-cost of the remuneration claimed in each category is as follows (all amounts exclude GST):
1 Preparing reports to creditors: $344,738.50
2 Adjudicating PODs including investor claims and receiving PODs: $200,653.50
3 Meeting of creditors including minutes and preparation: $138,695.00
4 Reporting to/dealing with COI meetings including minutes: $40,116.00
5 Other creditors correspondence: $39,842.50
6 Day one tasks for VA and CVL including collecting information: Nil
7 ASIC lodgements: $8,316.50
8 Administrative tasks and general discussions with directors: Nil
9 DOCA related tasks: $63,094.00
10 ASIC Court proceedings: $37,346.50
11 Investigating voidable transactions, insolvent trading and director offences including preparing s 438D report: $20,913.00
12 Investigating assets: $41,211.50
13 Investigating investments and PPPs: $75,706.00
14 Auditing/reviewing KPMG report: Nil
15 Dealing with receivers and ASIC: $40,581.50
Total $1,051,214.50
[11]
While Mr Shaw deposes facts and opinions to the effect that the sum of $1,051,214.50 is for necessary work properly performed, the administrators have applied a 15% broad-based discount, in substance, in recognition of the manner in which the work was performed with layers of supervision of increasingly junior staff and that 'constant re-working was required as information/ideas changed in the course of the administration'. That is, the administrators sought a determination of $893,532.30 (excl GST), which is $982,855.53 (incl GST).
The administrators originally sought $257,277.00 to pay for disbursements and they now claim $313,208.92. These include: $190,680.60 for solicitors' fees; $47,670.15 for a 25% uplift on the solicitors' fees; $1,925.18 for transcription fees; $33.66 for solicitors' search fees; $1,040.00 for Federal Court filing fees; $52,815.00 for counsels' fees; $11,457.83 for room hire; $3,300.00 for property appraisals; $2,840.12 for teleconferencing fees; $699.43 for search fees; and $746.95 for ancillary costs (all amounts are inclusive of GST).
[12]
Summary of the parties' submissions
The liquidators submit that the critical question that emerges from s 60-5 and s 60-10 of the IPSC is whether (and the extent to which) the remuneration claimed is in respect of 'necessary work properly performed'. The liquidators contend that s 60-12 is concerned with the extent to which the remuneration claimed is 'reasonable' and is distinct from the requirement that it be 'necessary'. They submit that the work be 'necessary' is a threshold requirement antecedent to the issue of reasonableness. The liquidators make the formal submission that they do not raise any distinct challenge to the reasonableness of the work in this case. However, they submit that much of the work was not 'necessary'.
As to the claimed remuneration, the liquidators object principally to the work the administrators performed: (1) investigating the assets of Mr Marco and of the, then, alleged scheme; (2) work relating to Mr Marco's three DOCA proposals; and (3) adjudicating on proofs of debt of investors as contingent creditors. In substance, the liquidators submit that there was no realistic prospect that the conditions of the DOCA proposals would be fulfilled and, in those circumstances, embarking on a course of action involving an extensive and detailed investigation of the assets of the proposed deed fund and a detailed assessment of the proposals, including consideration of contingent creditor proofs of debt, was not justified. The liquidators also submit, in effect, that applying to the Court for directions or for an extension of the time within which the administrators had to convene and hold the second meeting of creditors were obvious reasonable alternative courses of action that would not have resulted in the administrators performing work of the nature or extent of that for which they claim remuneration. These reasonable alternatives were suggested to the administrators, at the time, by ASIC and ignored by the administrators.
As to disbursements, the liquidators object to payment of the legal fees (solicitors' and counsels' fees). The primary objection is that the administrators have not demonstrated that the legal fees have been 'incurred' under the terms of the conditional costs agreement or that agreement is not enforceable under the Legal Profession Act. Alternatively, if incurred, the fees should be disallowed because the legal costs were associated with work the administrators performed in one or more of the three categories the liquidators contend was not necessary work and, as such, it was not necessary to incur the legal fees. Further, and in any event, the administrators' evidence is insufficient to demonstrate that the legal fees were necessary and reasonable.
The administrators submit that they have discharged their onus of demonstrating that the remuneration claimed was for necessary work properly performed and is reasonable. Likewise, they submit that they have demonstrated that the disbursements were necessary and reasonable. Regarding the three categories to which the liquidators make specific objection, the administrators submit that all the work performed was necessary because they were under a statutory obligation to form an opinion as to whether it would be in the creditors' interests for the company to execute a DOCA, or be wound up, or for the administration to end.
The administrators submit that part of their statutory duties involved investigating the 'deed fund' that was proposed under each of the DOCA proposals. As the proposed deed fund included personal assets of Mr Marco, it was necessary for the administrators to investigate those assets in order to give creditors an informed view as to their prospects of receiving a better return under the DOCA proposal or a winding up of the company. Further, as the DOCA proposals related to 'investors' in the alleged scheme, it was necessary to consider if the 'investors' were also 'creditors' of AMS. The administrators formed the view that they were 'contingent creditors' and, as a result, it was necessary to consider the investors' claims submitted in proofs of debt for the purposes of determining voting entitlements at the second creditors meeting. In substance, the administrators submit that all the work they performed was unavoidable in the proper performance of their statutory obligations to form the required opinions, prepare a major report to creditors and to convene and hold a second meeting of creditors. The administrators also submit that the amount of work they performed was 'justified' due to 'significant interest in a DOCA from AMS's creditors.
Separately, the administrators submit that the Court should accept that the DOCA proposal, if accepted by the creditors and approved by the Court, had a real prospect of resulting in a better outcome for the creditors. The administrators submit that the Court should not consider the work 'unnecessary' on the ground that the DOCA proposal was not approved at the second creditors meeting.
The administrators also submit that the absence of any application by them during the administration for directions from the Court or relief under s 447A of the Act should not be judged with the benefit of hindsight and with knowledge of the decision the Court ultimately made on ASIC's originating process. The administrators submit that the Court would not have been able to make orders, in effect, permitting them to 'abdicate their responsibilities under the Act' or for circumscribing their statutory duties and functions in relation to, in particular, providing the statutory opinion on the merits of the DOCA proposal and adjudicating on proofs of debt.
[13]
Applicable principles for determining administrators' remuneration and disbursements
I am not persuaded that ss 60-5, 60-10 and 60-12 of the IPSC are to be construed, as the liquidators submit, as requiring, as a threshold requirement, a determination that an amount claimed is for 'necessary work properly performed' before considering if the amount claimed is reasonable. These provisions, as a whole, suggest that 'reasonable remuneration' is the governing principle.
Section 60-5(1) refers to an entitlement to receive remuneration for necessary work properly performed 'in accordance with remuneration determinations (if any)'. If no remuneration determination is made, s 60-5(2) provides that the external administrator is entitled to receive 'reasonable remuneration' for the work, provided it does not exceed the maximum default amount. Put another way, the default position of Div 60 is 'reasonable remuneration'.
Section 60-10 is cast as a determination 'specifying remuneration that an external administrator … is entitled to receive for necessary work properly performed', but that expression is merely a reflection of the entitlement in s 60-5(1) to receive remuneration in accordance with such a determination. Section 60-12 provides that a remuneration determination must have regard to whether the remuneration is 'reasonable' taking into account any or all of the matters referred to in that section. Thus, s 60-5(1) and s 60-10, read with s 60-12, also suggest that the underlying or governing principle is 'reasonable remuneration'.
The matters to be taken into account when having regard to whether the remuneration is reasonable include, in s 60-12(a) and s 60-12(b), 'the extent to which the work by the external administrator was necessary and properly performed'. The circuity of the concept of 'necessary work properly performed' in these provisions suggests that it is a requirement of, but a wider concept than, 'reasonable remuneration'. That is, 'necessary work properly performed' may not be reasonable, taking into account one or more of the matters referred to in s 60-12(c)-(j). On the other hand, to the extent that work is not necessary and properly performed, remuneration for that work could not meet the description 'reasonable'.
Perram J correctly, with respect, summarised the principles applicable to the determination of an external administrators' remuneration under Div 60 of the IPSC in Sallway, in the matter of Mosgreen Pty Ltd (in liq) (Remuneration of Liquidators) [2019] FCA 1771; (2019) 140 ACSR 331 as follows:
9 An external administrator of a company is entitled to receive remuneration for work performed by them in relation to the external administration in accordance with a remuneration determination: IPSC s 60-5(1). The Court's power to make a remuneration determination is conferred by s 60-10(1)(c). The onus is on the liquidator to establish that the remuneration claimed is reasonable and it is the Court's function to determine the remuneration by considering the material and bringing an independent mind to bear on the relevant issues: Sanderson v Sakr [2017] NSWCA 38; 93 NSWLR 459 ('Sanderson') at 470 [54] per Bathurst CJ; Morgan, in the matter of Brighton Hall Securities Pty Ltd [2018] FCA 2029 at [17] per McKerracher J.
10 The principles relevant to remuneration determinations were summarised by Black J in Re Sakr Nominees Pty Limited [2017] NSWSC 668 ('Sakr Nominees') at [23]-[24] (see also Sanderson at 470-471 [54]-[58]):
… A liquidator is entitled to reasonable remuneration for his or her services and the liquidator bears the onus of establishing that the amount of remuneration they seek is fair and reasonable and, in determining a liquidator's reasonable remuneration, the Court will have regard to the factors specified in s 473(10) of the Corporations Act, to which I refer further below. The Court must bring an independent mind to bear on the question whether the remuneration sought by a liquidator is fair and reasonable; the liquidator must lead evidence in sufficient detail that the Court can determine that question; and the Court will generally need to be provided with an account in itemised form, setting out at least the details of the work done; the persons who did the work; the time taken to perform the work; the remuneration claimed; and, to the extent relevant, the expenses incurred by the liquidator … Proportionality is an important matter in considering the question of whether remuneration is reasonable, and the "value" of a liquidator's work can include the benefit of resolving the position of creditors and beneficiaries; the benefit to the community of not permitting assets to remain unproductively in the hands of a defunct company for a long period; and can include work that was required to be done, although it did not result in a return to creditors …
Most decisions in both State Supreme Courts and in the Federal Court of Australia have applied time costing as at least the starting point for a calculation of remuneration, although those decisions also emphasise the need for proportionality between the cost of the work done and the value of the services provided … There has been a degree of concern as to time-based remuneration, over a considerable period, although it must be accepted that remuneration on that basis is now more common … Several recent decisions, of which the previous decision of Brereton J in this case was one, have emphasised the significance of the percentage that a liquidator's remuneration bears to the level of asset realisations achieved, and applied percentages of recoveries where time-based calculations would have led to unreasonable results … A percentage of realisations can also be used as a test of whether remuneration claims brought by a liquidator on a time costing basis are reasonable …
(Citations omitted.)
11 That decision concerned the predecessor provision in s 473 of the Act, but the principles under the IPSC are materially the same so that authorities about s 473 remain apposite: Re Custometal Engineering Pty Ltd (in liquidation) [2018] VSC 726 at [18].
12 The First Plaintiffs submitted, correctly in my view, that the matters as summarised in Sakr Nominees and Sanderson and prescribed by s 60-12 may be distilled into three categories:
(1) the necessary and proper connection between the work performed and the external administration: ss 60-12(a)-(b);
(2) the proportionality between the complexity of the external administration and the costs incurred: ss 60-12(c)-(i); and
(3) the reasonableness of the billing method of the administrator: s 60-12(j).
13 These principles apply in fixing remuneration for both administrators and liquidators: Sanderson at 463 [12] per Bathurst CJ. It is accordingly necessary to assess the First Plaintiffs' application for remuneration in respect of both the administration and the liquidation against these three broad considerations prior to turning to creditors' objections to the application.
Although I do not accept that ss 60-5(1), 60-10 and 60-12 should be construed as the liquidators submit, ultimately, I do not consider that this deprives the liquidators' objections of any force. The Court must have regard to whether the remuneration is reasonable taking into account, amongst other things, the extent to which the work was necessary and properly performed. The substance of the liquidators' objection is that the claimed remuneration is not reasonable because much of the work was not necessary for the administration of AMS.
In Conlan as liquidator of Rowena Nominees Pty Ltd (in liquidation) v Adams [2008] WASCA 61; (2008) 65 ACSR 521 an analogy was drawn between the process of determining an external administrator's remuneration and the process of taking accounts or taxation of costs. The administrator bears the onus of proving prima facie that a claimed item was not 'wrongly' charged. Here, prima facie means that the administrators' evidence is sufficient for the Court to determine whether the claimed remuneration was reasonable including the extent to which it was necessary and properly performed. Therefore, in the case of remuneration claimed on a time-cost basis, there must be evidence of the work done by particular persons, the time taken to perform that work, the hourly rate and the reasonableness of that rate: Conlan v Adams at [27]-[31] (McLure JA, Buss JA and Newnes AJA, agreeing).
In Conlan v Adams McLure JA also observed relevantly:
[32] However, it cannot be intended that the reasonableness of each item of work undertaken should positively emerge solely from the description of the item in the schedule. If in doubt as to the reasonableness of an item, reference can and should be made to relevant documents in the liquidator's possession relating to the work the subject of the claim: Re Solfire Pty Ltd (in liq) (No 2) [1999] 2 Qd R 182 at 191; Re Medforce Healthcare Services Ltd (in liq) [2001] 3 NZLR 145 at [33]-[36]. That is consistent with the procedure for taking accounts which permits summarised accounts in accountants form with access to the relevant parties to all source documents: Atkin's Encyclopaedia of Court Forms in Civil Proceedings, 2nd ed Vol 1, Butterworths, London, 1992 at p 612. Moreover, if the evidence is sufficient and there are objectors to the claim, then as with taking an account, the outcome of the application will ordinarily depend on the decision-maker determining the issues in contention between the parties particularly if it is apparent that the issues identified by the parties reflect a proper understanding of the guiding principles.
[33] I agree with Owen J's observations in Conlan (as liquidator of Oakleigh Acquisitions Pty Ltd) [2001] WASC 230 at [25] that in determining whether the information supplied by the liquidators meets the requirements in Venetian Nominees regard should be had to the purpose of an account which is, among other things, to enable a person interested in the fund from which fees will be drawn to ascertain whether there are matters to which objection should be taken.
…
[44] For practical purposes, it may be of assistance to identify categories of conduct that would not represent time reasonably expended at a reasonable rate. They include, without intending to be exhaustive:
(a) work that is beyond the power of the liquidator;
(b) conduct that is negligent (whether that be in undertaking, or in the performance, of the work);
(c) unnecessary work;
(d) work undertaken by persons of inappropriate seniority (having regard to level of training and experience); and
(e) work undertaken at inappropriate hourly rates.
[45] The expression "unnecessary work" is unhelpfully vague. The first two categories of conduct (that is ultra vires or negligent) may be classified as unnecessary work, but its meaning in (c) is wider. It relates to both decisions to embark on a course of action and the work undertaken in performance thereof and is captured by the concept of "over-servicing".
[46] As to entering upon a course of action, I agree with Ferris J in Maxwell that it is not sufficient that office holders have acted within the scope of the duties or powers conferred upon them. They are required to exercise commercial judgment in determining whether or not to act. A relevant exercise in that context would ordinarily be a cost-benefit analysis. In appropriate circumstances, other factors may displace that consideration such as, for example, the need or desirability to protect the liquidator's position by obtaining directions from the court.
[47] As to the performance of a task reasonably embarked upon, the work done must be proportionate to the difficulty or importance of the task in the context in which it needs to be performed. This is what is encompassed in assessing the value of the services rendered. Using an example from the law, the time spent by an appropriately qualified and experienced practitioner in drafting a statement of claim should be proportionate to the amount in issue.
The administrators, as insolvency practitioners, must act as a prudent business-person would act in their own affairs at their own risk and cost: Stockford at [51] (Finkelstein J); Adsett v Berlouis [1992] FCA 549; (1992) 37 FCR 201 at 209, 211-212 (Northrop, Wilcox and Cooper JJ). In Adsett v Berlouis the Court observed, relevantly (at 212):
… If the expense is one prudently and reasonably incurred in the discharge of the trustee's proper duties, there is a right under the general law to be indemnified out of the trust estate. If the expense is not so incurred or is unreasonable or unnecessary, there is no right under the general law to indemnity because the expense is not "properly incurred". The position is no indemnity because the expense is not "properly incurred". The position is no different with a trustee in bankruptcy. Where the line is drawn, between an expense properly incurred and one not properly incurred, is to be determined on the facts of the particular case and in the exercise of determined on the facts of the particular case and in the exercise of judgment.
In principle, there is no difference in the approach to be taken when the questions of the trustee's right to indemnity and right to remuneration fall for consideration. That is, the trustee's right to remuneration is limited to this work properly undertaken. In this context, "properly" means work reasonably and bona fide undertaken for the purpose of administering the estate or performing any public duty imposed by the Act, conformably with the trustee's duty to perform the work with reasonable care and skill and in an efficient and economical way.
…
While these principles relate to the circumstances in which disbursements are necessarily and properly incurred, they are equally applicable to the circumstances in which remuneration for work is necessary and properly performed. In that context, the expression 'necessary and properly performed' in s 60-12(a) 'ought not be read as requiring that the work should have been absolutely necessary to the minimum discharge of the [external] administrator's statutory duties'. The expression should be construed so as to give the external administrator a 'measure of discretion' and a 'fair degree of latitude where they have incurred expense as a result of the exercise of their commercial judgment even if there is a loss or no advantage to the company by so doing': Mosgreen at [15] (Perram J).
Proportionality is also a well-recognised factor in considering the question of reasonableness of the remuneration of external administrators. Section 60-12 permits the Court to take into account, amongst other things, the quality and complexity of the work and the value and nature of any property dealt with as well as the question of time reasonably spent. 'Generally, an amalgam of the factors in [s 60-12(d)-(e) and (g)-(h)] have as their unifying theme the concept of proportionality.' 'The question of proportionality in terms of the work done as compared with the size of the property or the activity the subject of the insolvency administration or benefit or gain to be obtained from the work is an important consideration in determining overall reasonableness': Templeton v Australian Securities and Investments Commission [2015] FCAFC 137; (2015) 108 ACSR 545 at [31]-[32] (Besanko, Middleton and Beach JJ). The Court there also observed (at [33]) that 'in looking at proportionality, the value of the services rendered must be considered' and endorsed the observations of McLure JA in Conlan v Adams at [47] referred to earlier before adding:
[34] …even if one was not to address proportionality as an express factor, nevertheless its absence may have forensic significance in determining reasonableness. Another way to look at proportionality can be to conclude from a lack of proportionality between the cost of the work done relative to the value of the services provided that there has been overcharging or excessive Thackray v Gunns Plantations Ltd remuneration claimed: see (2011) 85 ACSR 144; [2011] VSC 380 at [64] per Davies J.
The reference to 'value' in the cited passage from Conlan v Adams (at [47]) is a reflection of what was said earlier in that judgment by reference to the decision of Ferris J in Mirror Group Newspapers plc v Maxwell (No 2) [1998] BCC 324 (at 336-337) where McLure JA said:
[39] Mindful of the disadvantages associated with time-based costing, courts in England and Australia have identified the object to be achieved and criterion to be applied in determining what is reasonable remuneration when faced with a time-cost remuneration claim: Mirror Group Newspapers plc v Maxwell (No 2) [1998] BCC 324; Re Korda; in the Matter of Stockford Ltd (2004) 140 FCR 424; 52 ACSR 279; [2004] FCA 1682; Ferris J said in Maxwell (at 336-7):
In my judgment it is vital to recognise three things in this field. First, time spent represents a measure not of the value of the service rendered but of the cost of rendering it. Remuneration should be fixed so as to reward value, not so as to indemnify against cost. Secondly, time spent is only one of a number of relevant factors … The giving of proper weight to these factors is an essential part of the process of assessing the value, as distinct from the cost, of what has been done.
[40] The other relevant factors identified by Ferris J were the complexity of the case, the extra responsibilities on the liquidator, the effectiveness of the liquidation and the value and nature of the property involved in the liquidation.
[41] The word "value" in this context does not mean the net financial benefit to the creditors. Rather, it means the value of the services rendered by or on behalf of the liquidator which in turn is addressed by the question whether the time was reasonably expended in the circumstances of the particular liquidation.
In Sanderson as liquidator of Sakr Nominees Pty Ltd (in liq) v Sakr [2017] NSWCA 38; (2017) 93 NSWLR 459 (at [54]-[60]), while recognising that proportionality is an important consideration in determining reasonableness, Bathurst CJ (Beasley P, Gleeson JA, Barrett AJA and Beach AJA, agreeing) made two further observations. 'First, the mere fact that the work performed does not lead to augmentation of the funds available for distribution does not mean that the external administrator is not entitled to be remunerated for that work. The most obvious example is work done by a liquidator in complying with his or her statutory obligations.' Second, 'there are commonly cases where work is undertaken in an unsuccessful attempt to recover assets whether at the request of creditors or otherwise. Provided it was reasonable to carry out the work and the amount charged for it was reasonable, there is no reason a liquidator should not recover remuneration for undertaking the work.' In other words, work undertaken that is not fruitful and (or) that is required in the performance of statutory obligations may be regarded as necessary and proper work for which an external administrator is entitled to remuneration.
With respect to disbursements, the position of an external administrator is similar to that of a trustee under the general law or a trustee in bankruptcy. The external administrator is entitled to reimbursement for costs and expenses 'properly incurred'. Namely, costs and expenses prudently and reasonably incurred in the discharge of the administrator's proper duties. If the cost or expense is not so incurred or is unreasonable or unnecessary, it is not 'properly incurred': Adsett v Berlouis at 209-212 (Northrop, Wilcox and Cooper JJ); Venetian Nominees at 100-101. As to 'prudence', as already mentioned, an external administrator 'ought to conduct [the] affairs [of the company under administration] in the same manner as an ordinary prudent [person] of business would conduct [his or her] own affairs': Adsett v Berlouis at 209; Stockford at [51] (Finkelstein J). A disbursement 'properly incurred' is equivalent to 'a necessary expense or cost properly incurred' in relation to the external administration that is reasonable: see, e.g., Starpicket Pty Ltd (No 2) at [27] (Gordon J).
Therefore, the consideration of whether a disbursement was 'properly incurred' is to be approached in essentially the same way as determining if the remuneration claimed is for 'necessary work properly performed' and 'reasonable'. That is, the relevant question is whether the disbursement was 'necessary' to incur in relation to the external administration and 'reasonable' in amount.
[14]
Relevant facts
The following facts are relevant to the circumstances in which the administrators were appointed and the circumstances of the administration. Also, set out are relevant events that have taken place since they were removed from office.
[15]
Marco (No 6)
On 30 October 2018 ASIC filed the originating process in these proceedings and an interlocutory application for asset preservation and non-disclosure orders. On 1 November 2018 the Court made asset preservation (freezing) orders on an ex parte basis covering all of the property of Mr Marco, AMS and AMS as trustee: Australian Securities and Investments Commission v Marco [2019] FCA 466; (2019) 136 ACSR 116 (Marco (No 1)).
On 12 December 2019, as a result of investigations conducted to that point in time, ASIC filed an application for further interim relief for the appointment of interim receivers over the property of the defendants and to amend its originating process.
On 27 May 2020 the Court made orders, amongst others, granting ASIC leave to amend its originating process and appointing the liquidators as interim receivers over the property of Mr Marco and the property of AMS and AMS as trustee: Australian Securities and Investments Commission v Marco (No 3) [2020] FCA 719. The liquidators (as interim receivers) were also ordered to prepare a report within 60 days for the Court that was to include:
identification of the assets and liabilities of each of Mr Marco, AMS and AMS as trustee;
an opinion on the solvency of each of Mr Marco, AMS and AMS as trustee;
the likely return to creditors, including investors, in the event that each of Mr Marco, AMS and AMS as trustee, were wound up; and
any other information necessary to enable the financial position of each of Mr Marco, AMS and AMS as trustee, to be assessed.
In the meantime, on 12 March 2020, judgment was delivered and published in Markopoulus v Marco [2020] WASC 79. The plaintiffs in those proceedings were investors and the defendant was Mr Marco. Judgment was pronounced in favour of the plaintiffs for amounts invested with Mr Marco plus contractual interest based on the terms upon which the funds were advanced to Mr Marco. Separately, declarations were also made to the effect that Mr Marco held amounts invested on trust for the plaintiffs. Tottle J found, by reason of the express terms upon which the funds were invested, that Mr Marco held those funds on trust for the investor plaintiffs. Tottle J reached that conclusion based on the terms of the declarations of trust each investor signed at the time of making an investment or by inferring, where no such declarations were produced, that the investment had been made on the same terms. The judgment included a summary of Mr Marco's evidence concerning the manner in which he had operated his business. That included a description that investors provided funds to him for investment purposes that were 'pooled' with the funds of other investors and Mr Marco.
The interim receivers' report is the report filed in conformity with the Court's orders of 27 May 2020. That report contained a narrative description of the nature of the business dealings of Mr Marco, a detailed analysis and estimate of the value of the investments and other assets of Mr Marco, AMS and AMS as trustee, the asset and liability position of Mr Marco, AMS and AMS as trustee, an estimate of the shortfall in the value of assets over liabilities and an estimated return to investors.
The interim receivers opined that, given the nature of Mr Marco's business dealings, it was relevant to consider the financial positions of the three entities (Mr Marco, AMS, AMS as trustee) on a consolidated basis. The reasons given for that approach were as follows:
Mr Marco had consistently stated that he and AMS were in effect one and the same and should be viewed collectively as a representation of his business dealings. Mr Marco had admitted that all of the assets of AMS (whether or not AMS Holdings Trust assets) were purchased from investor funds provided to him.
The declarations of trust included personal guarantees from Mr Marco for all principal and interest owing. Mr Marco's personal assets were, therefore, assumed to be available to satisfy both personal and business liabilities of investors.
With the exception of a $600,000 business loan from Westpac, all of AMS's funding was through an undocumented related party loan of investor funds from Mr Marco.
The beneficiaries of the AMS Holdings Trust were Mr Marco and his wife.
Mr Marco admitted that he had not attempted to maintain records which separately identified personal funds, investor funds or the financial position of AMS on the basis that his business was operated from a pooled account. Accordingly, it was unlikely to be possible to specifically identify any specific interest an investor may have had in a particular asset.
Mr Marco had informed the receivers that there had been a co-mingling of personal, investor and AMS funds in the bank accounts and that reconstructing separate accounts was unlikely to be possible.
The interim receivers indicated that they had not identified any evidence that AMS traded in its own capacity. There was an Australian Business Number registered to the AMS Holdings Trust and the property of that business appeared to have been operated exclusively through the AMS Holding Trust. Mr Marco had stated that AMS undertook no activities in its own right. As a consequence, the interim receivers had not prepared any separate analysis for AMS and all references in the report to 'AMS' were references to AMS as trustee for the AMS Holdings Trust.
The interim receivers' report included a narrative description of Mr Marco's business model based on statements Mr Marco had made to the receivers. The nature of his business model was described as follows:
Mr Marco had operated as a private investor who had accepted funds from investor clients for the purposes of investing in private placement programs (PPPs) or similar investments.
The understanding between Mr Marco and his investor clients was set out in a document entitled Declaration of Trust. The document resulted in a liability accruing to investors by way of agreed interest repayments.
All amounts owing to investors were personally guaranteed by Mr Marco as provided for in each document entitled Declaration of Trust.
All funds received from investors were pooled and co-mingled with Mr Marco's personal funds. No trust accounting was maintained or considered necessary. The only other sources of income into this pool of funds were returns on investments (including rent, dividends, etc.).
This pool of funds was used to establish a proof of funds for investment, to purchase assets (e.g., property), to meet investor returns and to pay for the operating costs of the business.
The business model required that an ever-increasing liability was accrued until a successful PPP was completed at which time Mr Marco would have sufficient cash available to meet the accrued liability.
Since the commencement of Mr Marco's business, he had not had a successful PPP.
It would take a considerable period of time to develop a workable proof of funds for investment and it could take anywhere between 10 to 20 years to produce a significant profit from investments.
Nearly all investor returns had been funded by monies provided by new investors.
AMS was to be considered an extension of Mr Marco's business and therefore both entities were to be reviewed collectively on a consolidated basis.
After describing the nature of Mr Marco's business (to use funds derived from new investors to pay the interest owed to earlier investors) the interim receivers opined 'the business model necessitated an ever increasing net liability position that could only be theoretically repaid from the maximum return of a successful PPP.' The receivers had not identified any underlying investments capable of meeting repayments. The receivers opined that the consolidated business was insolvent.
The interim receivers' report included a detailed section setting out the assets and liabilities of Mr Marco and AMS. That section identified a number of properties that Mr Marco or AMS as trustee of the AMS Holdings Trust, had purchased with investor funds. The receivers placed an estimated value on all assets including those held in the name of AMS. That section also included a detailed description of the PPP and other investments and the estimated value of them.
The interim receivers expressed opinions to the following effect.
The sum of $255 million was received from investors after 1 July 2009. Of that sum, $206 million (81%) was used to meet investor obligations. These monies had been expended and were not available to meet any liabilities that remained outstanding.
There were 133 investors owed between $254.5 million (based on Mr Marco's records) and $381.9 million (if an approximation of interest were added).
Having analysed the PPP investments and summarised the 'open' positions, the estimated the value of the open PPP investments and other investments was $390,000 to $1.8 million. Mr Marco had participated in 14 investment programs between 2013 and 2018 that resulted in transfers of $8.8 million overseas and a total return of $400,000. The estimated future return from those investment programs was nil.
Having reviewed some of the documentation available and corresponded with each of the relevant counterparties (where contact details were provided) as detailed in the interim report, no investment programs or sources of funds existed that were capable of any material return to meet outstanding investor liabilities (excluding cash, real property or motor vehicle assets that are subject of the asset preservation orders).
The value of the assets available (collectively) to meet liabilities was estimated to be between $20.1 and $33.6 million comprising of cash at bank, loans recoverable, properties, realisable investments and rare motor vehicles.
The shortfall to investors and other creditors was estimated to be between $362.6 and $221.7 million. Assuming investors' claims ranked pari passu, the estimated return to investors was between 5.1 and 12.9 cents in the dollar.
On 7 August 2020 the Court made orders for the exchange of evidence and submissions and listing before the final hearing of the amended originating process. Subsequently, the matter was listed for final hearing on 28 and 29 October 2020.
ASIC filed the affidavit of Mr Howman-Giles of 24 August 2020. Mr Howman-Giles was a partner in the forensic division of KPMG. Exhibited to his affidavit was the KPMG report.
The KPMG report was prepared in response to seven questions. These related to the number of investors, the funds each investor contributed to Mr Marco individually and in aggregate, the funds Mr Marco paid to investors, the amounts Mr Marco owed investors and the categorisation of funds as principal and interest and identification and details of the declarations of trust entered into by investors or other documents evidencing or recording investments and the terms of those investments for the period from 11 April 2017 to 10 April 2018. The KPMG report contained electronic financial workbooks with Mr Howman-Giles' analysis of the investment scheme and certain related party transactions. The report also included an expression by way of narrative the manner in which the scheme was operated.
Mr Howman-Giles opined that 311 investors had contributed a total of $261.5 million in money or money's worth to Mr Marco. Funds were deposited into Mr Marco's bank accounts. The investors received $213.3 million from Mr Marco. Mr Marco owed investors $256.2 million. It was not practical to divide amounts owed into principal and interest due to complex assumptions and calculations required to account for investments rolled-over (where the principal and interest of an earlier investment became the principal of a subsequent investment), partial payments of earlier investments, payments that could be allocated to an investor but not a specific investment. Mr Howman-Giles also identified transfers from Mr Marco's bank accounts to the accounts of members of his family (excluding AMS).
On 4 September 2020 Mr Maskell (of Thynne + Macartney) sent an unsolicited email to the reception of MGM O'Connor Lawyers, the legal firm then acting for Mr Marco in the proceedings. The email included the following:
…
This is an unsolicited email after I received your firm name from a Perth-based account (with a Brisbane office also), who apparently knows Chris Marco. I do not know Mr Marco and I have no connection with the matter you are handling for him. His name was raised with me only through that accountant connection.
In short - I see ASIC has a receiver appointed to AMS asserting it is an unregistered MIS and a Ponzi scheme. I understand the receiver has delivered his report and there is a 2 day trial between Mr Marco/ AMS and ASIC at the end of October 2020. I assume ASIC is pursuing its standard approach of: (i) start investigation within ASIC (to qualify for useful sections of Corps Act; (ii) get freezing orders; (iii) appoint receiver; (iv) get report; then (v) ask the Court to convert ASIC's nominated receiver to be a liquidator (perhaps with orders that the liquidator is also appointed to whatever trusts are there and can treat each trust like a company) and declare that AMS was an unregistered MIS contra the Act.
I have recent experience with the above approach by ASIC because I currently act in the administration of the 'Goldsky' group of companies. While I do not quibble with ASIC's preferred approach, I am not convinced it is always in the interests of the company/ stakeholders, for reasons I would be very pleased to discuss with you if you are minded.
By way of example (and I appreciate every matter is different) - In 'Goldsky':
ASIC proceeded per (i) to (v) above. ASIC sought orders that the Court appoint its preferred receiver as liquidator, but the director was cautious about that/ the director for his own reasons had not had a good experience or good engagement with ASIC's preferred insolvency practitioner.
The director's lawyers sought out other options, including for the director to appoint a voluntary administrator (VA). The director met with VA candidates and appointed one, which is where I became involved acting as a solicitor for the VA.
The apparent priorities of ASIC were, in my view, inconsistent with some objects of the Act in having an administrator/ liquidator appointed to a company. For example, there had been very limited engagement with creditors/ the persons who had an interest in the outcome of the matter.
As you would know, ASIC usually appoints its receiver under s1323 of the Act (and I assume that was the case for AMS). That means the receiver automatically becomes an 'officer' of the company per s9 and, as a result, that same person cannot be appointed liquidator without the Court's leave under s532. There is then good case law analysis to weigh against the Court giving leave because the receiver under s1323 owes duties to a different class of persons (ie. 'aggrieved persons' as defined in the Act) compared to a liquidator.
Therefore, the VA appointed by the director intervened in ASIC's proceedings (ie. for the companies), the VA defeated ASIC's applications and the VA was empowered to assume control, have meetings with stakeholders, put resolutions to the creditors/ stakeholders etc.
As noted, I acted for the VA, who was later converted to a liquidator. The liquidator then, with the director's cooperation and because the director/ his lawyers had been open with the liquidator in a 'without prejudice' meeting, formed settlement deeds with the director and his family members (who were volunteer recipients of certain property). I can disclose this because it is public record, but the actual terms of the deeds are confidential.
This cooperation/ good faith with the director meant the administration was, I believe, far more efficient than could otherwise have been the case. The liquidator of course discharged all statutory and general law duties using the discretion properly afforded to him, but avoided what I believe would have been significant costs of protracted/ escalated litigation to achieve a better commercial outcome overall.
l do not know how Mr Marco intends to proceed and I certainly do not want to 'cut across' or assume any knowledge of the advice/ processes put in place by your firm. However, if Mr Marco is considering/ wishes to consider his option of a VA appointment, then I would be pleased to hear from you. If this option was pursued within the next couple of weeks, then the VA might have good opportunity to assess the attitude of stakeholders and assist the Court re ASIC's pending application before the end of October 2020. [You will note I am based In Brisbane, but my firm has no impediment re assisting in WA.]
On 15 September 2020 Mr Maskell and Mr Luka Margaretic (of MGM O'Connor) exchanged emails in which Mr Margaretic expressed the view that voluntary administration was preferable to winding up and liquidation. Mr Maskell enquired about Mr Margaretic's availability for a telephone conversation and indicated that the 'usual approach' would be for the director to meet with potential candidates for appointment as voluntary administrators before any appointment 'because it allows the director to understand the process/ to workshop options and it allows the VA a better understanding of the job at hand'. Mr Margaretic also expressed the view that the situation was more problematic because Court appointed receivers were already in place and added '[i]n my view it would require consensus between the litigants or Court Order'.
On 17 September 2020 a representative of MGM O'Connor provided a redacted copy of the interim receivers' report to Thynne + Macartney and the redacted report was then emailed to Mr Watters. Before sending that email, in May 2020, Mr Watters had a discussion with a representative of Thynne + Macartney, which I infer was Mr Maskell. On 21 September 2020 a representative of Thynne + Macartney had a telephone conference with a representative of MGM O'Connor and recommended that they contact Mr Shaw with respect to a possible meeting with Mr Marco and MGM O'Connor.
On 22 September 2020 a representative of MGM Lawyers contacted Hall Chadwick to enquire about Mr Shaw's availability to meet with Mr Marco regarding AMS. A meeting was arranged for 23 September 2020 and for Mr Shaw and Mr Maskell to 'have an introduction and chat … beforehand'. On 22 September 2020 Mr Shaw had separate telephone discussions with representatives of Thynne + Macartney and MGM O'Connor.
On 23 September 2020 a meeting was held between Mr Marco, Mr Margaretic, Mr Shaw, Ms Ginette Muller, of Hall Chadwick, and Mr Maskell. Other than a brief summary of the meeting in a file note Mr Shaw prepared, there is no evidence before the Court of what was said during that meeting. The file note does not provide any real content to the discussions and merely identifies the topics of discussion. However, the file note records that at that meeting there was discussion that covered the history of AMS and the ASIC court proceedings, the 'options available to [Mr Marco]' and voluntary administration and timing. Assets were not discussed because it appears Mr Shaw had a copy of a redacted version of the interim receivers' report. There was also a discussion to the effect that there were 132 investors and Mr Marco had expressed the view that the 'shortfall' referred to in the interim receivers' report was not correct, but he did not provide the correct figure. Mr Margaretic said that 'they will be in touch if they wish to proceed with appointment'. On the same day, Mr Shaw provided appointment documents to Mr Marco and Mr Margaretic.
On 24 September 2020 the directors of AMS appointed the administrators to be joint and several administrators of AMS under s 436A of the Act.
On 25 September 2020 Thynne + Macartney sent a letter comprising a costs disclosure and conditional costs agreement to the administrators. Mr Maskell deposes that this document comprised the costs agreement between the administrators and Thynne + Macartney.
ASIC sent a letter to the administrators dated 25 September 2020 notifying them that the final hearing was listed for 28 and 29 October 2020 and providing certain documents including copies of the freezing orders and judgment approving the freezing order regime in Marco (No 1), the judgment of 27 May 2020 in Marco (No 3) dealing with the amendment to the originating process and appointment of the interim receivers and the amended originating process. The letter also requested the administrators' consent under s 440D(1)(a) of the Act to continue with the proceedings. ASIC sent the administrators another letter of the same date providing a brief description of the proceedings and the relief sought, notice that interim relief had been obtained for freezing orders and appointing the liquidators as interim receivers.
In the meantime, on 22 September 2020, judgment was delivered and published in Baxter Global Investments Pty Ltd (ACN 159 246 670) v Marco [2020] NSWSC 1293. The plaintiffs in those proceedings were also investors and the defendant was Mr Marco. The plaintiffs had invested substantial funds with Mr Marco and had executed declarations of trust with terms requiring repayment and interest. The judgment also included a summary of the manner in which Mr Marco operated his business. Mr Marco's business was described as 'trading in bank instruments as a private investor'. The bank instruments were known as PPPs. Mr Marco's evidence was to the effect that in order to trade in PPPs he required proof of funds to facilitate transactions involving bank instruments in the United States of America and Europe. The proof of funds capital were held and retained in a bank account in Australia for the purposes of a PPP trade. Investor funds were pooled for the purposes of proof of funds. The funds were invested and investors signed declarations of trust. Henry J was satisfied that funds the plaintiffs in that case invested with Mr Marco were held on an express trust. Henry J was also satisfied that the plaintiffs were entitled to succeed on their claims in contract for the principal invested and interest.
On 29 September 2020 the administrators issued an initial information circular to persons Mr Shaw describes in his first affidavit as 'investors and creditors of the Company'. The information circular stated that the administrators were appointed on 24 September 2020 pursuant to a resolution of the directors of AMS under s 436A of the Act and included other statements to the following effect:
'Mr Chris Marco is a director of [AMS] … and appointed us as Voluntary Administrators of the Company';
'[t]he purpose of the appointment of an Administrator is to allow for an independent insolvency practitioner to take control of and investigate the financial affairs of a company';
Mr Shaw would 'prepare a report to creditors detailing [his] investigations into the Company's business, property, affairs and financial circumstances as well as provide [his] opinion on the future of the company with respect to the best interests of creditors';
Creditors would receive the report prior to a second meeting of creditors and creditors will have an opportunity to 'vote on the future of the Company, that is, by resolving that' AMS execute a DOCA, the administration should end or that AMS be wound up;
that based on preliminary investigations, it was Mr Shaw's understanding that the assets of AMS were controlled by the liquidators (then interim receivers) and that '[o]ngoing trade creditors should continue to liaise with the Receivers in this respect';
'[s]ome recipients of this report may have invested funds with Mr Chris Marco' and 'Mr Shaw [has] been provided with a list of investors and their contact details';
given the early state of the administration, Mr Shaw had 'not determined the rights of the investors to prove as creditors of the Company', though he invited such investors to attend a forthcoming creditors meeting on 7 October 2020 either 'as observers, or potentially as creditors'; and
Mr Shaw also invited investors to submit a proof of debt form together with particulars.
Amongst the documents attached to the information circular was a Declaration of Independence, Relevant Relationships and Indemnities (DIRRI). The DIRRI indicated that the appointment was referred to the administrators by Thynne + Macartney on 21 September 2020. Thynne + Macartney had not referred any other appointments or engagements to Hall Chadwick, but had referred one appointment to Mr Watters before his employment at Hall Chadwick commenced. The administrators expressed the view that the referral did not result in a conflict of interest or duty for various reasons set out in the DIRRI. The DIRRI also set out the meetings, telephone conversations and email correspondence that took place before the administrators' appointment referred to earlier in these reasons. The administrators expressed the view that these matters did not affect their independence for various reasons set out in the DIRRI.
The information circular also attached a notice of a meeting of creditors for 7 October 2020 and a document titled 'Initial Remuneration Notice' the purpose of which was to provide creditors with 'information about how remuneration for undertaking this Voluntary Administration will be set'. The method chosen was 'time based hourly rates'. The hourly rates by position are set out in a table. Amongst other things, the Initial Remuneration Notice stated that it was difficult to estimate with certainty the costs of the voluntary administration but these 'may be greater than $100,000 (plus GST)'. It also indicated that the administrators may incur disbursements such as legal costs and stated '[w]e are not required to seek creditor approval for expenses paid to third parties or for disbursements where we are recovering a cost incurred on behalf of the Voluntary Administration, but we must account to creditors. We must be satisfied that these expenses and disbursements are appropriate, justified and reasonable.'
On 29 September 2020 Thynne + Macartney sent a letter to ASIC. Amongst other things, the administrators requested an adjournment of the final hearing listed for 28 and 29 October 2020 and copies of the affidavits upon which ASIC intended to rely. The administrators also requested ASIC to deliver up the books of the company. The letter also records that the administrators met with Mr Marco on 28 September 2020 to discuss possible terms for a DOCA.
On 29 September 2020 ASIC sent an email to Thynne + Macartney indicating that it would not consent to an adjournment of the final hearing. The email also requested an indication of when the administrators would be in a position to advise if they would consent to ASIC proceeding pursuant to s 440D(1)(a) of the Act. There was further correspondence on 30 September 2020 by which ASIC provided Thynne + Macartney with a URL link to a package of documents that included Mr Howman-Giles' affidavit and the KPMG report. Additionally, all Court documents, including Mr Brauer's affidavit exhibiting the interim receivers' report and Mr Howman-Giles' affidavit exhibiting the KPMG report had been served on AMS as a party to the proceeding. Therefore, the administrators ought to have had access to those materials upon their appointment.
It follows that shortly after the administrators' appointment they had available to them the reasons for decision in Markopoulus and Baxter and the interim receivers' report and KPMG report. These materials provide the reader with a description of the nature of and manner in which Mr Marco operated his investment business. Further, that AMS conducted no business and held no assets on its own account. That all assets of AMS were purchased with investor funds. That the majority of assets of Mr Marco were purchased with investor funds. That certain other assets of family members of Mr Marco appeared to have been purchased with investor funds. The estimated amount of principal and interest Mr Marco owed to investors. The shortfall between the amount owed to investors and the estimated value of all assets acquired with investor funds. The estimated return to investors, assuming claims ranked pari passu, upon a liquidation (winding up) of Mr Marco's investment business (that is, the scheme).
On 2 October 2020 ASIC filed an interlocutory process for orders permitting it to proceed against AMS as a company under administration. On 13 October 2020 the Court granted ASIC leave to maintain the proceedings against AMS and, if necessary, AMS as trustee, under s 440D(1) of the Act. The listing of the final hearing was not adjourned.
On 7 October 2020 the first meeting of creditors was held in accordance with s 436E of the Act. Amongst other things, the minutes record that the creditors resolved to appoint a COI. There were 12 members of the committee appointed.
On 9 October 2020 ASIC sent a letter to the administrators. In that letter ASIC said that the administrators' appointment 'appears to be for the sole purpose of receiving a DOCA, which is to be proposed by Mr Marco or some other person.' ASIC expressed 'serious concerns regarding the circumstances' of the administrators' appointment. The circumstances included the absence of the administrators' consent for the proceedings against AMS to continue and an apparent intention to convene and hold the second meeting of creditors for the purpose of voting on a resolution to enter into a DOCA before the hearing on 28 and 29 October 2020.
ASIC requested the administrators apply to the Court to extend the period for convening the second meeting of creditors under s 439A(6) of the Act, or at a minimum, undertake to adjourn the meeting as soon as it is opened, until after the outcome of the ASIC proceedings was known. ASIC set out as the basis for its request the following matters:
There was no apparent urgency to holding the second meeting of creditors in circumstances in which the assets of AMS were the subject of asset preservation orders and under the control of the interim receivers, any DOCA proposal may be presented to the liquidators of AMS, if appointed by the Court, and any DOCA could only deal with assets of AMS, not assets of the scheme.
Before the second meeting of creditors the administrators would have to provide the creditors with a major report. The provision of a meaningful report would be difficult due to the complexity of the issues that would have to be addressed in order for creditors to make an informed decision. The issues included: whether Mr Marco's investors should be entitled to vote; the assessment and application of trust law including the implications of the Markopoulus and Baxter judgments; the calculation of creditors' rights, entitlements and positions; and any potential legal claims available for the benefit of creditors.
It was difficult to ascertain the basis upon which any DOCA proposed could be implemented at all given that:
all of the property of AMS was under the control of the interim receivers and subject to freezing orders;
any DOCA proposal that preserved or perpetuated aspects of the scheme would be of concern to ASIC (that is, the question of whether the DOCA was contrary to public policy was raised); and
the administrators of AMS had no power to deal with assets that AMS holds on trust and they would need orders from the Court to give them those powers when orders were already in place giving the interim receivers those powers.
Investors' and creditors' interests would be taken into account if the Court appointed liquidators to wind up the scheme and AMS.
On 13 October 2020 Mr Maskell responded to ASIC's letter of 9 October 2020 on behalf of the administrators. Amongst other things, the administrators asserted that ASIC had failed to show any reasonable basis for the serious concern referred to in the letter. That email was followed with a letter dated 14 October 2020 from Thynne + Macartney to ASIC. By that letter the administrators represented, amongst other things, that they had not received a DOCA proposal at that time and, in the absence of such a proposal, there was no merit in extending this period for convening the second creditors meeting.
On 16 October 2020 MGM O'Connor sent a letter to the administrators containing a proposal of Mr Marco for a DOCA.
On 18 October 2020 the administrators provided a report to creditors (the major report) in accordance with r 75-225 of the IPRC. At the same time creditors were provided with notice of the second meeting of creditors to be held on 26 October 2020.
The major report included a description of the history of AMS and the business activities of Mr Marco and the company, the appointment of the receivers, the books and records of the company, its past financial performance and directors' 'Report on Company Activities and Property'. The administrators expressed the view that the funds the company received were sourced from pooled funds, the majority of which were provided by investors to Mr Marco and transferred to the company by Mr Marco. For that reason, the administrators considered that 'investors' from whom Mr Marco received funds were contingent creditors of AMS Holdings on the basis that the investors may have claims against AMS Holdings as constructive trustee. The administrators were also of the view that investors may have claims against the company under statute or in tort.
When describing the assets and liabilities of the company the administrators expressed an understanding that these were assets and liabilities of the company as trustee of the AMS Holdings Trust, but at the time of the major report had not received sufficient documentation to evidence whether the assets were acquired in its capacity as trustee or in the company's own right. The major report also includes a significant section describing the financial position of Mr Marco. That section includes a section with details of investigations into Mr Marco's PPPs or similar investments. There is also a significant section describing Mr Marco's liabilities including those to 'investors'. All of the information in these sections of the major report is a duplication of the information contained in one or both of the receivers' interim report and the KPMG report. The estimated realised value of the assets and the amount of the liabilities are similar, but not identical, to those contained in the interim receivers' report.
The major report summarised the main terms of Mr Marco's DOCA proposal. In substance, the proposal was to form a deed fund comprised of personal assets of Mr Marco, members of his family and of AMS as trustee. The proposal included as a condition for the DOCA to commence, that 'ASIC's application to wind up the Company/scheme is unsuccessful and Asset Preservation Orders are lifted. Also, Court approval for the Company to remain / be reinstated as Trustee of the [AMS Holdings] Trust'. The report set out an estimated return to creditors in a liquidation and under the DOCA and, ultimately, the administrators recommended against the creditors resolving to enter into the DOCA.
On 19 October 2020 the administrators sent a circular to the COI to convene a meeting of that committee. The purpose of that meeting was to consider the major report and any other business.
On 20 October 2020 MGM O'Connor sent the administrators a letter which, amongst other things, contained a second DOCA proposal of Mr Marco in response to the administrators' recommendation against the first proposal. The second proposal was in similar terms to the first except that it included additional assets of Mr Marco and members of his family which had been excluded from the first proposal. It included a proposal that Mr Marco enter into a Pt X arrangement under the Bankruptcy Act 1966 (Cth) or seek appropriate orders from the Court to reflect such an arrangement so as to permit Mr Marco's personal estate to be administered with the administration of a deed fund. The proposal included the compromise of any claims against certain members of Mr Marco's family. The proposal was subject to Court orders, in effect, approving the Pt X arrangement and terms of the DOCA and discharging or varying the freezing orders so as to allow the assets of Mr Marco and AMS as trustee to be administered under the DOCA.
On 22 October 2020 a meeting of the COI was held. The major report was tabled and there was a general discussion. During the meeting there was discussion of a possible amended DOCA proposal. There was also discussion of a possibility of adjourning the second meeting of creditors should a further DOCA proposal be made before that meeting.
On 21 October 2020 the liquidators, as interim receivers, sent a notice to investors. It was expressed to be in response to questions received from investors relating to the major report provided before the second meeting of creditors convened for 26 October 2020. The interim receivers indicated that they intended to vote against the proposed DOCA in their capacity as receivers of Mr Marco as a creditor of the company. The liquidators also indicated that there were 'a number of fundamental difficulties with the DOCA as proposed by Mr Marco which makes it impractical and near impossible to implement even if it were in creditors' best interest to do so'. These were expressed to be as follows:
…
A condition precedent of the DOCA is that relevant Court orders are made to dismiss the ASIC v Marco proceedings, vacate the Asset Preservation Orders and to give effect to the terms of the proposal. This is proposed to be achieved via either application to the Court or with ASIC's consent. ASIC has advised us that it would not consent to such orders and would oppose any application.
The DOCA purports to include assets that the Administrators are not in control of, including Mr Marco's personal assets, the assets of the AMS Holdings Trust and assets in the name of Damon Marco. It is the Receivers' view that all of these assets (which we consider were acquired with investor funds as set out in the Receivers' Report) are likely to be held on constructive trust for Investors. Investors are therefore the beneficiaries of this trust and their unanimous consent would likely be required to transfer these assets into Mr Marco's DOCA fund. Based on comments and feedback from Investors, unanimous consent appears improbable.
A key condition of the DOCA is that claims against the following third parties are relinquished or released by creditors and Investors: Damon Marco, Talitha Marco; Beverley Marco, Gaye Marco, Ian Graydon, Steve Zilinski, Steve Bogar and Linda Marissen. As highlighted by the Administrators, a DOCA cannot extinguish or compromise creditors' claims against third parties and therefore this condition cannot be met unless every Investor signed a relevant deed of release.
…
The interim receivers also made a number of comments negating Mr Marco's assertions that there were advantages for the creditors to vote in favour of his DOCA proposal. The interim receivers indicated that they intended to vote in favour of a resolution to adjourn the second creditors meeting for 45 business days. The reasons given were that the ASIC winding up application was on foot and in those circumstances a creditors voluntary liquidation would be unnecessary if ASIC's application were successful. Further, if the Court were to order that the company and the scheme be wound up it is likely that the same person(s) would be appointed as liquidator(s) of the company and the scheme and the liquidator(s) so appointed would have clear authority to deal with all assets. Therefore, the proposed ASIC orders were more likely to effectively and efficiently deal with the complexities of Mr Marco's business dealings.
On 23 October 2020 the administrators sent a document entitled 'CIRCULAR TO CREDITORS AND INVESTORS' to creditors of AMS. The circular attached a copy of MGM O'Connor's letter to the administrators of 20 October 2020 containing the second DOCA proposal. The circular indicated that in light of the revised DOCA proposal it might be appropriate to adjourn the second meeting of creditors and the creditors may wish to resolve to do so at the meeting.
On 26 October 2020 Thynne + Macartney sent a letter to MGM O'Connor. Amongst other things, by that letter the administrators indicated that there was not sufficient time for them to prepare a supplementary report and allow the creditors sufficient time to consider the second DOCA proposal before the creditors meeting. The letter indicated that 'the general consensus of the [COI at their meeting was] that the upcoming creditor meeting be adjourned to consider a revised DOCA proposal'.
On 26 October 2020 the second meeting of creditors was held. At that meeting Mr Maskell identified potential claims of investors against the company directly or as Mr Marco's 'alter-ego' for the tort of deceit or misleading or deceptive conduct in contravention of statutory provisions or involvement in breaches of trust of Mr Marco. On the grounds of one or more of claims of that nature, investors would be considered contingent creditors of the company. The major report was tabled and Mr Shaw provided an explanation of events since the first meeting of creditors. The events included the major report, the interim receivers' notice to investors, the COI meeting at which there was a consensus that the second meeting of creditors should be adjourned, Mr Marco's second DOCA proposal, an email from an investor indicating a wish for there to be another DOCA proposal if the meeting was adjourned and that the receivers had requested that the meeting be adjourned. Mr Shaw indicated that due to the late receipt of Mr Marco's second DOCA proposal it was appropriate to adjourn the meeting to allow creditors to consider that proposal and also for any other proposal to be made. Mr Shaw then advised the meeting that it was his intention to adjourn the meeting under r 75-140 of the IPRC and opened the meeting to general discussion. At the end of that discussion, Mr Shaw advised that he would adjourn the meeting and noted the general mood of the room was in agreement with that adjournment. Mr Shaw then formally adjourned the meeting to 26 November 2020 and said that the administrators would analyse and report on Mr Marco's second DOCA proposal and that there was the potential for an alternate DOCA proposal to be put forward.
[16]
…
The supplementary report included an estimated return to creditors. It compared the DOCA, liquidation of the company and liquidation of the scheme. There was a nil return estimated for a liquidation of AMS. The administrators recommended that creditors resolve to execute the DOCA for the reasons set out in that report.
On 26 November 2020 the second meeting of creditors resumed and was completed. There was general discussion before the meeting voted on a resolution to the effect that the company execute a DOCA in the form provided in the supplementary report. A poll was taken and the number of creditors voting in favour of the resolution was 52 with 39 against. The value of the debts in favour was $67,089,674.18 with $112,523,225.46 against. As the vote failed to gain a majority of creditors in number and in value Mr Shaw, as chair, had the casting vote. He cast his vote against the resolution. Next, the creditors voted on a resolution to the effect that the company be wound up. That resolution was passed.
On 26 November 2020 by operation of s 439C(c) and s 446A of the Act, the administrators became liquidators of AMS.
On 7 December 2020, by order of the Court, the administrators' appointment as liquidators was terminated and the current liquidators were appointed in place of the administrators: Marco (No 6).
[17]
Marco (No 9)
After the judgment in Marco (No 6) was pronounced, on 11 March 2021, the administrators commenced the process for determination of their remuneration with an interlocutory application for substituted service of a Form 16 notice and supporting affidavit of Mr Shaw as required under the Corporations Rules. On 12 March 2021 McKerracher J made an order for substituted service.
The administrators complied with the order for substituted service and, on 10 May 2021, filed the interlocutory application for determination of the amount of their remuneration and costs. Mr Shaw's affidavit in support noted that the liquidators had given notice of objection to the administrators' intention to apply for remuneration.
In para 1 of the administrators' interlocutory process filed on 10 May 2021 they sought an order that: 'For the purposes of these orders, the entitlement to payment or remuneration is to be drawn out of "the Property" as that term is defined in the judgment of His Honour, McKerracher J dated 7 December 2020.' On 8 June 2021 McKerracher J made orders that paras 2 - 5 of the administrators' interlocutory process be deferred pending determination of para 1 of the application. The parties were directed to file written submissions in relation to the asserted right to payment. The parties filed extensive submissions together with affidavit material. The application was determined on the papers: Marco (No 9) at [2], [4], [5], [6].
On 26 October 2021 McKerracher J made a declaration to the effect that the administrators are entitled to remuneration and payment of disbursements and costs out of the property of AMS and AMS as trustee. An order was also made referring determination of the remuneration to mediation by a registrar. The mediation was not successful.
[18]
Marco (No 13)
On 23 November 2021 the liquidators filed an interlocutory application seeking various orders and directions relating to the winding up of AMS and the scheme and distribution of the assets and property of Mr Marco, AMS and the scheme. That application was heard in May 2022. The liquidators appeared on that application and three investors representing groups of investors with similar interests, certain banks and Mr Marco's trustee in bankruptcy also appeared at the hearing of that application. The administrators did not appear or seek leave to appear and be heard on it. Orders in respect of the liquidators' application were made in February and March 2023: Australian Securities and Investments Commission v Marco (No 13) [2023] FCA 83; (2023) 164 ACSR 638.
The orders made on 13 February 2023 included an order that the liquidators would be acting properly and were justified in:
treating the proceeds from the realisation of certain personal property of Mr Marco as property of the scheme;
treating all assets and property of AMS, whether held legally or beneficially, as if and on the basis that they are assets and property of the scheme;
treating the proceeds of realisation of the assets and property of the scheme and AMS, whether held legally or beneficially, as held by the liquidators as if and on the basis that they comprise a single fund; and
applying and distributing the single fund in the following order of priority:
Pursuant to s 90-15 of the Insolvency Schedule, s 601EE(2) of the Corporations Act 2001 (Cth) and order 26 of the December 2020 orders, the Liquidators would be acting properly and are justified in:
…
(b) applying and distributing the Fund in the following order of priority:
(i) first, all unpaid remuneration, costs and expenses of the Interim Receivers, the Receivers and the Liquidators pursuant to the December 2020 orders and orders of the Court of 28 January 2021;
(ii) next, in discharge of the known outstanding debts or liability of the second defendant identified in the table at paragraph 22 of the affidavit of Mr Brauer sworn 10 March 2022 totalling $10,541.00; and
(iii) next, to Scheme members as the beneficial owners of the assets and property of the Scheme, with the entitlements of Scheme members to the Fund to be determined in accordance with a distribution method to be the subject of further directions of the Court.
On 9 March 2023 orders were made for the method of distribution of the fund to scheme members. As is evident from those orders, the property of AMS the subject of the orders made in Marco (No 9) is to be treated as property of the scheme and, in substance, pooled with the personal property of Mr Marco that is to be treated as property of the scheme. Further, no allowance was made for payment of the administrators' remuneration and disbursements from the fund.
The absence of any allowance for payment of the administrators' remuneration and disbursements from the fund was raised with the parties at the hearing. The liquidators informed the Court that funds had been set aside for payment of the administrators' remuneration and costs. No party contends that the distribution orders require variation or amendment. In any event, should it be thought necessary, the liquidators may seek further direction from the Court regarding payment of the administrators' remuneration and disbursements out of the fund.
[19]
Consideration: remuneration
As noted earlier in these reasons, the administrators' application and the liquidators' objections raise a number of issues for determination. Each of these is addressed in turn.
[20]
Was investigation into the business, property, affairs and financial circumstances of the scheme necessary?
The administrators' statutory duties and functions included investigating the business, property, affairs and financial circumstances of AMS and, amongst other things, forming an opinion about whether it would be in the interests of the creditors for the company to execute a DOCA. It was no part of their statutory duties and functions to investigate the business, property, affairs and financial circumstances of the alleged scheme. Nor was it part of their statutory duties and functions to form an opinion about whether the company executing a DOCA would result in a better return to investor-creditors than the return investors would receive on a winding up of the alleged scheme.
The major report contains an explanation of Mr Marco's financial (asset and liability) position. That included an assessment and estimation of the value of certain real property and PPPs or similar investments that Mr Marco had said he had made on behalf of investors. It also included identification of investor claims. That is, personal claims against Mr Marco as the person with whom investors deposited funds and made declarations of trust. The administrators note that ASIC was seeking to have receivers appointed to all of Mr Marco's personal property and for that to be available for payment of the receivers' costs and repayment of investors. In other words, that part of the major report that contains an assessment and estimation of the value of Mr Marco's assets and liabilities to investors is, in effect, an estimate of assets that could have been assets of the alleged scheme. These were not assets available for distribution to creditors of AMS. Nor were they liabilities of AMS to its creditors. The liabilities are of Mr Marco to investors in the scheme.
It follows that the major report includes an investigation of, in substance, the alleged scheme's business, property, affairs and financial circumstances. That investigation included, in part, an investigation of the business, property, affairs and financial circumstances of AMS to the extent that it was also involved in the scheme. Otherwise, it ought to have been sufficiently clear to the administrators shortly after they commenced their investigation that all property of AMS was, at least, held on trust for the AMS Holdings Trust and not available to creditors of that company except to the extent that AMS, as the former trustee, had a right to be indemnified out of those assets. Further, while investors in the scheme may have been contingent creditors of AMS in respect of claims concerning its involvement in the alleged scheme, AMS had no assets from which to satisfy any such claims or that it could contribute towards the proposed deed fund to meet such claims.
The supplementary report makes it clear that the proposal was a DOCA in name only and that, in substance, it was a proposal for an arrangement between the operators of a scheme (Mr Marco and (or) AMS) and the investors in that scheme. For example, the administrators' estimated return to 'creditors' presents a comparison between the DOCA, liquidation of the company and liquidation of the scheme. The estimated return on liquidation of the company is nil. Thus, the real comparison is between the estimated return under the proposed arrangement and liquidation of the scheme. The supplementary report also contains a section with details of the assets and liabilities of Mr Marco. All details of the debts of investors are contained in the section dealing with Mr Marco's liabilities. All assets to be contributed to the proposed deed fund are assets of Mr Marco, members of his family, or of the AMS Holding Trust in which members of his family had a beneficial interest. The terms of the proposed DOCA purport to induce a moratorium and release of claims against Mr Marco and the AMS Holdings Trust.
I accept that a DOCA may be proposed in circumstances in which the company is alleged to have been involved in the operation of an unregistered managed investment scheme and that investors in that alleged scheme may have rights against the company as creditors and rights against scheme property as investors. I also accept that creditors who are also investors may consider that they will receive a better return under a DOCA than in a winding up of the company and the alleged scheme. However, it is one thing to consider that an object of a DOCA under Pt 5.3A is to achieve a better return for the company's creditors and members than would result from an immediate winding up, but it is quite another to consider that an object of a DOCA under Pt 5.3A is to achieve a better return for investors in an unregistered managed investment scheme than would result from a winding up of that scheme or that a legitimate object of Pt 5.3A is to avoid investigation and winding up of an unregistered managed investment scheme and (or) winding up a company involved in the operation of that scheme as a matter of public interest.
In my view, the administrators misconceived the extent of their statutory duties and functions under Pt 5.3A insofar as they performed work aimed at providing creditors with their opinion as to the likely return under a winding up of the alleged scheme. That was not work within the scope of their statutory duties or functions under s 438A of the Act. It was not necessary work properly performed in relation to the administration. Subject to the administrators' contention that the work was otherwise necessary to form an opinion about whether the DOCA proposals were in the interests of creditors, none of the work they performed investigating the business, property, affairs and financial circumstances of the alleged scheme falls within the scope of the administrators' statutory duties and functions.
[21]
Was fulfillment of the conditions of the DOCA proposals speculative?
As has already been mentioned, Mr Marco provided the administrators with three DOCA proposals. The structure and terms of each proposal was largely the same. Each was a proposal to enter into an arrangement with investors who had deposited funds with Mr Marco personally. Mr Marco proposed to contribute certain of his personal assets and the assets of members of his family, as well as assets that AMS held on trust for the AMS Holdings Trust toward a pool of funds that would be distributed between creditors of AMS (properly so called) and investors in the alleged scheme Mr Marco and (or) AMS had operated. The proposals were only in part a proposed arrangement with AMS and its creditors. In substance, the proposals were for an arrangement between the operators of the scheme (Mr Marco and (or) AMS) and investors in that scheme. The main differences between the proposals concerned the extent of assets of Mr Marco or his family that were included or excluded. Each iteration included more assets. The third proposed DOCA also included a mechanism for augmenting the pool of assets through negotiation with persons related to Mr Marco which had assets that may have been derived from investor funds.
Insofar as the proposals involved the contribution of assets AMS held on trust for the AMS Holdings Trust, AMS was not able to deal with those assets as property of AMS for the purposes of a DOCA. As a consequence of the appointment of the administrators, AMS was automatically removed from office as trustee of the AMS Holdings Trust. While it may have continued to hold assets of that trust as bare trustee pending appointment of a new trustee, the beneficiaries of the AMS Holdings Trust could not be bound by the terms of a DOCA made between the former trustee of that trust and its creditors without the unanimous consent of those beneficiaries. Given that the beneficiaries of the AMS Holdings Trust appear to have been members of Mr Marco's immediate family, it might be thought reasonably probable that the consent of those beneficiaries would be obtained if the assets were assets of the AMS Holdings Trust. Therefore, subject to what follows, a DOCA between AMS and investors (as contingent creditors) may have resulted in a return to investor-creditors that was greater than that which would result from an immediate winding up of AMS. Likewise, subject to what follows, personal assets of Mr Marco and members of his family contributed to a deed fund may have resulted in a better return to investor-creditors than an immediate winding up of AMS.
At the time of the DOCA proposals, ASIC's proceedings against Mr Marco, AMS and AMS as trustee were pending. In those proceedings ASIC was seeking orders to the effect that Mr Marco and (or) AMS had operated an unregistered managed investment scheme and for orders under s 601EE winding up that scheme and for orders under s 461(1)(k) winding up AMS on just and equitable grounds. In those proceedings, amongst other things, ASIC alleged that the assets AMS notionally held on trust for the AMS Holdings Trust were, in fact, property acquired with investor funds and, therefore, the assets were property of investors in the scheme. ASIC also sought orders to appoint receivers over personal property of Mr Marco, including that which he proposed to contribute to the deed fund, on the ground that the property was acquired with funds investors had contributed to the scheme. Accordingly, if ASIC were successful in obtaining the final relief it sought in the proceedings, the beneficiaries of the AMS Holdings Trust could not consent to the contribution of that property towards the pool of assets that were intended to form part of the deed fund. Likewise, Mr Marco and members of his family who had knowingly or voluntarily received investor funds or assets acquired with investor funds would not have authority to consent to the contribution of those assets, to the extent they were also property of investors in the scheme, towards the deed fund asset pool. Thus, as the liquidators (then interim receivers) had indicated in their notice to investors of 21 October 2020, in accordance with well-established principles of trust law, unanimous agreement of all investors who had a proprietary interest in those assets would be necessary to give effect to the terms of the DOCA proposals. Further, the assets were the subject of freezing orders that restrained Mr Marco and AMS from dealing with them. Therefore, the assets could not be dealt with by Mr Marco or AMS and contributed to a deed fund without the Court ordering a variation to or dissolution of the freezing orders.
As a consequence of the obvious impediments to implementation of the proposals in the event ASIC was successful in its application, the terms of the DOCA proposals included as conditions for the DOCA to commence that ASIC's application to wind up the company/scheme was unsuccessful; and the freezing orders were dissolved. The liquidators submit, in effect, that the prospect of fulfilment of the conditions precedent to commencement or continuation of any of the DOCA proposals was speculative because the unanimous agreement of all investors who had a beneficial interest in scheme property (or property that could be traced from investor funds) would have been necessary in order for any DOCA proposal to succeed.
The liquidators' submission presupposes that the outcome of ASIC's application would be successful. On that assumption, I agree for the reasons which follow, that the likelihood of obtaining the unanimous agreement of all investors was remote to vanishing. However, at the relevant time, ASIC's application was pending and its outcome was uncertain. Therefore, there remained a theoretical possibility that ASIC would fail to demonstrate that Mr Marco and (or) AMS were (was) operating an unregistered managed investment scheme. If that application failed, then the prospect of fulfilment of the other conditions of the DOCA proposals was not speculative. Nonetheless, while the outcome of ASIC's winding up application was uncertain, based on the information available at the relevant time, including Mr Marco's descriptions of the manner in which he acquired and utilised investor funds referred to in Markopoulus, Baxter, the interim receivers' report, the KPMG report and the major report, there was a very good prospect that ASIC's application would be successful.
Assuming the Court concluded that Mr Marco and (or) AMS was operating an unregistered managed investment scheme of the kind described in the interim receiver's report, the likelihood of the Court varying the freezing orders to make property of the scheme members available for the purposes of a DOCA approved by creditors of the company was fanciful in the absence of unanimous agreement of all persons with a beneficial interest or claim in that property.
Investors, acting rationally, will prefer property rights if that is likely to result in a better return than a pari passu return as a creditor. Typically, an investor's preference will be dictated by how long the investor has been participating in the scheme where the scheme operator has used later investors' funds to pay promised interest or other returns to earlier investors. Investors who have received 'returns' in aggregate of all or most of the original capital invested will prefer contractual rights and legal rights as creditors. That is, claim the principal outstanding and accrued interest or other promised returns as creditors. Investors who have not received any or little by way of 'returns' will prefer equitable proprietary rights as beneficiaries of express, implied, resulting or constructive trusts. That is, claim the property and seek to trace the original capital invested into bank accounts or other assets. As noted earlier in these reasons, contests between different classes of investors in insolvent unregistered managed investment schemes were the subject of many published judgments before Mr Marco provided the administrators with his first proposed DOCA. Unless all investors would be demonstrably 'better off' under a DOCA proposal than by pursuing proprietary rights in a winding up of the scheme, there was virtually no prospect of all investors agreeing to contribute scheme property to any of the proposed deed funds.
It follows that there was a very significant risk, if the company's creditors voted in favour of any of the DOCA proposals, that the conditions for continuation and implementation of the DOCA would not be satisfied. In fairness to the administrators, many of the difficulties with fulfilment of the conditions precedent to the proposed DOCAs were identified in the major report and, in more detail, in the supplementary report. However, neither the major report nor the supplementary report confront the real and significant risk, at that time, that the conditions precedent would not be satisfied.
By way of example, the supplementary report includes a section that addresses 'Stakeholder Queries'. In that section, the administrators explain, in effect, that all assets are trust assets. It concludes: 'The DOCA proposal within this report is prepared and considered by the creditors of the Company acknowledging that they represent beneficiaries of the Trust, however described.' It also includes the following commentary regarding the ability to deal with scheme assets under a DOCA:
Whether a DOCA can deal with all assets of the alleged scheme even though the voluntary administrators are only appointed to AMS Holdings (WA) Pty Ltd
...
To the extent that assets of the alleged scheme are included in any DOCA, given that many of the assets identified in the Interim Receivers' Report were acquired by pooled investor funds, would there need to be unanimous consent and approval by all investors with claims to such property, or can such assets be dealt with according to the views of any majority over a minority.
We have sought advice in respect to this query and it is our opinion that there is no legal impediment to creditors agreeing to the DOCA, knowing that in any event the DOCA will need to be approved by the Court.
The last sentence is obscure and does not directly answer to the question posed in the preceding sentence. Nonetheless, it appears to be an implicit acknowledgement that unanimous consent would be necessary and without it the Court was unlikely to approve use of scheme property for the purposes of a deed fund. However, neither the major report nor the supplementary report engage with the improbability of obtaining Court approval in the absence of unanimous consent and the speculative nature of achieving such consent. Nor is there any view expressed about the likelihood that ASIC's application would be successful.
In summary, I do not accept the liquidators' submission, in effect, that continuation or completion of any of the DOCA proposals was speculative in the sense of far-fetched or fanciful because there was a prospect that ASIC's application would fail. However, as that prospect was highly doubtful, there was a very significant risk that the conditions would not be fulfilled.
[22]
Was DOCA related work necessary and reasonable?
On the information available, I am not in a position to conclude that it was not necessary or reasonable for the administrators to convene and hold a second meeting of creditors. They were obliged to convene and hold that meeting under s 438A of the Act. They were not obliged to apply to the Court for an order extending the convening period. Moreover, the reason for not so applying given in their response to ASIC (that it was premature in the absence of a DOCA proposal) was reasonable at that time. The meeting was then convened before Mr Marco formally made a DOCA proposal. The administrators recommended against that proposal at the time the second meeting of creditors was held. In all the circumstances, I do not consider that the administrators' decision to embark on convening and holding the second meeting of creditors could be characterised as unnecessary. Nor do I consider that adjourning the meeting to allow another DOCA proposal to be formulated was unnecessary. Therefore, amongst other things, the administrators had statutory duties to form the opinions required in s 438A of the Act and to prepare the major report required by r 75-225 of the IPRC.
It follows that I accept that after receiving the DOCA proposals, the administrators were obliged to form an opinion as to whether it was in the interests of the creditors that AMS execute a DOCA as proposed. However, that does not mean that all work forming that opinion was necessary and (or) reasonable or that the administrators are entitled to an indemnity for the time (on a time-cost basis) of so doing. As already mentioned, remuneration should reward value, not indemnify against cost. In this context 'value' means the value of the services rendered to the creditors in the circumstances of the administration and not the net financial benefit to the creditors derived from the work performed.
As to the circumstances of the administration, AMS was a trustee company with no business and no assets of which it was the beneficial owner except, perhaps, to the extent that it had a right to indemnification or exoneration out of assets it held on trust. AMS had a relatively small number of trade creditors who were creditors of AMS as trustee. By virtue of the appointment of the administrators, AMS ceased to be trustee of the AMS Holdings Trust. Therefore, the assets it held on trust for the beneficiaries of that trust were held on bare trust pending transfer to a new trustee upon appointment. To the extent that investors in the scheme were contingent creditors of AMS, AMS had no property from which to satisfy any liability to those investor-creditors. Otherwise, if ASIC were successful in its proceedings against Mr Marco and AMS, it was likely that all property of AMS was held on trust for investors in the scheme. Likewise, certain property of Mr Marco was likely held on trust for investors in the scheme.
No doubt, in the circumstances of the administration, a commercially viable DOCA would have resulted in a better return to creditors than an immediate winding up of AMS which would result in no return to creditors. However, the likelihood of any of the DOCA proposals leading to a better return to creditors was, for the reasons already given, highly doubtful. In those circumstances, there was no evident value to creditors in embarking upon detailed and extensive investigations into the assets proposed to be contributed as the deed fund or significant work assessing the likely financial recovery under any of the DOCA proposals for the purpose of forming an opinion about whether the DOCA was in the interests of creditors.
The liquidators submit, and I accept, that the opinions administrators are required to form 'have no fixed voltage'. As Kiefel CJ and Edelman J observed in Mighty River International Ltd v Hughes [2018] HCA 38; (2018) 265 CLR 480 (at [53]):
The opinions expressed by the Administrators were no less genuine because they were based only upon "the information available". The requirement in s 438A(b) that an administrator must form the relevant opinions as soon as practicable after the administration begins necessarily requires that the opinions might be formed without the administrator having fully investigated and assessed all relevant matters. Opinions have no fixed voltage. They can be expressed with varying degrees of confidence. They may depend upon the precise terms of the deed proposed. Section 439A(4) did not require the Administrators to provide a quantitative opinion comparing the likely financial recovery under each possible option.
In addition to the three administrators, the worksheets of their firm indicate that approximately 40 other Hall Chadwick staff performed work during the administration. The administrators and other staff of their firm spent 739.70 hours preparing reports to creditors, 496.30 hours adjudicating proofs of debt (including investor claims), 354.10 hours on creditor meetings (including minutes and preparation), 120.30 hours on DOCA related tasks, 98.90 hours investigating assets in general and 141.40 hours investigating investments and PPPs. The administrators have not demonstrated that the time and amount claimed for that work (even with a 15% discount) represents the 'value' of the services rendered to the creditors in the performance of their statutory duties in the circumstances of the administration of AMS. The total time-cost of that work was $950,508.35 (incl GST). It was all performed in a period of about ten weeks. All that work was performed in respect of a company that had no assets available to discharge its liabilities to creditors and in circumstances where there was a very significant risk that, if the creditors voted in favour of it, the DOCA would not be performed.
Accepting that the Court should afford the administrators a measure of discretion concerning the work performed and expenses incurred in the discharge of their statutory duties and functions, the nature and extent of the work the administrators performed is manifestly outside the boundaries of the 'fair degree of latitude' a Court should afford an external administrator in the exercise of commercial judgment. With a proper appreciation of the risk that the conditions to continuation of any DOCA would not be satisfied and the probability that there would not be any property of AMS available to meet its liabilities to creditors, I cannot accept that any prudent business-person spending his or her own money would have embarked on work of the nature and extent the administrators performed. I also infer from the evident lack of proportionality between the cost of the work relative to the value of the services provided that the remuneration claimed in all these categories is excessive and unreasonable: Templeton at [34] (Besanko, Middleton and Beach JJ). Likewise, there is no correlation between the costs to creditors and any likely benefit that could have resulted from that work.
[23]
Was investigation of assets of Mr Marco and AMS as trustee necessary and reasonable?
The administrators were obliged to investigate the business, property, affairs and financial circumstances of AMS. Given the manner in which Mr Marco conducted his affairs, it is likely that it was necessary and reasonable for the administrators to perform a certain amount of work to identify the business, property, affairs and financial circumstances of AMS and distinguish that from the business, property, affairs and financial circumstances of Mr Marco and (or) the alleged scheme and the AMS Holdings Trust. However, at the time of or shortly after their appointment, the administrators had available to them the interim receivers' report, the KPMG report and the reasons for decision in Markopoulus and Baxter.
As already mentioned, in the interim receivers' report, the interim receivers opined that AMS undertook no business activities in its own right. The assets and liabilities of AMS were notionally as trustee of the AMS Holdings Trust. The interim receivers' report dealt with the assets and liabilities of Mr Marco and AMS, as trustee, in a consolidated way because the assets of AMS were acquired with investors' funds. The interim receivers' report also set out the asset and liability position of Mr Marco and AMS as trustee, and the estimated realisable value (ERV) of their assets. That included all property of Mr Marco (including PPPs) and of AMS that was proposed to be included in the deed fund.
There is no explanation given in the administrators' evidence or submissions as to the reasons it was considered necessary and reasonable for the administrators to undertake a separate and independent investigation into the business, property, affairs and financial circumstances of the alleged scheme including the PPP investments and properties held in the name of Mr Marco personally and AMS as trustee of the AMS Holdings Trust. Given the doubt that the conditions of the DOCA proposals would be satisfised, there is no evident reason that the administrators could not have used and relied upon the ERVs and other financial information in the interim receivers' report for the purpose of forming a view about whether it was in the interests of investor-creditors for AMS to execute a DOCA.
The administrators' records of the work performed also indicate that considerable work had been undertaken to investigate the PPPs and Mr Marco's assets in the period between 25 September and 16 October 2020. That is, the administrators' work on an investigation of the business, property, affairs and financial circumstances of Mr Marco and the alleged scheme evidently started well before Mr Marco had formally made any DOCA proposal that involved the contribution of his assets (including any PPPs) as part of a deed fund. Commencement of that work before receipt of a DOCA proposal is not consistent with the administrators' submission that the work was necessary because of that proposal. There is no explanation in the administrators' evidence or submissions as to the reasons, if any, that that work investigating the affairs of Mr Marco and the alleged scheme was necessary before any DOCA proposal had been received involving a proposed deed fund comprised of assets of Mr Marco and trust assets of AMS.
Therefore, aside from the lack of proportionality, I am also not satisfied that for the purpose of forming an opinion about whether the DOCA proposals were in the interests of creditors it was necessary or reasonable for the administrators to duplicate the work of the interim receivers or not rely on the interim receivers' report.
[24]
Was adjudicating proofs of debt of investor-creditors necessary and reasonable?
In the absence of any application and order extending the period, the administrators were obliged to convene and hold the second meeting of creditors within 45 business days after their appointment. It was also necessary for them to receive and adjudicate creditors' proofs of debt for the purpose of admitting claims for voting purposes at the second meeting of creditors.
The administrators formed the view that investors in the alleged scheme were contingent creditors of AMS. The administrators indicated in the major report and supplementary report that they considered investors may have claims based on constructive trusts, tort or statute against AMS in connection with funds investors provided to Mr Marco. In the major report the administrators treated claims against Mr Marco for principal and interest as contingent claims against AMS. In the supplementary report the administrators identified two possible methods for adjudicating proofs of debt described as 'Notional ERV (ERV 1)' and 'Net ERV (ERV 2)'. The difference in the methods appears to be that the first includes principal and interest and the second is principal less any amounts repaid to the investor.
In a circular to creditors and investors dated 24 November 2020 the administrators provided an explanation of the manner in which proofs of debt would be treated for voting purposes at the resumption of the second meeting of creditors. The circular indicates that where the administrators were satisfied by the proof of debt supporting evidence and analysis from the company records and KPMG report, the full amount of a proof of debt for an unpaid principal investment would be admitted. Likewise, where the administrators were so satisfied, the full amount of a proof of debt for an unpaid principal investment and interest re-invested or rolled-over would be admitted, but the claim would be marked as 'objected to'.
Mr Shaw deposes that adjudicating proofs of debt was complex due to the use of two different methods and it required the administrators to consider extensive documentation provided by investors and cross-check it with, often incomplete, information. He deposes that the process was extremely time-consuming.
I am not satisfied that adjudication of the proofs of debt using the methods described in the circular of 24 November 2020 was all that complex or that the process of verification of the amounts claimed in proofs of debt needed to be as thorough and time-consuming as it appears to have been for the purposes of admitting and determining a just estimate of contingent debts for voting purposes at the second creditors meeting. Annexure K to the KPMG Report is an excel spreadsheet containing a list of investors, and it identifies principal, interest and amounts repaid to investors. The administrators' evidence does not explain why, given the detailed information in the KPMG report, it was considered necessary and reasonable to require or to review extensive information provided by investors and to cross-check it. If the proof of debt was lodged by an investor recorded in Annexure K, for the purposes of voting at the second creditors meeting and making a just estimate of the applicable amount of principal or principal and interest, there does not appear to be any reason that the administrators could not have relied on the information contained in the KPMG report. That is all the more so in circumstances in which completion of the DOCA was doubtful if creditors voted in favour of execution of it.
Therefore, aside for the evident lack of proportionality, I am also not satisfied on the administrators' evidence that 496.20 hours and $200,653.50 (excl GST) is a reasonable sum for the work performed adjudicating proofs of debt.
[25]
Were communications with creditors necessary and reasonable?
The liquidators submit that the claims for preparing reports to creditors, meetings of creditors, reporting to and dealing with the COI and other creditor correspondence were also affected by the administrators' approach to the DOCA proposals. I accept that submission. It is self-evident that the amount of work in those categories was increased by the administrators' decision to embark on a detailed and extensive investigation and analysis of the DOCA proposals. As already indicated, the time spent and cost (amounts charged) for the work in those categories is manifestly out of proportion to the value to creditors and is unreasonable in the circumstances of the administration.
[26]
Other categories of work
No objection is taken to the amounts claimed in the following categories and I am satisfied that the work performed in those categories is for necessary work properly performed and the amount claimed is reasonable:
dealing with receivers and ASIC (category 15): $40,581.50.
The total cost of the work in these categories is $107,157.50 (excl GST). After applying a discount of 15% that equates to $91,083.88 (excl GST) or $100,192.26 (incl GST).
[27]
Conclusion regarding remuneration
A determination should be made to the effect that the administrators are entitled to remuneration of $100,192.26 (incl GST) for the work in the four categories referred to in para [189]. There will be no determination for the work in the following categories:
preparing reports to creditors (category 1);
adjudicating proofs of debt, including investor claims (category 2);
creditor meetings including minutes and preparation (category 3);
reporting to and dealing with COI meetings including minutes (category 4);
other creditor correspondence (category 5);
day one tasks for voluntary administration and creditors voluntary liquidation (category 6);
administrative tasks and general discussions with directors (category 8);
DOCA related tasks (category 9);
investigating assets (category 12);
investigating investments and PPPs (category 13); and
auditing and reviewing the KPMG report (category 14).
[28]
Consideration: disbursements
For reasons that are given later, the liquidators' application to re-open the orders made in Marco (No 9) is refused. Therefore, it is necessary to determine the extent to which the administrators are entitled to payment for disbursements and costs out of the property of which AMS is the legal owner.
No objection is taken to the disbursements claimed for room hire fees ($11,457.83), property appraisal fees ($3,300.00), teleconferencing fees ($2,840.12), SAI Global search fees ($699.43), transcription fees ($1,925.18) and ancillary disbursements ($746.95). I am satisfied that these are expenses necessarily incurred and they are reasonable. Accordingly, there will be an order to the effect that the administrators are entitled to payment of disbursements and costs in the sum of $20,969.51 (incl GST) for those items. Otherwise, it is necessary to consider the liquidators objections to the amounts claimed for legal costs and disbursements.
[29]
The terms of the conditional costs agreement
The main terms of the costs agreement were as follows (footnotes omitted):
Scope of Work
You have instructed us to undertake the following work:
(a) To assist and advise the voluntary administrators with respect to all aspects of the external administration of AMS.
(b) To advise in respect of existing and future Court and extra-curial action taken by ASIC and/or any receiver appointed affecting the property of AMS.
(c) To advise in respect of meetings, compliance with the Corporations Act including obligations under Part 5.3A, any DOCA presented and any ancillary action, including Court directions/ orders.
(d) Further and other work in respect of the administration/ AMS from time to time.
Successful outcome of the matter
We will only be entitled to receive payment of our professional legal costs from you in the event that you obtain a successful outcome. This might require attendances beyond the scope of the currently identified work.
A successful outcome of the matter, as agreed with you, will be a financial recovery (sufficient to pay part or all of our professional legal costs) by any means including by way of negotiation, mediation, enforcing statutory functions or Court process.
Upon a successful outcome (as described above), our professional legal costs and other amounts described in this Conditional Costs Agreement will be payable without deduction or set off and you irrevocably authorise us to apply any funds held in our trust account to pay our professional costs and disbursements.
Notwithstanding any other provision in this document and our Terms of Engagement, if for any reason you terminate our engagement and/or engage another lawyer to undertake any work relating to your matter, then a successful outcome is deemed and we will be entitled to payment for all work undertaken by us to that date, together with all other amounts described in this Conditional Costs Agreement.
…
Uplift Fees
ln the event that you obtain a successful outcome (as described in this Conditional Costs Agreement), we will charge an additional 25% "uplift" on our professional fees.
This uplift will not be applied to disbursements unless you separately agree to that with the service provider the subject of the disbursement.
Disbursements and Internal Expenses
Disbursements
We may incur disbursements (being money which we pay or are liable to pay to others in respect of work done for you).
Unless otherwise agreed in writing by us, all disbursements incurred by us in relation to your matter must be paid by you (directly or by reimbursing us) regardless of a successful outcome and regardless of the basis upon which we charge professional fees.
Where you instruct us to brief a barrister or other expert and they provide a disclosure and costs agreement, we will provide this to you. Where we ask, you agree to pay disbursements directly.
Internal Expenses
We will not charge for faxes, postage, stationery, phone calls, photocopying, bank fees, Cabcharge and local courier fees. The costs for these items are absorbed in our fees.
…
The letter containing the costs agreement has other terms and attaches standard terms of engagement which need not be set out or explained.
[30]
Is the conditional costs agreement enforceable?
The liquidators submit that due to ambiguity in the terms of the costs agreement it does not satisfy the requirements of a conditional costs agreement under s 323(3)(a) and s 323(3)(c)(ii) of the Legal Profession Act which require the agreement to 'set out the circumstances that constitute the successful outcome of the matter to which it relates' and to be 'in plain language'. As a result, the costs agreement is void (and unenforceable) under s 327(1) of the Legal Profession Act. I do not accept the liquidators' submission.
It may be that the language of s 323 of the Legal Profession Act is more apt to describe a matter involving litigation in which there can be an obvious successful outcome or, perhaps, to describe circumstances in which the solicitors assist the administrators to recover property of the company under administration, but s 323 does not constrain the circumstances that may meet the description of a 'successful outcome' as long they are described in the costs agreement in plain language. It is clear that the 'matter' referred to in the costs agreement is the scope of work described under cl 1. Clause 2 describes a 'successful outcome' in plain language as 'a financial recovery (sufficient to pay part or all of our professional legal costs) by any means including by way of negotiation, mediation, enforcing statutory functions or Court process'.
The meaning of cl 2 is clear; if the administrators make a financial recovery (e.g., by remuneration determination, an order for payment of disbursements or from assets of AMS) there has been the agreed 'successful outcome'. It is implicit that the scope of the retainer also included advice as to the manner in which the administrators may obtain 'a financial recovery'. Otherwise, there would be no nexus between a successful outcome and the professional services provided under the retainer. Therefore, the costs agreement is not void or unenforceable under the provisions of the Legal Profession Act.
[31]
Have the administrators incurred legal costs under the terms of the costs agreement?
The liquidators submit, in substance, that on the proper construction of the terms of the costs agreement, the administrators have not incurred a liability to pay the legal costs claimed.
Insofar as the administrators claim for counsels' fees of $49,005.00 (incl GST) and $3,810.00 (incl GST), it is clear on the terms of cl 5 of the costs agreement that they are liable for those fees. Likewise, the administrators are liable for search fees of $33.66 and Federal Court filing fees of $1,040.00 (both of which appear to be solicitors' disbursements). Therefore, the administrators have incurred a liability for those disbursements.
Insofar as the solicitors' fees are concerned, it is doubtful that there was a 'successful outcome' as described in the costs agreement merely by virtue of the orders made in Marco (No 9). That doubt arises not because the term is ambiguous as the liquidators submit, but because there has not yet been a financial recovery. There will be a financial recovery upon the Court making a determination under s 60-10(c) of the IPSC and an order for payment of the disbursements. Therefore, under the terms of the costs agreement the contingency remains to be satisfied, but will be satisfied as soon as orders are made for the partial determination of the administrators' remuneration and as to the disbursements and costs for which they are entitled to payment. In those circumstances, there does not appear to be any utility in refusing to make an order at least declaring an entitlement to payment for legal costs on the ground that requesting an order for payment of the legal fees was premature.
[32]
Were the administrators' legal costs necessary and reasonable?
A similar approach should be taken to the legal fees as was taken to the administrators' remuneration. No invoices Thynne + Macartney rendered to the administrators were in evidence. Mr Maskell deposes that there are significant difficulties, due to the manner in which time was recorded and the work was performed, identifying the work the solicitors performed for the administrators by reference to the categories the administrators have used for their remuneration claim. Nonetheless, Mr Maskell deposes to his estimate of the proportion of work Thynne + Macartney performed for the administrators in each category based on his review of Thynne + Macartney's time recordings.
Based on Mr Maskell's estimate, 55% to 70% of the legal fees were for work performed in connection with one or more of the categories in respect of which the administrators have failed to demonstrate that the work they performed was necessary work properly performed and (or) reasonable in amount. Otherwise, there is no evidence concerning the nature of the advice requested and provided or how it relates to the categories of work the administrators have identified in their remuneration claim. Therefore, on the administrators' evidence, it is not possible to determine what, if any, component of the legal fees claimed relates to necessary work properly and reasonably performed by the administrators in relation to the administration. Thus, the administrators have failed to demonstrate that all the legal fees (including counsels' fees) claimed as disbursements and costs were necessary and reasonable expenses.
Nonetheless, having regard to Mr Maskell's affidavit evidence and his estimate of the work performed in the administrators' categories of work, I am satisfied that the legal fees and disbursements incurred for the following categories was necessary and, subject to the question of the uplift, reasonable:
(a) Administrative tasks and general discussions with directors: $9,534.03 (5%);
(b) ASIC court proceedings: $19,068.06 (10%);
(c) Auditing/reviewing the KPMG report: $9,534.03 (5%);
(d) Dealing with the receivers and ASIC: $23,835.08 (12.5%)
(e) Search fees $33.66
(f) Federal Court filing fees $1,040.00
Total: $63,044.86 (incl GST)
[33]
Is an uplift of 25% reasonable?
I do not consider that the uplift of 25% is reasonable. No amount should be allowed on account of the uplift in respect of legal fees.
As already noted, the 'successful outcome' was implicitly linked to advice to the administrators concerning the manner in which they may make a financial recovery. Advice of that nature was not necessary, proper or reasonable for the external administration of AMS. It was personal advice for the benefit of the administrators.
In the context and circumstances of the appointment of the administrators, the evident purpose of the conditional nature of the obligation to pay the solicitors' fees was to mitigate the risk to the administrators that they would be personally liable for those fees under s 443A and not be able to recover them under the indemnity in s 443D of the Act. The reasonableness of agreeing to the terms of a conditional costs agreement that included an uplift is to be viewed from the perspective that, in general, voluntary administrators are not expected to expose themselves to substantial personal liability: Re Unlockd Ltd (administrators appointed) [2018] VSC 345 at [61], [62] (Sloss J) and the authorities there cited. Further, s 447A of the Act confers power on the Court to make such orders as it thinks appropriate about how Pt 5.3A is to operate in relation to a particular company. It is well established that the power under s 447A extends to modifying the manner in which s 443D operates to order an indemnity where the statutory indemnity is insufficient or in doubt and the manner in which s 443A operates so as to limit an administrator's personal liability: e.g., Mentha, in the matter of Griffin Coal Mining Co Pty Ltd (administrators appointed) [2010] FCA 1469; (2010) 82 ACSR 142 at [28]-[29] (Gilmour J) and the authorities there cited. Therefore, administrators need not have incurred costs and expenses if to do so would expose them to significant personal liability and they could have approached the Court for an order modifying the manner in which Pt 5.3A operates regarding that liability or for directions regarding entering into a conditional costs agreement containing an uplift.
Here, the question is whether a prudent business-person spending his or her own money would have entered into a contingent costs agreement on terms that contained the uplift. It is not obvious, on the administrators' evidence and submissions, that agreeing to a contingent liability to pay legal fees, which came at the price of the uplift, was for the benefit of the creditors of AMS. The contingent costs agreement (with or without an uplift) was clearly in the interests of the administrators as by its terms they avoided the consequences of personal liability if the indemnity under s 443D turned out to be worthless. The contingency and uplift was not linked, as would commonly be the case, to successful litigation or other legal process by which the property available for distribution to creditors was augmented.
In the circumstances, I am not satisfied that the additional burden of mitigating the risk of the administrators' personal liability should fall on the property of the company and its creditors. I would not allow any uplift on the ground that the administrators have not demonstrated that the uplift component of the legal fees was an expense that was necessarily and reasonably incurred.
[34]
Conclusion regarding disbursements and costs
It follows that the administrators are entitled to disbursements and costs in the sum of $84,014.37 (incl GST). That is $20,969.51 (incl GST) for general disbursements and costs plus $63,044.86 (incl GST) for legal fees and legal disbursements.
[35]
Further determination
While I am not satisfied that all the work claimed for the categories referred to in para [190(a)‑(k)] was necessary work properly performed or that the amount claimed is reasonable, it would have been necessary for the administrators to perform a certain amount of work in the following categories to discharge their duties and functions under the Act:
Investigating the business, property, affairs and financial circumstances of AMS for the purposes of s 438A(a) of the Act. Including, to the extent necessary:
investigating the business, property, affairs and financial circumstances of AMS as trustee and (or) Mr Marco so as to distinguish the affairs of AMS from the affairs of AMS as trustee and (or) Mr Marco; and
verifying the accuracy or reliability of the information contained in Markopoulus, Baxter, the interim receivers' report and the KPMG report concerning the business, property, affairs and financial circumstances of AMS, AMS as trustee and Mr Marco.
Taking into account that objectively there was a very significant risk that the conditions for commencement and completion of any of Mr Marco's DOCA proposals would not be fulfilled, forming an opinion about whether it would be in the interests of the creditors of AMS for AMS to execute a DOCA for the purposes of s 438A(b) of the Act. Including, to the extent necessary:
investigating and evaluating the value of the assets Mr Marco proposed would be contributed as the deed fund; and
verifying the accuracy or reliability of the information contained in Markopoulus, Baxter, the interim receivers' report and the KPMG report concerning those assets and the ERV of them.
Taking into account such work as was necessary to investigate the business, property, affairs and financial circumstances of AMS and to form an opinion about whether it would be in the interests of the creditors to execute a DOCA:
communicating with creditors of AMS, including convening and holding meetings of the COI;
preparing reports to creditors for the purposes of r 75-225 of the IPRC;
convening and holding meetings of creditors for the purposes of s 436E and s 439A of the Act; and
adjudicating proofs of debt. Including, to the extent necessary, considering, reviewing and verifying information not available in the KPMG report.
All other things being equal, if performed, the administrators would be entitled to reasonable remuneration for work of that nature.
In response to a request of the Court, the liquidator provided an aide memoire in which they identified the proportion by which the various claimed categories of work to which objection is taken should be discounted to take into account that the liquidators accepted that some work in certain categories would have been necessary. However, the submission contained in that aide memoire does not identify an appropriate methodology, by reference to evidence, for those discounts. In short, the discounts are arbitrary and, in the absence of further evidence, any determination would not be based in fact.
The administrators have failed on their application because they have not demonstrated that they are entitled to all the remuneration claimed. Given that s 60-5 and s 60-10 of the IPSC cater for the possibility of more than one determination of remuneration and that the administrators have failed, in part, by reason of an absence of evidence that would permit a determination of a reasonable amount for work that was necessary in certain categories, I am of the view that the administrators should be afforded an opportunity to provide further evidence that permits a determination to be made of reasonable remuneration for the work referred to in para [210].
Similarly, to the extent the administrators requested and received legal advice or legal services in connection with necessary work of the kind referred to in para [210] and the legal fees charged were reasonable, the administrators would be entitled to payment for the legal costs incurred. Again, the administrators' evidence on their application is insufficient for an assessment to be made of the nature of the legal work performed outside the broad categories for which payment will be allowed. Subject to no allowance for an uplift, I am of the view that the administrators should be afforded an opportunity to provide further evidence that permits a determination to be made of the necessary and reasonable legal costs (including counsels' fees) for the balance of the legal costs the administrators claim as disbursements and costs.
Any further determination of necessary and reasonable remuneration and legal costs will be referred to a Registrar to be undertaken in accordance with directions of the Court.
[36]
Leave to re-open the orders in Marco (No 9) should be refused
[37]
Overview
The liquidators submit that the Court has a discretion to re-open and vary or set aside the orders made in Marco (No 9) under r 39.05(c) of the Federal Court Rules 2011 (Cth) on the ground that the orders were interlocutory. The liquidators submit further that the discretion should be exercised because the orders made in Marco (No 9) were founded on a misapprehension of law. The asserted misapprehension is that there is clear authority for the proposition that the remuneration to which the administrators are entitled under s 60-5 of the IPSC and that can be the subject of a determination under s 60-10 does not include costs, expenses or disbursements. The liquidators submit that McKerracher J overlooked that authority and, thereby, proceeded on a misapprehension of law. In substance, the liquidators also submit that the parties made no submissions on that subject because an entitlement to be paid remuneration out of property held on trust based on s 60-5 was not raised by the parties and, thereby, the liquidators were denied the opportunity to make submissions on that issue.
The administrators submit that para 1 of the orders made in Marco (No 9) was a declaration of rights that was final. It was a final order that is not open to be varied or set aside under r 39.05(c) of the Rules. As the liquidators do not raise or rely on any of the other grounds in r 39.05 of the Rules, the application to re-open must be dismissed. Further, the application should be refused on discretionary grounds on the basis that interests of justice do not favour varying or setting aside the declaration because the Court had power to make orders for payment of disbursement and costs out of trust property under s 90-15 of the IPSC and s 92 of the Trustees Act 1962 (WA). Also, there was a right of appeal that was not exercised and, otherwise, there has been an inordinate and unexplained delay in bringing the application to re-open.
[38]
Has the Court power to re-open Marco (No 9) on the ground of misapprehension of the law?
The principles applicable to an application for leave to re-open perfected orders depend upon whether the orders are final or interlocutory.
If the orders in Marco (No 9) are final, the Federal Court, as a court of limited jurisdiction, except in cases of fraud or a failure to be heard, has no inherent power to re-open perfected final orders: DJL v Central Authority [2000] HCA 17; (2000) 201 CLR 226 at [24]-[49]; Eastman v R [2008] FCAFC 62; (2008) 166 FCR 579 at [32] (Spender, Gray and Logan JJ) (citing with approval); Pantzer v Wenkart [2007] FCAFC 27 at [5] (Black CJ). Rule 39.05 of the Rules otherwise provides express power to vary or set aside a judgment or order after it has been entered in eight specified circumstances. There are no more expansive grounds available outside the Rules than those referred to in DJL: Burrell v R [2008] HCA 34; (2008) 238 CLR 218 at [13]-[29].
If the orders in Marco (No 9) are interlocutory, there is plainly power to vary or set aside those orders under r 39.05(c) of the Rules. In this respect, although it may be accepted that 'the Court's power to recall an interlocutory order is confined only by the demands of the interest of justice': Luo v Zhai (No 6) [2016] FCA 805 at [15] (Perram J), it is well-settled that the discretion conferred to set aside interlocutory orders once entered should be exercised in a judicial manner and only in exceptional circumstances: Deloitte Touche Tohmatsu (A Firm) v Sadie Ville Pty Ltd (As Trustee for Sadie Ville Superannuation Fund) [2020] FCAFC 23; (2020) 144 ACSR 1 at [274].
McLelland J, in a passage cited with approval by Besanko J in Keynes v Rural Directions Pty Ltd (No 4) [2011] FCA 304 at [32] and in Sadie Ville at [275] (Markovic and O'Callaghan JJ), made the following observations in Brimaud v Honeysett Instant Print Pty Ltd (1988) 217 ALR 44 (at 46-47):
The private injustice and public undesirability of permitting the relitigation of matters already litigated once is recognised in a number of principles of law, notably the rules relating to res judicata and issue estoppel, the more flexible rules under the rubric of vexation and abuse of process illustrated in such cases as Stephenson v Garrett [1891] 1 QB 677 and Hunter v Chief Constable, West Midlands Police [1982] AC 529; [1981] 3 All ER 727, and the restrictive provisions governing the adducing of further evidence on the hearing of an appeal even by way of rehearing: see, for example s 75A(8) of the Supreme Court Act 1970 (NSW).
Interlocutory orders, of their very nature, create no res judicata or estoppel, and the court retains jurisdiction to set aside, vary or discharge an interlocutory order up to the time of the final disposition of the proceedings. However the general rationale of the principles last referred to applies even in the case of interlocutory orders. It would be conducive to great injustice and enormous waste of judicial time and resources if there were no limit on the power of a party to have any interlocutory application or order relitigated at will.
The overriding principle governing the approach of the court to interlocutory applications is that the court should do whatever the interests of justice require in the particular circumstances of the case. In giving effect to that general principle, and in recognition of the public and private interests earlier referred to, rules of practice have been developed in accordance with which the discretionary power of the court to set aside, vary or discharge interlocutory orders will ordinarily be exercised. Not all kinds of interlocutory orders attract the same considerations. For present purposes one may put to one side orders of a merely procedural nature (as to which see for example Wilkshire & Coffey v Commonwealth (1976) 9 ALR 325) and injunctions (or undertakings) made or given by agreement and without contest "until further order" (as to which see for example Warringah Shire Council v Industrial Acceptance Corp (unreported, SC(NSW), McLelland J, 22 November 1979).
In the present case I am dealing with an interlocutory order of a substantive nature made after a contested hearing in contemplation that it would operate until the final disposition of the proceedings. In such a case the ordinary rule of practice is that an application to set aside, vary or discharge the order must be founded on a material change of circumstances since the original application was heard, or the discovery of new material which could not reasonably have been put before the court on the hearing of the original application: see Woods v Sheriff of Queensland (1895) 6 QLJ 163 at 164-5; Hutchinson v Nominal Defendant [1972] 1 NSWLR 443 at 447-8; Chanel Ltd v F W Woolworth & Co [1981] 1 All ER 745; [1981] 1 WLR 485; Adam P Brown Male Fashions v Philip Morris (1981) 148 CLR 170 at 177-8; 35 ALR 625 at 629-30; Butt v Butt [1987] 1 WLR 1351 at 1353; Gordano Building Contractors Ltd v Burgess [1988] 1 WLR 890 at 894.
The following passages illustrate the point:
The defendants are seeking a rehearing on evidence which, or much of which, so far as one can tell, they could have adduced on the earlier occasion if they had sought an adequate adjournment, which they would probably have obtained. Even in interlocutory matters a party cannot fight over again a battle which has already been fought unless there has been some significant change of circumstances, or the party has become aware of facts which he could not reasonably have known, or found out, in time for the first encounter. The fact that he capitulated at the first encounter cannot improve a party's position.
(Chanel v Woolworth & Co at All ER 751-2; WLR 492-3 per Buckley LJ.)
A court must remain in control of its interlocutory orders. A further order will be appropriate whenever, inter alia, new facts come into existence or are discovered which render its enforcement unjust ... Of course the changed circumstances must be established by evidence
(Adam P Brown Male Fashions at CLR 178; ALR 630 per Gibbs CJ and Aickin, Wilson and Brennan JJ.)
Here, the liquidators rely on Inspector-General in Bankruptcy v Bradshaw [2006] FCA 22 at [24]-[27] and Wenkart v Pantzer (No 3) [2013] FCAFC 162 at [17]-[22] as authority for the proposition that there is power to re-open an interlocutory order where the Court has apparently proceeded according to some misapprehension of the facts or the relevant law and that misapprehension cannot be attributed solely to the neglect or default of the party seeking the rehearing. That principle and those cases concern this Court's power to rehear or review a case before a judgment is drawn up, passed and entered. (That power is reflected in r 39.04 of the Rules). Nonetheless, I accept that a misapprehension of that nature may provide circumstances or a foundation for the Court to exercise its discretion, in the case of an interlocutory order that has been entered, as an exceptional circumstance and in the interests of justice.
The power to re-open before final orders are entered is also exceptional and discretionary. The power should 'be exercised with great caution': Wentworth v Woollahra Municipal Council (No 2) [1982] HCA 41; (1982) 149 CLR 672 at 684. It is a power that is exercised having regard to the public interest in maintaining the finality of litigation. There may be more or less reluctance to exercise the power depending upon whether there is an avenue of appeal: Smith v New South Wales Bar Association (1992) 176 CLR 256 at 265 and the authorities there cited. The power 'is not to be exercised for the purpose of re-agitating arguments already considered by the Court; nor is it to be exercised simply because the party seeking a re-hearing has failed to present the argument in all its aspects or as well as it might have been put': Autodesk Inc v Dyason (No 2) [1993] HCA 6; (1993) 176 CLR 300 at 303. In general, the power will not be exercised unless the applicant can show that by accident without fault on the applicant's part he or she has not been heard: Woollahra Municipal Council at 684. However, the power is not confined to those circumstances: Autodesk at 301-303. Even in circumstances where the power is enlivened, the Court may refuse to re-open or disturb the orders on discretionary grounds such as where the party applying for the re-opening has 'not done all that might have been done to raise the power when it was timely and appropriate to do so', or that there has been delay in bringing the application and (or) prejudice to the other party: De L v Director-General, Department of Community Services (NSW) [1997] HCA 14; (1997) 190 CLR 207 at 217, 223 (Toohey, Gaudron, McHugh, Gummow and Kirby JJ).
In De L Toohey, Gaudron, McHugh, Gummow and Kirby JJ said (at 215) (footnotes omitted):
The power of this Court to reopen its judgments or orders is not in doubt. The Court may do so if it is convinced that, in its earlier consideration of the point, it has proceeded 'on a misapprehension as to the facts or the law', where 'there is some matter calling for review' or where 'the interests of justice so require'. It has been said repeatedly that a heavy burden is cast upon the applicant for reopening to show that such an exceptional course is required 'without fault on his part', ie without the attribution of neglect or default to the party seeking reopening. By such expressions of the power to reopen final orders, courts seek to recognise competing objectives of the law. On the one hand, there is the principle of finality of litigation which reinforces the respect that should be shown to orders, final on their face, addressed to the world at large and upon which conduct may be ordered reliant upon their binding authority. On the other hand, courts recognise that accidents and oversights can sometimes occur which, unrepaired, will occasion an injustice. In the case of a final court of appeal, such as this Court, that injustice may be irremediable, unless the Court itself, acting promptly, is persuaded to reopen its orders so as to afford relief in the exceptional circumstances of the case.
In Autodesk (at 302-303) Mason CJ cited In re Harrison's Share under a Settlement [1955] Ch 260, Pittalis v Sherefettin [1986] QB 868 and New South Wales Bar Association v Smith (unreported, NSWCA, 4 July 1991) in support of the proposition that re-opening was not confined to circumstances in which a party has not been heard and extended to misapprehension of the law or facts. In re Harrison's Share was an example of misapprehension of the law. In that case, judgment was pronounced approving schemes affecting family trusts. After the judgment was pronounced but before it was entered, the House of Lords delivered a judgment in unrelated proceedings which made it clear that the judge had no jurisdiction to make the orders. The judge re-opened, heard further argument and varied the orders originally pronounced. The English Court of Appeal held that, in those circumstances, the judge was entitled to recall the judgment pronounced, re-open and vary the orders originally pronounced: In re Harrison's Share at 283. Pittalis was another example of misapprehension of the law. In that case, the day after judgment was pronounced and before it was entered, the judge recalled the judgment and varied it on the grounds that he had decided that the judgment as originally pronounced was wrong. That was considered exceptional and was permitted '[a]s a matter of the sensible administration of justice and fairness between the parties': Pittalis at 879 (Fox LJ), 882 (Dillon LJ), 888 (Neil LJ, agreeing). Smith was an example of misapprehension of the facts which is not presently relevant. In re Harrison's Share and Pittalis serve to illustrate the exceptional nature of the circumstances in which a court may recall an order, re-open and vary it before it has been entered on the ground of misapprehension of the law. Although Mason CJ was in dissent as to the outcome of the re-opening application in Autodesk, that does not detract from his statement of the applicable principles. Brennan J (who formed part of the majority) also emphasised the exceptional nature of the jurisdiction and drew an analogy between misapprehension of the law and a judgment made per incuriam: Autodesk at 310.
These examples of the exceptional circumstances in which courts have exercised jurisdiction to re-open a judgment before entry on the ground of misapprehension of law (or of fact) involved the judge who had pronounced the judgment. In those circumstances, the judge in question may be taken to have known whether he or she misapprehended the law or facts. Nonetheless, applications to re-open an interlocutory order may be made to the Court constituted by a different judge: e.g., Hutchinson v Nominal Defendant [1972] 1 NSWLR 443 at 447-448 (Isaacs J). However, '[w]hen the order under consideration has been made by another Judge having like jurisdiction, the Judge considering whether or not to vary or discharge it must exercise particular caution not to take on an appellate jurisdiction when none exists.': Commonwealth of Australia v Albany Port Authority [2006] WASCA 185 at [27] (Steytler P) and the authorities there cited. In my view, that caution demands that, before contemplating disturbing the orders pronounced, misapprehension should emerge objectively and clearly or obviously from the reasons for decision read with the other materials.
[39]
Are orders in Marco (No 9) final or interlocutory?
A judgment is final if the judgment or order, as made, finally determines the rights of the parties: Carr v Finance Corporation of Australia (No 1) [1981] HCA 20; (1981) 147 CLR 246 at 248 (Gibbs CJ). After stating that simple test, Gibbs CJ made an observation, as true today as it was in 1981, that nonetheless '[t]he question of whether a judgment is final or interlocutory … is productive of much difficulty'. The orders in Marco (No 9) are no exception.
The liquidators submit that the orders in Marco (No 9) were interlocutory because orders determining the manner in which and property out of which an external administrator is to be paid are 'inextricably part of and ancillary to the winding up proceedings': Re R & G Shelley Pty Ltd (in liq) [No 2] (1991) 103 FLR 220 at 224 (Higgins J). In R & G Shelley the liquidator of the company appealed to a single judge of the Supreme Court of the Australian Capital Territory from an order of a Master of that court granting a provisional liquidator liberty to deduct his approved remuneration and expenses from the fund held by him. In that context, Higgins J considered and concluded the liquidator required leave to appeal on the ground that the Master's order was interlocutory. On appeal, that conclusion was referred to by the Full Court (Sheppard, Burchett and Gummow JJ) without comment: Shirlaw v Taylor (1991) 31 FCR 222 at 225.
Notwithstanding R & G Shelley, I am not convinced that an order made on an application under s 60-10(1)(c) and (or) s 90-15 of the IPSC would not, insofar as it finally determined the remuneration and costs and expenses to which an external administrator is entitled and the property out of which payment is to be made, be a final determination of 'rights' as between the external administrator and the company in respect of the administrator's remuneration, costs and expenses. That such an order may be characterised as an inextricable part of and ancillary to the winding up proceedings does not appear to me to be determinative of the legal effect of the order. As Taylor J observed in Hall v Nominal Defendant [1966] HCA 36; (1966) 117 CLR 423 at 440: '[i]t is not … the essence of an interlocutory order that it is one made in the course of a pending action or suit'. Moreover, the High Court has rejected the nature of the application made (e.g., interlocutory in pending proceedings), as opposed to the nature of the order made on the application, as the basis for determining if an order is interlocutory or final: Licul v Corney [1976] HCA 6; (1976) 180 CLR 213 at 225 (Gibbs J, Mason J agreeing) (citing Hall v Nominal Defendant).
Further, characterising orders determining an external administrator's remuneration, costs and expenses as interlocutory does not necessarily mean that a declaration to the effect that the administrator has a right to be paid such remuneration, costs and expenses out of property the company holds on trust is also interlocutory. The administrators submit that declarations of right are final: Dovuro Pty Ltd v Wilkins [2003] HCA 51; (2003) 215 CLR 317 at [127] (Kirby J), [143] (Hayne and Callinan JJ); Graham Barclay Oysters Pty Ltd v Ryan [2002] HCA 54; (2002) 211 CLR 540 at [128] (Gummow and Hayne JJ). The administrators also rely on: Warramunda Village Inc v Pryde [2002] FCA 250; (2002) 116 FCR 58 at [68] (Finkelstein J); Ho v Grigor [2006] FCAFC 72; (2006) 151 FCR 236 at [54]; Magman International Pty Ltd v Westpac Banking Corporation (1991) 32 FCR 1 at 15.
On the strength of the authorities upon which the administrators rely, it can be accepted that there is no such thing as an 'interlocutory declaration'. However, the statements of Gummow and Hayne JJ in Graham Barclay Oysters and Hayne and Callinan JJ in Dovuro to that effect were made in the context of observing that the primary judges who had made the orders in those cases should not have done so as purported 'interlocutory orders'. In Magman International the Full Court (Black CJ, Beaumont J, Gummow, von Doussa and Hill JJ agreeing) also allowed an appeal on the ground that the primary judge should not have made declarations of rights based on the determination of separate questions before hearing the evidence and determining the facts upon which such declarations were founded.
Here, there was no challenge to the form of the declaration and, therefore, it stands as a declaration of the administrators' right to payment of remuneration, disbursements and costs from trust property. Nonetheless, the intended effect of that declaration is not without some doubt. The reasons in Marco (No 9) suggest that the intention was to determine, as a separate issue, whether an order should be made to the effect that the administrators were entitled to payment out of trust property before determining, as a separate issue, the amount of remuneration, costs and expenses to which the administrators were entitled. Therefore, while the order, as made, is framed as a declaration, the intended effect of that order was to give effect to para 1 of the administrators' application: see Marco (No 9) at [4]. In these circumstances, it is not obvious that the intended effect of the declaration in Marco (No 9) was to finally determine rights as opposed to determining an issue as a step to determining final rights.
Even if the declaration was intended to be a final declaration of rights in respect of the separate issue raised in para 1 of the administrators' application, that does not mean that the judgment or order in which that declaration was made is not an interlocutory judgment or order. In Warramunda, upon which the administrators also rely, Finkelstein J (at [69]-[70]) acknowledged there were many authorities in this Court that have held that judgments that included declarations of right on separate issues were interlocutory notwithstanding that he was of the view that they were final. As a means of reconciling the apparent differing views, his Honour suggested that there may be a middle ground in which a judgment may be interlocutory for some purposes and final for others. More recently, in Monash Health v Singh [2023] FCAFC 166 (at [27]-[44]) the Full Court (Katzmann, Snaden and Raper JJ) considered and surveyed many of the judgments of this and other courts on the topic and concluded:
38 In the present matter, it might be recalled that the primary judge resolved the preliminary (liability) question by granting declaratory relief. Relief of that nature is, by necessity, final relief. There is no such thing as an interlocutory declaration: Dovuro Pty Limited v Wilkins [2003] 215 CLR 317 at 359 [127] per Kirby J, 363 [143] per Hayne and Callinan JJ.
39 Nonetheless, the authorities appear to draw a distinction - at least insofar as concerns rights of appeal - between an order that is or is not final and a judgment that is or is not final. [Computer Edge Ltd v Apple Computer Inc (1984) 54 ALR 767] is a good example. Gibbs CJ (with whom Murphy J and Wilson J agreed) accepted - and, with respect, it was plainly the case - that the permanent injunctive relief from which the appeal was sought to be brought as of right was final in nature. Nonetheless, the judgment that gave expression to that relief was not.
40 Why such a distinction might be necessary or appropriate may best be left unexplored. As Tracey J alluded to in [Damorgold Pty Ltd v JAI Products Pty Ltd [2014] FCA 448] (above, [31]) "judgment" and "order" are, for the purposes of the FCA Act, synonyms: FCA Act, s 4. But that was also so at the time that Computer Edge was decided. Resort to definitions only compounds the scope for confusion.
41 Little can be made of the fact that the declaratory relief the primary judge granted was relief that was final in nature. That it was is obvious enough, as is the fact that it purported to determine, on a final basis, the question as to whether or not Monash Health had contravened s 340(1) of the FW Act. But these matters are not determinative of whether the judgment was interlocutory for the purposes of s 24(1A) of the FCA Act.
42 There is no shortage of authority in this Court and others that holds to this effect. See, for example, [Workers - Western Australian Branch v J-Corp Pty Limited (1993) 42 FCR 452] at [4] per Lockhart and Gummow JJ; [Construction, Forestry, Mining and Energy Union v Employment Advocate [2001] FCA 1442] at [7]-[9] per Lee, Finn and Merkel JJ.
43 In Singh v Khan [2021] NSWCA 281; 363 FLR 88 at [27] Brereton JA held that the fact that a declaration might be final in nature was "…not conclusive of the question whether the order is, for the purposes of [establishing appellate jurisdiction], 'an interlocutory judgment or order'". That observation is consistent with what the Full Court of the Family Court of Australia (as it then was) said in Jess v Jess [2021] FamCAFC 159; 361 FLR 126 per Alstergren CJ, Strickland and Kent JJ, where it was held (at [10]-[24]) that, as Brereton JA summarised it in Singh, "…leave to appeal was required from a declaratory order which was not a conclusive declaration as to the respective rights and liabilities of the parties but more akin to a finding of fact".
44 The proposition that a judgment as to liability that is made prior to, and separate from, any consideration of further questions (including as to relief) is "an interlocutory judgment" is "…too well established to be doubted": [Health Care Complaints Commission v Robinson [2022] NSWCA 164] at [6] per Leeming JA (in obiter, with whom Kirk JA agreed; Simpson AJA agreeing in the result). Notwithstanding that it consists principally of final (declaratory) relief, the authorities are tolerably clear: for the purposes of s 24(1A) of the FCA Act, the primary judgment is "an interlocutory judgment" in respect of which no appeal lies without leave.
Although dealing with the meaning of an interlocutory judgment for the purposes of s 24(1A) of the Federal Court of Australia Act 1976 (Cth), the reasoning of the Court in Monash Health is equally applicable to an interlocutory judgment or order for the purposes of r 39.05 of the Rules. Accordingly, while the orders in Marco (No 9) include a declaration that may have had the effect of finally determining the rights of the administrators vis-à-vis AMS concerning their entitlement to payment of remuneration, costs and expenses out of trust property, the judgment or order in which that declaration is made, as a whole, is an interlocutory judgment or order. Therefore, the discretion in r 39.05(c) of the Rules is available.
[40]
Was the declaration in Marco (No 9) founded upon a misapprehension of the law to the effect that the administrators have an entitlement to remuneration and expenses under s 60-5 IPSC?
As noted earlier in these reasons, it was common ground that the concept of 'remuneration' to which the administrators are entitled under s 60-5 and that can be the subject of a determination under s 60-10 of the IPSC does not include disbursements: Venetian Nominees at 100 (Kennedy and Ipp JJ, Wallwork J agreeing at 108). See, also, Stockford at [50] (Finkelstein J); Timeshare Resort Club at [36]-[41] (Barker J); Starpicket Pty Ltd (No 2) at [15] (Gordon J). None of those authorities were cited in the parties' written submissions on the determination of the separate question before McKerracher J and there is no reference to any of those authorities in the reasons for decision in Marco (No 9). There is also no reference in the reasons to the exclusion of disbursements from the concept of remuneration.
The liquidators submit that McKerracher J concluded that the administrators were entitled to payment of remuneration and costs and disbursements out of trust property on the basis that s 60-5 of the IPSC confers on the administrators an entitlement to remuneration. The liquidators contend that McKerracher J misapprehended the law that remuneration and disbursements are distinct and, thereby, conflated an entitlement to be paid remuneration out of trust property on the basis of s 60-5 of the IPSC with an entitlement to be paid disbursements out of that property on the basis of the same provision of the IPSC.
For the reasons given later, I do not accept that McKerracher J concluded that the administrators were entitled to be paid for disbursements and costs out of trust property on the basis of their entitlement to remuneration under s 60-5 of the IPSC. However, assuming McKerracher J considered that s 60-5 of the IPSC confers an entitlement to be paid remuneration, disbursements and costs out of property of which a company under administration is the legal owner, the liquidators have not identified any authority binding on McKerracher J to the effect that, on the proper construction of s 60-5 of the IPSC, it does not confer such an entitlement on an external administrator. Rather, the liquidators submit, in effect, that McKerracher J made an error of law in construing s 60-5 to have that meaning because he had overlooked, in his Honour's chain of reasoning, that 'remuneration' for the purposes of s 60-5 of the IPSC does not include 'disbursements'. The asserted misapprehension may involve an appealable error of law, but it is not a misapprehension of law of the kind that invokes the exceptional circumstances in which a court may re-open a judgment or order. McKerracher J has not overlooked, forgotten or misapprehended a binding authority to the effect that, by operation of s 60-5 of the IPSC, an administrator is not entitled to payment of remuneration and disbursements out of property of which the company under administration is the legal owner.
That is sufficient to dismiss the liquidators' application to re-open. However, I am also not persuaded that McKerracher J overlooked or failed to take into account the legal distinction between 'remuneration' and 'disbursements' in making the orders in Marco (No 9).
The orders made in Marco (No 9) were as follows:
THE COURT DECLARES THAT:
The former administrators (and liquidators) of the second and third defendant are entitled to remuneration and payment of disbursements and costs from the property of the second and third defendant.
THE COURT ORDERS THAT:
For the purpose of a remuneration determination being made by the Court pursuant to s 60-10(1)(c) of the Insolvency Practice Schedule, Sch 2 of the Corporations Act 2001 (Cth):
(a) the issue of quantum be referred to mediation by a Registrar of the Court; and
(b) if an agreed position on quantum is reached at the mediation, the Registrar is to consider whether a remuneration determination should be made; alternatively,
(c) if an agreed position on quantum cannot be reached at mediation, the question be referred back to a Judge of the Court for resolution.
Costs of this application be reserved to the mediation or to further order of the Court.
When setting out the background to the application (at [5]-[15]) McKerracher J identified and described the assets of which AMS was the legal owner as at 24 September 2020 (defined in the reasons as the 'Property') as follows:
…
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
[41]
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.
…
In context, the reference to 'property of the second and third defendant' in para 1 of the orders and the declaration is a reference to the Property as defined in the reasons for decision and described in para [12]. Also, the declaration clearly treats 'remuneration' and 'payment of disbursements and costs' as separate entitlements. Paragraph 2 of the orders refers to a 'remuneration determination … made by the Court pursuant to s 60-10(1)(c) of the [IPSC]'. It does not refer to a determination of 'disbursements and costs'. That suggests that para 2 of the orders was not intended to refer the determination of 'disbursements and costs' to mediation and, therefore, remuneration was not conflated with disbursements for the purposes of s 60-10 of the IPSC.
Further, while the declaration refers to 'payment of disbursements and costs', the focus of the declaration and order is 'remuneration'. The reasons for decision also focus on the determination of the administrators' remuneration. By way of example, para [4] refers to the administrators' claim for remuneration. Paragraph [21] refers to the administrators seeking a determination as to their remuneration from the Property pursuant to s 60-10(1)(c) of the IPSC. Paragraphs [67]-[74] only refer to remuneration. There is no mention in the reasons of any right or entitlement to be paid disbursements or costs arising from s 60-5 of the IPSC. However, para [77] recognises that the administrators also seek 'disbursements'.
After setting out the background, McKerracher J described the issues on the determination of para 1 of the administrators' application as follows:
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.
…
It was common ground in the parties' written submissions that the Court had power to order that general administration or liquidation work be paid from assets which the company under administration held on trust. The administrators cited Staatz v Berry, in the matter of Wollumbin Horizons Pty Ltd (in liq) (No 3) [2019] FCA 924 at [202]; Lane v Deputy Commissioner of Taxation [2017] FCA 953; (2017) 253 FCR 46 at [186]; 13 Coromandel Place Pty Ltd v CL Custodians Pty Ltd (in liq) [1999] FCA 144; (1999) 30 ACSR 377; Re Mackie Group Pty Ltd (in liq) [2017] VSC 477; (2017) 122 ACSR 537 at [58]-[62]; Fearndale Holdings at [20]; Bastion v Gideon Investments Pty Ltd [2000] NSWSC 939 at [71], [71] in support of that proposition. The liquidators cited Re North Food Catering Pty Ltd [2014] NSWSC 77 at [10]-[17] (and the cases there cited); Kite v Mooney, in the matter of Mooney's Contractors Pty Ltd (in liq) (No 2) [2017] FCA 653 at [149]; Re Kelly, Halifax Investment Services Pty Ltd (in liq) (No 6) [2019] FCA 2111; Staatz v Berry at [202], [208]-[210]. By reference to those authorities the liquidators accepted that the Court had power, but submitted:
What emerges from the authorities is that there is no separate right or entitlement for administrators or liquidators to be paid for general administration or liquidation work out of trust property. Whether that will be allowed is dependent on whether it falls within the established principles (that is, whether it is pursuant to the trustee's available right of indemnity or, alternatively, under the 'salvage' principle), and is otherwise entirely discretionary.
The parties had made extensive written submissions on the extent to which an insolvency practitioner is or may be entitled to claim remuneration and costs out of trust property. The liquidators' submissions concluded as follows:
There are two potential bases upon which the Administrators may have a right to claim remuneration and costs out of the Property (as now described):
(a) First, under AMS's right of indemnity as trustee.
(b) Second, under what is known as the 'salvage' principle.
The first basis is not available to the Administrators because their claimed remuneration and costs cannot, on proper analysis, be said to be in respect of administering or performing the relevant trust (which was a bare trust).
The second basis is also not available to the Administrators because none of the work claimed properly falls within the 'salvage' principle in the circumstances of this case.
Therefore, payment of the Administrators' claimed remuneration and costs cannot and ought not be allowed to be made from the Property and it is unnecessary go on to deal with the deferred part of the Remuneration Application relating to orders 2 to 4 of the interlocutory process.
Thus, the liquidators' written submission expressly addressed the question of the administrators' right (or entitlement) to claim remuneration and costs out of the Property (that is the assets AMS held on trust). Likewise, the administrators had made written submissions in which they asserted a right to be paid for remuneration and expenses incurred out of trust property. That is, the administrators and liquidators' submissions each maintained a distinction between remuneration, on the one hand, and expenses or costs, on the other. The parties' submissions differed in the extent to which the administrators were entitled to remuneration or disbursements in respect of work that was not directly referrable to trust property but was work in the general administration of an insolvent company.
The liquidators went on to distinguish the circumstances of this case from cases in which the power had been exercised in favour of an administrator or liquidator and ultimately submitted that 'this is not an appropriate case where the Court can or ought to exercise its discretion in favour of allowing the Administrators to be paid for general administration or liquidation work out of the trust property'. That submission did not distinguish between remuneration and disbursements or costs and expenses of the administrator. Nor was any such distinction drawn in the authorities to which the parties referred because the power under consideration was the general power of the Court to make orders concerning the administration of trust (in Western Australia, s 92 of the Trustees Act; or s 90-15 of the IPSC; or earlier equivalent provisions of the Act). There was no consideration in those authorities of a power to order payment of remuneration (or costs and expenses) out of the trust property under s 60-5 of the IPSC.
Therefore, as between the parties, there was a disputed point of principle as to whether the right of indemnification or exoneration, and by extension the right to remuneration and payment for expenses of an insolvency practitioner, extended to all work carried out and expenses incurred in the administration of an insolvent trustee, regardless of whether such work or expenses is or are referrable to the trust property.
McKerracher J set out the applicable statutory provisions (at [21]-[26]) and then turned to consider the capacity in which AMS held its assets (at [27]-[44]). His Honour observed (at [27]) that there 'is a fundamental need to identify, with some precision, the capacity in which AMS held its assets' and that although the administrators and liquidators agreed that all property of AMS was held on trust, the nature and terms of the trust was disputed. His Honour concluded (at [43]) that AMS held the Property on some form of constructive trust for the investors in the scheme.
McKerracher J then addressed the concept of a trustee's right of exoneration to which his Honour said that the parties' submissions were substantially directed (at [45]-[66]). Ultimately, McKerracher J considered it unnecessary to resolve that dispute because, as the administrators were never in control or possession of any of the (trust) Property, they never had any right of exoneration out of that property (at [57]-[66]).
McKerracher J next considered if the statutory entitlement to remuneration under s 60-5 of the IPSC applied. In this respect his Honour said:
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 [[2004] NSWSC 798; (2004) 50 ACSR 297] 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.
It follows that the reasons in Marco (No 9) do not specifically address the parties' written submissions on the power of the Court to order that an administrator's remuneration and expenses be paid out of trust property of an insolvent company. However, McKerracher J alludes to that power (at [71]) and refers directly (at [70]) to the judgment of Black J in Fearndale Holdings in which he approved an application under s 60-5 and s 60-12 of the IPSC. In Fearndale Holdings, Black J made separate orders in respect of remuneration and expenses. The remuneration was determined under s 60-10 of the IPSC, but as to expenses he said (at [30]) 'the amount claimed from the trust property … also extends to costs and disbursements which do not require the Court's approval under s 60-10 of the [IPSC]'.
Reading the reasons as a whole and against the background of the references to Fearndale Holdings, the point that McKerracher J makes in Marco (No 9) (at [71]) is that the Court has no discretion to order the payment of remuneration from trust property because there is an entitlement to payment of remuneration out of the property of a company (whether or not held on trust). None of the reasons are directed specifically to the question of entitlement to be paid costs, expenses or disbursements out of trust property. The reference to entitlement pursuant to s 60-5 of the IPSC refer only to an entitlement 'to be remunerated out of the Property' or similar expressions: Marco (No 9) (at [73], [74]).
The entitlement of the administrators to be reimbursed for costs and disbursements could not have been in doubt: Venetian Nominees (at 101). The only reference to disbursements in the reasons is a reference to an amount sought for disbursements: Marco (No 9) (at [77]). Therefore, there is no express explanation in the reasons for the order for payment of costs and disbursements out of trust property.
In point of detail, having regard to the conclusion that there was no need to resolve the point of disputed difference (at [57]), which on the parties' submissions clearly encapsulated remuneration and disbursements, the reasons do not explain the basis for the declaration to the effect that the administrators were entitled to payment of disbursements and costs out of the Property. However, given the evident difference in references to remuneration and disbursements in the orders and reasons for decision, it cannot be inferred that the references to 'remuneration' in paras [67]-[74] are to be read as a reference to 'remuneration and disbursements'. That is particularly so in circumstances in which the distinction between remuneration and disbursements (or expenses) is long-standing and addressed in the authorities to which McKerracher J referred. An entitlement to remuneration is a statutory entitlement. An entitlement to payment for disbursements (or expenses or costs) is implicit from performance of the functions of an external administrator. Therefore, there was no need for McKerracher J to discuss or address an 'entitlement' to payment for disbursements in his reasons as that proposition was obvious.
Having regard to all these matters, I do not consider that I should infer that McKerracher J misapprehended the law and considered that the effect of s 60-5 of the IPSC is to confer an entitlement on the administrators to be paid for costs, expenses and disbursements, as opposed to remuneration, from property of which AMS is the legal owner. It may be that there would be grounds to challenge the declaration made for legal or factual error based on the reasons (or absence of reasons) for declaring that the administrators are entitled to payment of disbursement and costs from the property of AMS, but that was a matter that could have been, but was not, the subject of an application for leave to appeal or an appeal.
In summary, I do not infer that McKerracher J overlooked the distinction between remuneration and disbursements or that his reasons reveal that he considered s 60-5 of the IPSC supplied a legal foundation for ordering that disbursements should be paid from trust property for the following reasons.
The orders distinguish between remuneration, on the one hand, and disbursements and costs, on the other, and only the determination of remuneration was referred to mediation.
The reasons reflect a recognition that there is a difference between remuneration and disbursements: Marco (No 9) at [77].
The references in the reasons to Fearndale Holdings (in which there is express reference to the absence of any requirement of the court to approve disbursements under s 60-10 of the IPSC): Marco (No 9) at [70].
The well-established principle that the administrators were 'entitled' to payment for disbursements.
The reasons dealing with an entitlement to remuneration founded on s 60-5 of the IPSC only refer to 'remuneration' not 'disbursements': Marco (No 9) at [73], [74].
The foundation for the conclusion that the administrators were entitled to payment of 'remuneration' out of trust property was an 'entitlement' to payment for remuneration under s 60-5 of the IPSC: Marco (No 9) at [71].
In the absence of any explanation in the reasons as to why McKerracher J considered that the administrators were entitled to payment of disbursements out of trust property, an inference of equal, if not greater, probability arises that McKerracher J considered that the well-established entitlement to payment for disbursements under general principles carried with it an entitlement to be paid out of trust property of the trustee debtor. That is, insofar as the liquidators had made submissions to the contrary regarding payment of disbursements out of trust property, McKerracher J had not accepted them.
[42]
As a matter of discretion should the Court disturb the orders in Marco (No 9) and reconsider if it should make an order for payment of disbursements and costs out of trust property?
It follows that there is no foundation for the application to re-open on the grounds of a misapprehension of the law. In any event, even if I were satisfied that there had been such a misapprehension, I would have refused to set aside the declaration and re-open the orders in Marco (No 9) because I do not consider it would be in the interests of justice to do so.
First, the Court clearly has power to order that an administrator's costs and expenses be paid out of property that a company under administration holds on trust. The preponderance of recent authority favours the view that the Court has a discretion to order payment of an administrator's remuneration, costs and expenses out of trust property whether for administering trust assets or for general administration work if the company has no assets other than trust assets: e.g., Re North Food at [17].
In Lawrence, in the matter of Ozifin Tech Pty Ltd (in liq) v AGM Markets Pty Ltd (in liq) [2022] FCA 1478 Beach J surveyed most of the authorities to which the parties referred in their submission of the hearing before McKerracher J and concluded:
234 The Court has an expansive equitable jurisdiction to allow a liquidator's remuneration to be paid out of assets of a trust; see In the matter of M & J Super Fund Pty Limited (in liq) [2021] NSWSC 279 at [13] to [17] per Williams J.
235 As stated by Brereton J in North Food (at [9]):
(1) The court has an inherent equitable jurisdiction to allow a trustee remuneration, costs and expenses out of trust assets, and this extends to a person such as a liquidator who is, for practical purposes, controlling a trustee.
(2) The court may decline to exercise that jurisdiction where the company does not solely act as trustee and has sufficient beneficial assets to meet the liquidators' remuneration costs and expenses and where the work done by the liquidator in relation to trust assets may properly be treated as done for the purposes of winding up the company affairs. Thus, generally where a company has assets which are not held on trust, the liquidators' costs should usually fall on its non-trust assets.
(3) Where the company has both trust assets and assets held beneficially by the company, the costs can be apportioned such that the remuneration attributable to the statutory liquidation work would fall on the assets beneficially owned by the company, whereas that which related to administering the trust property might fall on the trust assets.
(citations omitted)
236 Now ASIC says that I should not allow general liquidation remuneration to be paid from any trust funds, unless that remuneration relates solely to work done in the interests of beneficiaries. But the Court has an independent equitable power to allow non-trust remuneration to be paid out of trust assets in appropriate cases, which none of the authorities cited by ASIC would deny. And it is not the case that the ability of the liquidators to have recourse to trust assets for the payment of their costs, expenses and remuneration is governed solely by the principles discussed in [13 Coromandel Place Pty Ltd v CL Custodians Pty Ltd (in liq) (1999) 30 ACSR 377].
237 Now in the present case the work conducted by the liquidators is divisible into categories of work relating to the ASIC proceedings, work relating to this proceeding, work relating to locating and reconstructing the books and records, work relating to the conduct of investigations directed to the identification of assets held and not held on statutory trust, work relating to the investigation and pursuit of recovery action against third parties who held, or potentially held, funds belonging to the relevant company, work relating to reporting to creditors and creditors' meetings, work relating to the adjudication of creditors' claims including the very substantial number of client creditors who are likely to be beneficiaries of any constructive trust, and other general liquidation work.
238 Clearly, much of the work done by the liquidators falls squarely within the principle recognised in [In re Universal Distributing Company Ltd (in liq) (1933) 48 CLR 171], save perhaps for work relating to reporting to creditors and creditors' meetings and other general liquidation work.
239 Moreover, in [In re Berkeley Applegate [(Investment Consultants) Ltd (in liq); Harris v Conway [1989] 1 Ch 32], orders were made for the liquidators' costs and remuneration to be paid out of trust property given that the work performed by the liquidator was of substantial benefit to the trust property and to the investors. Absent the liquidator performing the work, this work would have needed to be completed by the investors or by a court appointed receiver, whose fees would have ultimately been borne by the trust property in any event.
240 Indeed, the principles in Berkeley Applegate go beyond those recognised in Universal Distributing. But there is a degree of overlap between the categories of work justifiable by the Berkeley Applegate principle and the Universal Distributing salvage principle, at least in the present case. The categories of work identified above each fall within the Berkeley Applegate principle, save perhaps for work relating to reporting to creditors and creditors' meetings and other general liquidation work.
241 But importantly, if delivering a benefit to the trust beneficiaries is to be used as the test by which entitlement to use trust funds to pay liquidator's remuneration, costs and expenses is ascertained in the case of the liquidation of a corporate trustee, then it is difficult to see why remuneration, costs and expenses attributable to general liquidation work do not meet that test in the present case. A general liquidation of each relevant company was the quickest and most cost efficient way to crystallise returns to beneficiaries, whether statutory trust beneficiaries or other trust beneficiaries of whatever description.
242 Moreover, in the present case the persons who will take the benefit of the general liquidation work will be the beneficiaries of the constructive trust sought by ASIC. They will take the benefit of a concerted long-term effort on the part of the liquidators to locate, recover and manage trust assets as well as to identify the claims and claimants on those assets. Work performed by the liquidators in the adjudication of creditor claims is, as a matter of practical reality, work done in ascertaining the respective entitlements that the beneficiaries of the constructive trust will have. Work done by the liquidators in reporting to creditors is, as a matter of practical reality, work done in reporting to these beneficiaries. All of this work has advantaged the trust estate. Accordingly, the liquidators' remuneration and costs and expenses incurred in relation to all of the categories of work identified ought to be payable out of assets held on trust.
243 More generally, the general liquidation work was undertaken prior to any determination of client entitlements, and necessarily involved a consideration of issues relating to the statutory trust claims and other trust claims. Consequently, although not directly related to the beneficiaries' interest, it can be seen as broadly related to the trusts.
244 Further, there is both a public interest in insolvent companies being properly administered, which must extend to insolvent trustee companies, and a plain benefit to the beneficiaries / clients in having the affairs of the relevant entities properly investigated and administered by the liquidators.
The declaration that was made concerning disbursements and costs was plainly within power and open on the evidence before McKerracher J.
Second, and related to the first point, to allow a re-opening would involve permitting the parties (in particular the liquidators) to re-agitate many of the submissions and arguments made on the application under consideration in Marco (No 9) regarding an entitlement to be paid for disbursements and costs out of trust property. That would be to subvert the finality of litigation and invite interminable arguments of the kind to which Brennan J referred in Autodesk (at 310).
Third, if the liquidators were dissatisfied with the declaration made, they were entitled to seek leave to appeal or commence an appeal from the orders. They did not do so. In those circumstances, it is difficult to see how it could be thought that the interests of justice favour allowing the issue to be re-opened when the right to appeal has not been exercised and cannot now be exercised without an extension of time.
Fourth, there has been considerable delay in bringing the application to re-open. In no sense could it be described as prompt. Indeed, it appears to be more in the nature of an afterthought.
Last, the delay is likely to have caused prejudice to the administrators in that they proceeded with their application from October 2021 to July 2023 on the assumption that their entitlement to be paid disbursements and costs out of the property of AMS was unchallenged. There is also general prejudice to the public interest in that the extent of the delay in this case undermines the overarching purpose of the civil practice and procedure provisions referred to in s 37M of the Federal Court Act.
In short, in this case, the interests of justice favour finality and the prompt exercise of rights of appeal rather than dilatory applications to re-open perfected and substantive interlocutory orders.
[43]
Conclusion
There will be a determination under s 60-10 of the IPSC to the effect that the administrators are entitled to remuneration of $100,192.26 (incl GST) in respect of the four categories of work referred to in para [189]. There will be an order to the effect that the administrators are entitled to payment of disbursements and costs in the sum of $84,014.37 (incl GST), including $63,044.86 (incl GST) for legal costs and disbursements. The costs of the application up to and including the hearing on 24 and 25 July 2023 will be reserved. I will hear the parties on the appropriate form of orders to give effect to paras [210]-[214] of these reasons and on the question of costs.
I certify that the preceding two-hundred and sixty-six (266) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Feutrill.
[44]
Associate:
Dated: 10 April 2024
SCHEDULE OF PARTIES
WAD 481 of 2018
Interest Persons
Interested Person ROBERT MICHAEL KIRMAN AND ROBERT CONRY BRAUER AS INTERIM RECEIVERS
Interested Person CAMERON SHAW, RICHARD ALBARRAN AND MARCUS WATTERS, THE JOINT AND SEVERAL ADMINISTRATORS OF AMS HOLDINGS (WA) PTY LTD (RECEIVERS APPOINTED) (ADMINISTRATORS APPOINTED)
Interested Person CAMERON SHAW, RICHARD ALBARRAN AND MARCUS WATTERS, THE JOINT AND SEVERAL ADMINISTRATORS OF AMS HOLDINGS (WA) PTY LTD (RECEIVERS APPOINTED) (ADMINISTRATORS APPOINTED) AS TRUSTEE FOR AMS HOLDINGS TRUST (THE ADMINISTRATORS)
Interested Person GIOVANNI MAURIZIO CARRELLO AS THE TRUSTEE IN BANKRUPTCY OF CHRIS MARCO
Interested Person PATRICIA MAREE MARKOPOULOS
Interested Person TONPOSE PTY LTD AS TRUSTEE FOR MARKS AUTOS SUPERANNUATION FUND ACN 008 850 057
Defendants
Fourth Defendant: LOUGHTON PATTERSON PTY LTD AS TRUSTEE OF THE LOUGHTON PATTERSON UNIT TRUST
13 Coromandel Place Pty Ltd v CL Custodians Pty Ltd (in liq) [1999] FCA 144; (1999) 30 ACSR 377
Adsett v Berlouis [1992] FCA 549; (1992) 37 FCR 201
Australian Securities Commission v AS Nominees Ltd [1995] FCA 1663; (1995) 62 FCR 504
Australian Securities and Investments Commission v Letten (No 20) [2012] FCA 1283; (2012) 92 ACSR 630
Australian Securities and Investments Commission v Marco [2019] FCA 466; (2019) 136 ACSR 116
Australian Securities and Investments Commission v Marco (No 3) [2020] FCA 719
Australian Securities and Investments Commission v Marco (No 6) [2020] FCA 1781
Australian Securities and Investments Commission v Marco (No 9) [2021] FCA 1306
Australian Securities and Investments Commission v Marco (No 13) [2023] FCA 83; (2023) 164 ACSR 638
Australian Securities and Investments Commission v Pegasus Leveraged Options Group Pty Ltd [2002] NSWSC 310; (2002) 41 ACSR 561
Autodesk Inc v Dyason (No 2) [1993] HCA 6; (1993) 176 CLR 300
Bastion v Gideon Investments Pty Ltd [2000] NSWSC 939
Baxter Global Investments Pty Ltd (ACN 159 246 670) v Marco [2020] NSWSC 1293
Brimaud v Honeysett Instant Print Pty Ltd (1988) 217 ALR 44
Burrell v R [2008] HCA 34; (2008) 238 CLR 218
Caron v Jahani (No 2) [2020] NSWCA 117; (2020) 102 NSWLR 537
Carr v Finance Corporation of Australia (No 1) [1981] HCA 20; (1981) 147 CLR 246
Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth (Amerind) [2019] HCA 20; (2019) 268 CLR 524
Commonwealth of Australia v Albany Port Authority [2006] WASCA 185
Conlan as liquidator of Rowena Nominees Pty Ltd (in liquidation) v Adams [2008] WASCA 61; (2008) 65 ACSR 521
De L v Director-General, Department of Community Services (NSW) [1997] HCA 14; (1997) 190 CLR 207
Deloitte Touche Tohmatsu (A Firm) v Sadie Ville Pty Ltd (As Trustee for Sadie Ville Superannuation Fund) [2020] FCAFC 23; (2020) 144 ACSR 1
Deputy Commissioner of Taxation v Starpicket Pty Ltd (No 2) [2013] FCA 699
DJL v Central Authority [2000] HCA 17; (2000) 201 CLR 226
Dovuro Pty Ltd v Wilkins [2003] HCA 51; (2003) 215 CLR 317
Eastman v R [2008] FCAFC 62; (2008) 166 FCR 579
Eco Heat (Vic) Pty Ltd v Syndicate Forty Four Pty Ltd (Subject to Deed of Company Arrangement) [2018] VSC 156
Graham Barclay Oysters Pty Ltd v Ryan [2002] HCA 54; (2002) 211 CLR 540
Hall v Nominal Defendant [1966] HCA 36; (1966) 117 CLR 423
Higgins v JSS Logistics Pty Ltd (in liq) [2022] FCA 1320
Ho v Grigor [2006] FCAFC 72; (2006) 151 FCR 236
Hutchinson v Nominal Defendant [1972] 1 NSWLR 443
In re Harrison's Share under a Settlement [1955] Ch 260
Inspector-General in Bankruptcy v Bradshaw [2006] FCA 22
Kelly, in the matter of Halifax Investment Services Pty Ltd (in liquidation) (No 9) [2020] FCA 925
Keynes v Rural Directions Pty Ltd (No 4) [2011] FCA 304
Cases cited: Kite v Mooney, in the matter of Mooney's Contractors Pty Ltd (in liq) (No 2) [2017] FCA 653
Lane v Deputy Commissioner of Taxation [2017] FCA 953; (2017) 253 FCR 46
Lawrence, in the matter of Ozifin Tech Pty Ltd (in liq) v AGM Markets Pty Ltd (in liq) [2022] FCA 1478
Lehman Brothers Holdings Inc v City of Swan [2010] HCA 11; (2010) 240 CLR 509
Licul v Corney [1976] HCA 6; (1976) 180 CLR 213
Luo v Zhai (No 6) [2016] FCA 805
Magman International Pty Ltd v Westpac Banking Corporation (1991) 32 FCR 1
Markopoulus v Marco [2020] WASC 79
Mentha, in the matter of Griffin Coal Mining Co Pty Ltd (administrators appointed) [2010] FCA 1469; (2010) 82 ACSR 142
Mighty River International Ltd v Hughes [2018] HCA 38; (2018) 265 CLR 480
Mirror Group Newspapers plc v Maxwell (No 2) [1998] BCC 324
Monash Health v Singh [2023] FCAFC 166
New South Wales Bar Association v Smith (unreported, NSWCA, 4 July 1991)
Owen, in the matter of Rivercity Motorway Pty Limited (Administrators Appointed) (Receivers and Managers Appointed) v Madden (No 2) [2012] FCA 312
Pantzer v Wenkart [2007] FCAFC 27
Pittalis v Sherefettin [1986] QB 868
Re Courtenay House Capital Trading Group Pty Ltd (in liq) [2020] NSWSC 780; (2020) 147 ACSR 1
Re Dion Investments Pty Ltd [2014] NSWCA 367: (2014) 87 NSWLR 753
Re Fearndale Holdings Pty Ltd (in liq) (receivers and managers appointed) [2020] NSWSC 901
Re Huxtable, in the matter of Timeshare Resort Club Ltd (in liq) [2010] FCA 673; (2010) 187 FCR 13
Re Kelly, Halifax Investment Services Pty Ltd (in liq) (No 6) [2019] FCA 2111
Re Korda; in the matter of Stockford Ltd [2004] FCA 1682; (2004) 140 FCR 424
Re Mackie Group Pty Ltd (in liq) [2017] VSC 477; (2017) 122 ACSR 537
Re North Food Catering Pty Ltd [2014] NSWSC 77
Re R & G Shelley Pty Ltd (in liq) [No 2] (1991) 103 FLR 220
Re Unlockd Ltd (administrators appointed) [2018] VSC 345
Sallway, in the matter of Mosgreen Pty Ltd (in liq) (Remuneration of Liquidators) [2019] FCA 1771; (2019) 140 ACSR 331
Sanderson as liquidator of Sakr Nominees Pty Ltd (in liq) v Sakr [2017] NSWCA 38; (2017) 93 NSWLR 459
Saunders v Vautier (1841) 4 Beav 115; (1841) 49 ER 282
Shirlaw v Taylor (1991) 31 FCR 222
Smith v New South Wales Bar Association (1992) 176 CLR 256
Staatz v Berry, in the matter of Wollumbin Horizons Pty Ltd (in liq) (No 3) [2019] FCA 924
Templeton v Australian Securities and Investments Commission [2015] FCAFC 137; (2015) 108 ACSR 545
TiVo, Inc v Vivo International Corporation Pty Ltd [2014] FCA 789; (2014) 9 BFRA 583
Venetian Nominees Pty Ltd v Conlan (1998) 20 WAR 96
Warramunda Village Inc v Pryde [2002] FCA 250; (2002) 116 FCR 58
Wenkart v Pantzer (No 3) [2013] FCAFC 162
Wentworth v Woollahra Municipal Council (No 2) [1982] HCA 41; (1982) 149 CLR 672
On 28 and 29 October 2020 the final hearing of the amended originating process took place.
Mr Shaw deposes that between 28 October and 18 November 2020 he conferred generally with the body of investors and 'took note of the minimum terms several investors told [him] they would require to vote in favour of a DOCA proposal'. Mr Shaw deposes that he dealt with Mr Tony Cumache and Mr Robert Genovesi regarding a potential 'investor-led DOCA'. While the email communications suggest that at one point Mr Cumache and Mr Genovesi were interested in some form of continuation of Mr Marco's business activities involving PPPs it is difficult to discern from the correspondence anything that would meet the description of an 'investor-led' DOCA. The communications appear to be more requests for information and answers as well as indications of what Mr Cumache and Mr Genovesi wanted included in any further DOCA proposal of Mr Marco.
On 6 November 2020 there was a further meeting of the COI. There was general discussion at that meeting. Mr Shaw advised the meeting that members of the COI and investors had contacted him regarding Mr Marco's second DOCA proposal and had requested amendments to it. Mr Brauer said that he had received legal advice to the effect that an asset purchased using investor monies would require investors, as beneficiaries of a trust, to agree unanimously to those assets being included in a DOCA fund. Mr Shaw asked Mr Maskell to review that issue and that the administrators would address it in a supplementary major report.
On 11 November 2020 Thynne + Macartney sent a letter to MGM O'Connor which included a non-exhaustive outline of proposed minimum DOCA terms certain investors could support. The letter included a summary of the hearing in the proceedings on 28 and 29 October 2020. Mr Maskell said: 'On balance, though, we think ASIC would expect to prevail from the trial, and Mr Marco to lose. We then expect the appointee under s 601EE of the Act to wind up the Scheme (armed with ancillary powers per ASIC's draft minute of orders) to take a robust approach to the recovery action/future dealings with Mr Marco and his family/ the Recipients.' After a number of exchanges of emails on 16, 17 and 18 November 2020, MGM O'Connor sent an email to Thynne + Macartney on 18 November 2020 confirming that a further (third) DOCA proposal of Mr Marco could be included in a supplementary report of the administrators.
On 18 November 2020 the administrators circulated a document entitled 'Voluntary Administrators' Supplementary Report to Creditors and Investors' to the creditors. The supplementary report contains a summary of the key terms of Mr Marco's third DOCA proposal and attaches a copy of the proposal confirmed in the email exchanges to the report.
The summary identified the administrators as the proposed deed administrators and their powers. It included provision for the formation of a COI. It described certain property of AMS, Mr Marco, shares of Mr Damon Marco and PPP investments that were to be included in the deed fund. Additionally, members of Mr Marco's family were to account for assets of the scheme that they held which had not been dissipated and could be reasonably recovered. It included a mechanism for the deed administrators to negotiate and reach settlements with members of Mr Marco's family by which the deed fund could be augmented. It included a provision by which certain assets of members of Mr Marco's family were excluded from the deed fund. It included provisions concerning creditors and investors entitled to prove in the DOCA, distribution of the deed fund, moratorium of claims against AMS, the AMS Holdings Trust and the scheme while the DOCA was operational and purported to release claims against AMS, AMS Holdings Trust and the scheme. There were also a number of ancillary terms. Completion of the agreement contemplated by the DOCA proposal was also subject to certain conditions as follows:
…
15. ASIC's application to wind up the Company / Scheme is unsuccessful or other Court orders are made confirming/ enabling the DOCA to be formed and effectuated according to its terms as approved by resolution upon the second meeting for the Company.
Conditions for the DOCA to continue 16. The Asset Preservation Orders are revised to enable the Deed Administrators to deal with assets, or lifted.
17. Court approval for the Company to remain or be reinstated as Trustee of the AMS Holdings Trust, or orders with similar effect to enable the Deed Administrators to deal with the Trust's assets.
…