Barclays Bank Ltd v Quistclose Investments Ltd [2023] FCA 681 | Case summary

Barclays Bank Ltd v Quistclose Investments Ltd [2023] FCA 681 | Case summary | Zoe

[5]

BACKGROUND 3 See also Pirina, in the matter of Fund Options (Australia) Pty Ltd (In Liquidation) [2020] FCA 1256 (Pirina (No 1)). 4 Mr Iannuzzi was appointed as the liquidator of the Company and Managed Options Pty Ltd on 15 May 2015 pursuant to a members' voluntary winding up. I will refer to the Company and Managed Options together as the Companies. Managed Options was deregistered on 7 July 2019. 5 After investigations, it appeared to Mr Iannuzzi that the Companies had conducted an online binary options trading business although neither company held an Australian Financial Services Licence (AFSL) and such a licence was necessary to conduct that business. That business appeared to involve a number of offshore entities and individuals (referred to at [8] below). Those who sought to trade binary options were predominately foreign. The Companies' businesses were operated in conjunction with a website published by a Hong Kong based third-party known as Banc De Options (www.bancdeoptions.com) and another website operated by a New Zealand based third-party known as Options Rider (www.optionsrider.com). 6 Shortly after his appointment Mr Iannuzzi ascertained that the Company had three bank accounts, one with the Commonwealth Bank of Australia (CBA) (CBA Account) and two accounts with St George Bank (St George Accounts). 7 In a report to creditors dated 8 August 2016, Mr Iannuzzi advised that: The matter was referred to him by the Company's external accountant, Graziano De Bortoli of GDC Chartered Accountants who had previously referred insolvency matters to him; Before his appointment as liquidator, Mr Iannuzzi had been led to believe that the Company was an investment vehicle that a person who was leaving Australia wished to wind up and it would be a simple affair in relation to which his fees would not exceed $20,000. That proved not to be the case; The director and sole shareholder of the Company, Reymundo Angara, and shadow directors Slavica Krstic and Kristian Krstic (who were also directors of Managed Options and Mr Krstic was its shareholder) had been uncooperative and failed to assist in his investigations. They had provided no books and records of the Company. Law enforcement advised that they had left Australia and had not returned; It appeared that the Company was used as part of an ongoing phoenix operation, a continuation of their enterprises relating to a number of companies operating a scheme whereby later depositors' funds were used to pay funds to previous depositors. It appeared that funds obtained from overseas were first channelled into accounts of Managed Options. Then, when issues arose with that company, funds were channelled into the Company's accounts. Then, leading up to Mr Iannuzzi's appointment, $499,000 was channelled into Sky Options Pty Ltd, a company which Mr Iannuzzi believed was controlled by Mr Angara and Ms and Mr Krstic; He understood that approximately 2,400 (2,000 prior to appointment, 400 post-appointment) international depositors deposited at least $4,450,000 into the Company's bank accounts. He advised that those depositors that deposited funds prior to his appointment were classed as unsecured creditors of the Company while post-appointment deposits were likely to be classed as trust beneficiaries; His investigations identified a number of transactions amounting to approximately $2,728,000 which were potentially voidable transactions as there appeared to be no commercial basis for those payments. However, recovery was unlikely due to the absence of books and records and it would involve extensive costs to investigate further and initiate actions. This amount is thought to comprise: (i) $2,039,060 paid in five international funds transfers to a bank account of Xenia Fay Atilano. That account is thought to be in the Philippines; (ii) $499,100 paid in nine funds transfers to Sky Options. Approximately $130,000 was seized for Sky Options by the Australian Federal Police (AFP) as proceeds of crime; (iii) $100,000 paid in two electronic funds transfers to KSK Holdings Australia Pty Ltd as trustee for the Krstic Trust; and (iv) $89,849 paid in 10 funds transfers to Mr Angara. 8 Mr Iannuzzi formed the view that the funds deposited into the CBA Account and one of two St George Accounts (together Bank Accounts) should be returned to depositors because it was likely that the deposits had been procured by misleading or deceptive conduct or otherwise deposited under a mistaken assumption that the Companies would undertake binary trading on behalf of the depositors but did not. Mr Iannuzzi formed this view because of: The absence of evidence that the Companies were in fact accepting deposits for the purpose of binary trading. He had been unable to obtain books and records of the Companies or written agreements between the Companies and Banc De Options and Options Rider or the Companies and depositors; The failure of the directors to provide information concerning the Companies to him. The Report as to Affairs (RATA) provided was grossly inadequate; Each of the directors of the Companies had absconded from Australia; The investigations by the AFP into the Companies and the AFP obtaining an order under proceeds of crime legislation against the Company; Neither of the Companies holding an AFSL; The absence of funds being transferred to a trading platform from the CBA Account; The evidence of withdrawals from the CBA Account in large rounded transactions being $710,000 on 7 April 2015, $1,300,000 on 22 April 2015, $400,000 on 24 April 2015, and $210,000 on 28 April 2015; The lack of evidence suggesting that any of the funds deposited were returned to the depositors - if the Companies were running a binary options trading business it would be the case that some depositors would have made a profit and opted to withdraw their investment; The failure of Wolf Goldstein and Bob Roberts (whom Mr Iannuzzi had been advised were behind Banc De Options and Options Rider) to respond to his enquiries; The warnings published by the New Zealand Financial Markets Association (NZFMA) and the AFP in relation to Banc de Options and Options Rider; and Websites operated by Options Rider and Banc De Options being deactivated some time following Mr Iannuzzi's appointment. 9 Mr Iannuzzi sought orders in the nature of directions under s 90-15 of the Insolvency Practice Schedule that (among other things) he would be justified in making no further tracing efforts above the limited enquiries concerning the identity of depositors beyond those described in Pirina (No 1) at [27]-[30]. He proposed to call for proofs of debt and conduct adjudications of those he received, with the expectation that any claims made would be met in full from the funds in the Bank Accounts with any surplus (after remuneration) to be paid to the Australian Securities and Investments Commission (ASIC). 10 I was not persuaded that such limited enquiries were justified. On 5 December 2018, I made orders to the following effect: (a) Mr Iannuzzi would be justified in seeking further information from CBA and St George concerning contact details of those who made deposits into the Bank Accounts; and (b) Fixing remuneration for the period from 15 May 2015 to 30 June 2018 in respect of the work discussed in Pirina (No 1) at [33]. 11 Mr Iannuzzi initiated enquires for trace results with CBA and St George on 12 December 2018. 12 In a "Notice to Depositors" prepared by Mr Iannuzzi dated 16 January 2019 the creditors were said to be: Australian Taxation Office $1.00 GDC Chartered Accountants $5,500.00 Investors $4,453,403.00 Ms SK $138,888.89 Mr RP $13,888.89 Mr RA $80,000.00 Total $4,691,681.78

[6]

13 Between April and July 2019, CBA and St George provided the names and addresses of 2,210 foreign depositors. They were not able to provide contact information for Australian depositors as that information was held by remitting banks. 14 On 4 June 2019, by resolution of the Company's creditors, Messrs Pirina and Naidenov were appointed as liquidators of the Company in lieu of Mr Iannuzzi following his resignation. Messrs Pirina and Naidenov were salaried principals of Veritas Advisory until 30 June 2019. From 1 July 2019 to 31 March 2020, they were equity partners along with Mr Iannuzzi. On 1 April 2020, Messrs Pirina and Naidenov left Veritas and founded their firm, Aston Chace Group. 15 On 18 October 2019, the liquidators sent 2,210 circulars to foreign depositors informing them that they may have a claim against the Company and seeking further details of the deposits they had made in the Bank Accounts. 16 On 18 August 2020, I made orders naming the liquidators as plaintiffs in lieu of Mr Iannuzzi. I also made orders authorising the issue of subpoenas to nine remitting banks so that the liquidators could make any final enquiries directly with Australian depositors, rather than through the remitting banks. I subsequently granted leave to the issue of a subpoena to a tenth remitting bank. The liquidators received responses with details for 44 of 48 Australian depositors. 17 The liquidators then sought and, on 2 September 2020, I made orders in a similar form to those made in favour of Mr Iannuzzi as liquidator on 5 December 2018 so that it would be clear that the liquidators would have the benefit of directions previously made under s 90-15(1) of the Insolvency Practice Schedule and orders with respect to remuneration. However, given the increased number of depositors identified in the process directed by the 5 December 2018 orders and further depositors who might be identified on further enquiry, I considered it appropriate to order that no assets should be distributed to admitted creditors until the Court was satisfied as to whether all admitted creditors would be paid in full or whether it is necessary to make a finding as to the difference (if any) in the characterisation of the claims of depositors who made deposits before and after the liquidator was appointed.

[7]

HEARING ON 22 MARCH 2022 AND RELATED EVIDENCE AND SUBMISSIONS 18 At the hearing on 22 March 2022, the liquidators relied on the following evidence and submissions: (a) Mr Iannuzzi's affidavits sworn on 3 August 2018 and 28 September 2018; (b) Mr Pirina's affidavits sworn on 11 August 2020, 1 February 2022 and 21 March 2022; and (c) Submissions prepared by Joseph Scarcella dated 16 March 2022. 19 The liquidators also relied on: (a) Mr Pirina's affidavit sworn on 31 March 2022; and (b) Supplementary submissions prepared by Mr Scarcella dated 1 April 2022. 20 In his affidavit sworn on 1 February 2022, Mr Pirina deposed that: (a) As deposed to in Mr Iannuzzi's affidavit sworn on 3 August 2018, the total quantum of funds initially available to Mr Iannuzzi (excluding interest) was approximately $1,370,805 (rounded up to the nearest dollar amount and including $16,071.63 returned to the Company by the AFP) (Initial Funds) which can be divided into the pre-liquidation period and the post-liquidation period as follows: (i) $708,474.04 attributable to the pre-liquidation period; and (ii) $662,330.79 attributable to the post-liquidation period; (b) As deposed to in Mr Iannuzzi's affidavit sworn on 3 August 2018, the Initial Funds were kept in interest-bearing accounts. As at 31 December 2021 interest totalling $117,523.26 had accrued on the Initial Funds, which can be divided as follows: (i) $102,308 is attributable to the pre-liquidation period; and (ii) $15,215.26 is attributable to the post-liquidation period; and (c) As at 31 December 2021, refundable GST taxation credits, arising from costs paid in the liquidation totalling $81,673.15 have been received from the Australian Taxation Office which can be divided into refundable GST taxation credit as follows: (i) $73,611.90 is attributable to the pre-liquidation period; and (ii) $8,061.25 is attributable to the post-liquidation period. 21 Mr Pirina further deposed that, pursuant to a resolution passed by the creditors of the Company and orders made by this Court, the liquidators (including Mr Iannuzzi) have been permitted to draw their remuneration from the assets of the Company totalling $566,500 (GST inclusive) as follows (permitted remuneration): (a) On 1 June 2015, the creditors of the Company approved Mr Iannuzi's remuneration of $20,000 plus GST ($22,000 inclusive of GST); and (b) Pursuant to the orders made on 5 December 2018 the Court allowed Mr Iannuzzi to: (i) draw remuneration of $352,000 (GST inclusive) for the period 15 May 2015 to 30 June 2018; and (ii) draw remuneration in the amount of $192,500 (GST inclusive) for the period from 1 July 2018 to finalisation of the winding up of the Company. 22 The liquidators said that the conduct of this liquidation has been complex. The nature of the purported business of the Company and the ongoing difficulties of obtaining depositors' contact details from various banks and financial institutions has necessitated obtaining ongoing legal assistance which included approaching the Court for directions and the issue of subpoenas. For the period of the liquidation to 31 December 2021, legal fees in the amount of $257,096.26 (GST inclusive) have been paid from the assets of the Company. While the liquidators' solicitors have been able to apportion some individual legal fees between the pre-and post-liquidation periods that has not been possible in all cases. Where it has not been possible, the fees have been apportioned between the two periods equally. On that basis, the legal fees could be divided as follows: (a) $127,859.63 (GST inclusive) for the work done in relation to the pre-liquidation period; and (b) $129,236.63 (GST inclusive) for the work done in relation to the post-liquidation period. 23 During the course of the liquidation, expenses such as advertising, stationery, searches, printing, photocopying, postage, GST paid and bank charges totalling $64,981.66 (GST inclusive) had been incurred and paid from the assets of the Company. Given the relatively small amount of each individual expense, the nature of these expenses and the amount of work that would be involved, the liquidators did not consider it to be feasible, cost-effective or in the interests of the creditors of the Company to seek to apportion these expenses individually to either the pre- or post-liquidation period. They did, however, consider that it would be fair and equitable to apportion these expenses according to the total percentage of admitted claims referable to each period: 90.13% to the pre-liquidation period ($58,567.89, GST inclusive) and 9.87% to the post-liquidation period ($6,413.77, GST inclusive). 24 Taking these matters into account, Mr Pirina deposed that the following chart represented the manner in which the liquidators calculated funds available for distribution as at 31 December 2021: Pre-liquidation Post-liquidation Total Receipts Initial Funds $708,474.04 $662,330.79 $1,370,804.83 Interest $102,308.00 $15,215.26 $117,523.26 GST received $73,611.90 $8,061.25 $81,673.15 Total receipts $884,393.94 $685,607.30 $1,570,001.24 Expenses Liquidators' (drawn) remuneration $434,684.04 $131,815.95 $566,499.99 Legal Fees $127,859.63 $129,236.63 $257,096.26 Other expenses $58,567.89 $6,413.77 $64,981.66 Total expenses $621,111.56 $267,466.35 $888,577.91 Available Funds $263,282.38 $418,140.95 $681,423.33

[11]

Adjudication work 30 The liquidators undertook a streamlined process for the adjudication of the claims as described in the affidavit sworn by Mr Pirina on 1 February 2022 at [25]-[32]. It involved three review stages. 31 In the first stage, two file accountants at the liquidators' firm would review all claims under a process where: (a) A consolidated spreadsheet of all of the Company's bank transactions in the Bank Accounts was created; (b) A claim would be reviewed to see if it had sufficient supporting documents, for example, a transfer receipt or a copy of a claimant's bank statement showing funds being withdrawn from the account. A formal proof of debt did not have to be received for it to be assessed; (c) If the required supporting documents were provided and the relevant details matched a deposit in the consolidated spreadsheet (with some allowed slight variations, especially with international deposits), the claim was admitted and categorised as Category A; (d) If a claim did not have sufficient supporting documents but the claimant had previously been in contact with the liquidators and provided information that specifically matched details of a transaction in the consolidated spreadsheet such that the liquidators were satisfied that the claimant definitely provided funds to the Company, the claim would be admitted for the amount in the consolidated spreadsheet and categorised as Category B; (e) Where the claim did not have sufficient supporting information and there had not been contact with the liquidators in which other verifying information was provided and/or the information provided showed that the claimant did not have a claim against the Company (such as, demonstrating that funds had been provided to a different entity), the claim was to be rejected and classified as Category C; and (f) Where any of the circulars sent on 17 December 2020 or 17 March 2021 were marked "return to sender" or no response was received from that potential depositor or the potential depositor contacted anyone at the liquidators' firm requesting that they not be contacted again, the liquidators considered any claim that the depositor might have had to have been rejected or abandoned and it was categorised as Category D. 32 A second review would be conducted by a file manager in the employ of the liquidators' firm. He reviewed 145 claims as part of the second review. It consisted of assessing anew any claims in Category A where the quantum exceeded $1,500, 30 claims in Category B and every claim in Category C where the claim did not exceed $1,500. 33 In the third review, the liquidators assessed any claim in Category A that exceeded $5,000, a random sample of 30 claims that fell into Category A which did not exceed $5,000 (including some claims previously assessed in the second stage), a random sample of 20 claims in Category B (including some claims previously assessed in the second stage), any claim in Category C which exceeded $1,500 and a random sample of 10% of the claims in Category C where the claim did not exceed $1,500. In all, 118 claims were assessed by the liquidators. 34 The liquidators reviewed the claims received after 31 May 2021 separately. Of those, only nine fell within Categories A or B for an aggregate amount of $9,450.28. 35 That process was designed to reduce costs of the adjudication of the claims. It was, nonetheless, time consuming. Of the 606 claims then held, 385 were approved and 221 were rejected. Mr Pirina deposed that, of the 385 admitted claims, 347 related to pre-liquidation deposits (339 foreign and 8 Australian depositors) while 38 related to post-liquidation deposits all of whom were foreign depositors.

[12]

Other communications 36 Mr Pirina deposed that, in addition to the enquiry work, depositor communications work and adjudication work, there were a significant number of other tasks, such as: (a) Between 17 December 2020 and 21 August 2021, the liquidators' firm received and managed 30 telephone calls (each lasting 20 to 30 minutes) and 800 emails (some with over 100 pages of attachments) from potential depositors. Some correspondence required translation or further evaluation; (b) 54 formal proofs of debt were received by email and post. Some of the potential depositors made contact multiple times; and (c) On 7 December 2021, the liquidators issued a circular by email to 382 depositors with admitted claims. The email informed them of the outcome of the formal adjudication and advised them of the liquidators' proposed application to the Court. The circular advised of the liquidator's intention to make an application to the Court. The notice was not sent by post to the three remaining depositors with admitted claims for whom the liquidators only had a postal address "as they would not have received the notice with the timeframe the Liquidators anticipated making the application". 37 The 7 December 2021 circular stated: NOTICE TO DEPOSITORS Dear Sir/Madam, FUND OPTIONS (AUSTRALIA) PTY LIMITED (IN LIQUIDATION) ACN 603 782 903 (COMPANY) We refer to our previous communications with you regarding your claim in the Liquidation of the Company. You are receiving this notice because we have formally admitted your claim in the Liquidation for dividend distribution purposes. Provided below is an explanation of key terms that will be used throughout this notice for ease of reference: Depositors that paid funds into the Company's bank account before 15 May 2015. Pre-Liquidation Claim Depositors that paid funds into the Company's bank account before 15 May 2015. Post-Liquidation Claim Depositors that paid funds into the Company's bank account on or after 15 May 2015 Pre-Liquidation Funds The balance of funds held in the Company's bank account as at 15 May 2015 less costs and remuneration of the Liquidators. Post-Liquidation Funds The balance of funds received in the Company's bank account on and after 15 May 2015 less costs and remuneration of the Liquidators

[13]

We currently have sufficient Post-Liquidation Funds to pay Post-Liquidation Claims in full as follows: 1) The admitted Post-Liquidation Claims total $123,401. 2) The net Post-Liquidation Funds are estimated to be $369,032 after deducting the costs of the Liquidation referable to the Post-Liquidation work, which includes our further anticipated remuneration of $21,566 including GST (the liquidators' further anticipated remuneration has been reduced by approximately 15% for the benefit of the Liquidation) and further anticipated legal fees of $27,500 including GST. 3) Upon payment of all admitted Post-Liquidation Claims, there will be an estimated surplus of Post-Liquidation Funds of $245,631, subject to transaction fees (Surplus Funds). 4) We will seek an order that the Surplus Funds may be applied towards Pre-Liquidation Claims - see details below. 5) In the alternative to point 4 above, we will seek an order that the Surplus Funds be paid to the Australian Securities and Investments Commission (ASIC) and subsequently held by ASIC as `unclaimed money'. We currently do not have sufficient Pre-Liquidation Funds to pay all admitted Pre-Liquidation Claims in full. 1) The admitted Pre-Liquidation Claims total $881,673. 2) The net Pre-Liquidation Funds are estimated to be $32,991 after deducting the costs of the Liquidation referable to the Pre-Liquidation work, which includes our further anticipated remuneration of $202,834 including GST (the liquidators' further anticipated remuneration has been reduced by approximately 15% for the benefit of the liquidation) and further anticipated legal fees of $27,500 including GST. 3) We intend to make an application to the Federal Court of Australia in relation to seeking directions to distribute the funds of the Company in the manner described above. We also intend to seek approval of the remuneration referred to above at this time. Our lawyers have agreed to cap their legal fees and expenses at a discounted rate, despite expecting to incur further costs, for the benefit of the Liquidation. You are presently not required to undertake any actions or respond to this notice unless you have any objections regarding our proposed course of action. For all previous notices to depositors and other relevant information, please refer to our website by accessing the following link: https://astoncg.com.au/creditors/fund-options-australia-pty-limited/. If you have any queries regarding this notice, please contact fundoptions@astoncg.com.au.

[15]

Notification of hearing on 22 March 2022 39 In his affidavit sworn on 21 March 2022, Mr Pirina advised that, on 25 February 2022, an email had been sent to 382 depositors with admitted claims advising them as follows: As you know, Vincent Pirina and Steve Naidenov are the Liquidators of Fund Options (Australia) Pty Limited (In Liquidation) ACN 603 782 903 (Company). By a Notice to Depositors dated 7 December 2021 (Notice) we foreshadowed that we would be making an application to the Federal Court of Australia (Application): 1. for directions as to how the assets of the Company are to be distributed; and 2. seeking approval of our further remuneration in relation to the winding up of the Company. A copy of the Notice is attached. We filed the Application on 2 February 2022. The Court has now scheduled the hearing of the Application to commence at 2:15 pm (Australian Eastern Daylight Time) on Tuesday, 22 March 2022. A copy of the Court's orders dated 24 February 2022 (Orders) is attached. You are not required to undertake any actions or respond to this communication unless you object to the Application or wish to attend this upcoming hearing. If either of these apply, we encourage you to contact us at our below details at first instance. Alternatively, you are, of course, entitled to seek your own independent legal advice. The Orders, the Notice, all previous notices to depositors, and other relevant information can be found on our website by accessing the following link: https://astoncg.com.au/creditors/fund-options-australia-ptv-limited/. If you have any queries regarding this notice, please contact fundoptions@astoncg.com.au. 40 The 7 December 2021 circular attached to the email is set out at [37] above. 41 A letter to the same effect was sent to the remaining three depositors with admitted claims. The liquidators also put a notice to that effect on their website. 42 No advice concerning the time and date of the 22 March 2022 hearing appears to have been given to depositors who had not provided a claim to the liquidators. 43 I note that no one has appeared at any of the hearings at which legal representatives of Mr Iannuzzi and Mr Pirina have appeared to seek relief from the Court.

[16]

Submissions dated 16 March 2022 44 In their submissions dated 16 March 2022, the liquidators submitted that the evidence disclosed that: (a) They have not been able to discover the contractual basis upon which depositors provided funds to the Company. Indeed, there is insufficient evidence to determine the precise nature of the payments or deposits made to the Company. No creditor has come forward with sufficient information to permit a proper understanding of the nature of their claims. Those claims could be proprietary, a debt, or a chose in action; and (b) Despite extensive efforts, only 606 claims had been received of which only 385 had been admitted. That represents only approximately 16% of a total of the 2,340 depositors. 45 They said there is therefore an unresolved (and likely unresolvable) legal question as to the correct characterisation of the deposits that cannot be determined: (a) Deposits might correctly be categorised as being held in trust subject to the principles in Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 (Quistclose); that is, as money advanced for the specific purpose of trading binary options but that purpose failed; or (b) Deposits may be imbued with a trust in the nature of that in Black v S Freedman & Co (1910) 12 CLR 105 (Black v S Freedman & Co), as those deposits may have been procured by fraud; and/or (c) The Company operated a Ponzi scheme and thus distributions may be governed by the principle set out in In the matter of Courtenay House Capital Trading Group Pty Ltd (in liq) [2020] NSWSC 780 (Rees J) (Courtenay House). 46 The liquidators submitted that there was a clear benefit to the liquidation of the Company in the Court making the directions sought because it enables them to distribute realised assets to admitted creditors and then take steps to conclude the winding up. They submitted that, having regard to matters listed in s 90-15(4) of the Insolvency Practice Schedule: (a) The liquidators have faithfully performed their duties in that they have exhausted all sensible investigations to reach this point, and they have done so under the supervision of the Court and pursuant to orders and directions made to assist them; (b) There is no evidence of failure to comply with the Corporations Act, the Insolvency Practice Schedule or orders made by the Court; and (c) Depending on the ultimate distribution method adopted, it is conceivable that actual or potential creditors could suffer loss but that is a function of the direction rather than the conduct of the liquidators.

[17]

Further remuneration 47 The liquidators sought orders with respect to the payment of further remuneration. Mr Pirina deposed that: (a) The liquidators' costs of the liquidation of the Company have exceeded the permitted remuneration, with the last of the permitted remuneration being drawn down on 30 November 2020. It can be divided as follows: (i) $434,684.03 (GST inclusive) on account of work done relating to the pre-liquidation period: and (ii) $131,815.95 (GST inclusive) on account of work done relating to the post-liquidation period; (b) The Court's 2 September 2020 orders did not allow the liquidators to draw funds from the Company to pay their remuneration in excess of the permitted remuneration and they have not done so. However, the liquidators have done significant work since that time. Accordingly, for the period between 1 September 2020 and 31 December 2021, the liquidators' unbilled and unpaid work in progress (WIP) was $209,467.50 (GST inclusive); and (c) Although the liquidators' remuneration was last drawn on 30 November 2020, the work that supported its invoice was done prior to 1 September 2020. Accordingly, the liquidators had not been paid any remuneration for work done from 1 September 2020 onwards. 48 Together with WIP (which I take to be as at 1 February 2022) the liquidators considered that they could reasonably claim a further $244,425 plus GST for their work to the end of the winding up of the Company (inclusive of likely remuneration of $54,000 plus GST). However, the liquidators were aware of the costs that have already been incurred to date. As at 1 February 2022, the liquidators were prepared to reduce their anticipated costs by 10% and therefore claim anticipated remuneration at $242,467.50 (GST inclusive) which could be divided as follows: (a) $218,535.64 (GST inclusive) attributable to the pre-liquidation period; and (b) $23,931.86 (GST inclusive) attributable to the post-liquidation period. 49 The liquidators' solicitors anticipate that their future legal costs in assisting to the conclusion of the liquidation will be $60,000 plus GST (inclusive of current unbilled WIP). However, the liquidators were informed that their solicitors are prepared to reduce their future anticipated costs by approximately 17% and to cap their future legal costs at $55,000 (GST inclusive). Consistent with the suggested previous treatment of legal costs, anticipated legal fees can be divided equally between the pre- and post-liquidation periods. 50 The liquidators noted these things: (a) If the cost to complete the liquidation of the Company is less than anticipated, the liquidators will only draw down those fees that are actually earned; (b) If the Court makes the orders sought, the total remuneration paid to the liquidators (including Mr Iannuzzi for the period in which he was the liquidator of the Company) would comprise approximately 50% of the total funds available for distribution; and (c) Despite the substantial work undertaken by the liquidators since they replaced Mr Iannuzzi on 4 June 2019, by that time $424,000 (almost 54% of the overall total anticipated liquidators' remuneration of $808,967.50) had already been drawn down from the assets of the Company. The liquidators provided a summary of all invoiced and anticipated remuneration in Mr Pirina's affidavit sworn on 1 February 2020 at [80].

[19]

Proposed methods of distribution as at March 2022 52 The liquidators initially proposed that the distribution be effected by one of two methods and noted a third method. 53 By the first method (method 1), depositors who deposited funds in the post-liquidation period would be paid out of the pool of funds received in respect of that period. Should there be any surplus funds left in the post-liquidation pool after all creditors who contributed to it have been entirely paid out, those surplus funds would be added to the pool of funds received by the Company in the pre-liquidation period and pre-liquidation depositors would receive a dividend of approximately $0.295 in the dollar claimed. The liquidators noted that under this method: (a) The return to pre-liquidation creditors is increased without altering the return to post-liquidation depositors; (b) The prospect of a post-liquidation creditor now emerging to make a claim is remote for the reasons given at [38] above; and (c) It avoids a situation where, due to bank fees, 264 admitted pre-liquidation creditors do not receive a return; see [58] below. 54 By the second method (method 2), depositors with admitted claims would only be paid from the pool of funds into which they made deposits on a pari passu basis and any surplus from a pool would be paid to ASIC in accordance with s 544 of the Corporations Act. The liquidators noted that under this method: (a) Post-liquidation depositors with admitted claims would be paid in full and pre-liquidation depositors with admitted claims would receive $0.195 cents in the dollar; (b) While the precise character of the deposits remains unknown, the post-liquidation deposits could be subject to some trust or equivalent relationship which would mean that it is inappropriate to use the surplus to enhance the return to pre-liquidation depositors; and (c) While the chance of a new claim being made is remote, payment to ASIC of any surplus will permit any post-liquidation creditors who have yet to make themselves known to the liquidators to make a claim. That avoids the need for the liquidation to remain open for an indefinite period of time. 55 By the third method (which only appears in a footnote in the liquidators' submissions of 16 March 2022) (method 3), all admitted claims would participate pro rata in the assets of the Company resulting in a dividend of $0.38 for each admitted creditor. There is simplicity in this method and it treats all claims equally, but it adversely impacts known post-liquidation creditors. 56 The liquidators submitted that this is not a case where the Court is likely to be assisted by contradictors as to the appropriate distribution model. They referred to the decision of the Court of Appeal of New South Wales in Caron and Seidlitz v Jahani and McInerney in their capacity as liquidators of Courtenay House Pty Ltd (in liq) & Courtenay House Capital Trading Group Pty Ltd (in liq) (No 2) [2020] NSWCA 117; (2020) 102 NSWLR 537 (Caron v Jahani (No 2)). 57 The liquidators noted that: (a) The admitted claims are small. The average claim is $2,613.62. The average pre-liquidation creditor has a claim of $2,543.93 while the average post-liquidation creditor has a claim of $3,250.08. Out of the admitted 339 foreign depositors with a pre-liquidation claim, only 75 have an admitted claim exceeding $2,150; (b) The creditors' claims are so small that the cost of contradicting would be prohibitive; (c) If the costs of any contradictors were to be paid out of the assets of the Company, it would significantly erode the remaining funds of the Company; (d) If a contradictor was appropriate, the most likely appropriate contradictor would be Australian, but there are only eight of them and they all provided deposits pre-liquidation; (e) A post-liquidation depositor might be an appropriate contradictor were method 3 to be adopted. If that model was thought to be appropriate, distribution could be delayed until such time as the liquidators notify the post-liquidation creditors and give them a time limited opportunity to apply to the Court to discharge or vary that order. That would not be an onerous task as there are only 38 admitted post-liquidation creditors; (f) There is no logical party that could contest method 1 as there is no identified party with a sufficient interest in the remaining funds nor is it likely that such a creditor will come forward having regard to the matters set out at [38] above; (g) ASIC would not be an appropriate contradictor since neither s 544 nor Part 9.7 of the Corporations Act confers sufficient interest on it; (h) Given the difficulty in contacting depositors and seeking their engagement thus far, the Court may infer that creditors would be unlikely to be willing to contradict the application; and (i) No one gave notice of their intention to appear at the court hearing on 22 March 2022 and none did appear. The Court may therefore infer that the creditors are "ambivalent" about the distribution model. 58 Mr Pirina deposed that he had made enquiries with various Australian and international banks regarding the cost of international transfers and: (a) The cost quoted by the National Australia Bank is typical based on his enquiries and he has been advised that it charges a $20 transaction fee for international money transfers where the source of those funds is in Australian dollars; (b) The cost quoted by the Bank of America is typical based on his enquiries and he has been advised that it charges a fee of USD16 (approximately AUD22 based on foreign exchange rates as at 18 January 2022) for inbound money transfers; (c) Accordingly, a depositor based in the United States of America would need to be entitled to receive a dividend of more than $42 in order for that dividend not to be entirely consumed by bank fees; (d) Under method 2 (return of $0.195 in the dollar of pre-liquidation admitted claims), the admitted claim would need to be at least $2,150; (e) There are 339 foreign depositors with an admitted pre-liquidation claim and out of these only 75 have an admitted claim exceeding $2,150. Accordingly, if method 2 were adopted, the vast majority of foreign depositors with an admitted pre-liquidation claim will not receive any dividends after bank fees. $241,633.98 would be eaten up in bank fees; (f) If method 1 were adopted, there would be no depositors (Australian or foreign) with an admitted claim that would receive no dividend. Method 1 would result in the pre-liquidation depositors receiving over 15 times more in dividends than they would receive if method 2 were adopted while in both cases the admitted claims of post-liquidation depositors would be paid in full; and (g) While method 2 (where any surplus of post-liquidation deposits are paid to ASIC) may seem more attractive in circumstances where there is some real chance that future depositors who have so far not made themselves known to the liquidators might later present themselves to ASIC and convince ASIC that they have an admissible claim, it is the liquidators' view that it is unlikely that that will occur given the steps taken to date. 59 As at 1 February 2022, it was Mr Pirina's view that method 1 was the most equitable in circumstances where not all admitted creditors were capable of having their admitted claims paid out. 60 At the hearing on 22 March 2022, the liquidators' legal representative, Mr Scarcella, submitted that it was not easy to decide which was the appropriate method having regard to the state of the evidence and the consequences that flow from the characterisation of the funds received. However, he conceded that, having regard to relevant authorities, if I formed the view that the Company's business was a scam, it is difficult to resist the conclusion that the funds in the Bank Accounts are trust funds and therefore it is necessary to maintain the segregation of the accounts on a pre- and post-liquidation basis so that method 2 would be the appropriate method of distribution. 61 Mr Scarcella accepted that it would be open to the Court to order that foreign pre-liquidation depositors who would receive no dividend after the deduction of bank fees should be excluded from receiving a distribution in method 2. That would thereby enhance the return to other foreign pre-liquidation depositors and be in the best interests of that class as a whole. 62 The liquidators sought and were granted leave to file further evidence and submissions. Submissions and a further affidavit sworn by Mr Pirina on 31 March 2022 were filed on that date. 63 In his affidavit sworn on 31 March 2022, Mr Pirina deposed that: (a) Of the admitted claims, only 20 exceed $10,000 when converted to Australian dollars. The three largest pre-liquidation claims were all made by foreign depositors for $124,324.26, $37,299.52 and $26,892.95. If method 2 were adopted they would receive $2,424.32, $727.34 and $524.41 respectively if all admitted pre-liquidation depositors participate in the distribution. I note that Mr Pirina deposed that if not all pre-liquidation foreign depositors participate in the distribution on the basis set out in [65] below, those three claims would receive $4,500.54, $1,350.24 and $524.11 respectively (the last amount of which perhaps should be $973.52), rounded to the nearest cent, before bank fees; (b) Bank statements for the CBA Account indicate that withdrawals fell into three categories: lump sum transfers to other bank accounts, bank fees and charges, and transfers to variously named individuals who the liquidator infers are people who had previously deposited funds with the Company for the purpose of binary options trading; and (c) None of the depositors with admitted claims appear to have received money out of the CBA Account. The only withdrawals from the St George Accounts were bank fees and charges. 64 Mr Pirina submitted that, if method 2 is applied and foreign pre-liquidation depositors with claims of less than $2,150 are excluded, the liquidators identified that there would be fewer depositors that would need to be contacted in the future, and fewer individual transfers of funds would be required. They therefore reassessed their position with respect to future remuneration which will permit a greater dividend to be paid to the pre-liquidation depositors. They would reduce the claim for future remuneration by a further 20% to $26,400 inclusive of GST. This would result in a change to the chart at [51] above as follows: Pre-liquidation Post-liquidation Total Receipts Total available funds $884,393.94 $685,607.30 $1,570,001.24 Expenses Expenses incurred $621,111.56 $267,466.35 $888,577.91 Liquidators' WIP $188,792.79 $20,674.71 $209,467.50 Anticipated liquidators' remuneration $29,742.85 $3,257.15 $33,000.00 $23,794.28 $2,605.72 $26,400.00 Anticipated legal fees $27,500.00 $27,500.00 $55,000.00 Total potential expenses $867,147.20 $318,898.21 $1,186,045.41 $861, 198.63 $318,246.78 $1, 179,445.41 Total Available Funds $17,246.74 $366,709.09 $383,955.83 $23,195.31 $367,360.52 $390,555.83

[23]

JULY 2022 MEMORANDUM 68 On 5 July 2022, I caused a memorandum (July 2022 Memorandum) to be sent to Mr Scarcella to which was attached a Schedule which I had caused to be prepared having regard to the content of statements for the CBA Account which Mr Pirina had put in evidence. The Schedule noted deductions from the CBA Account, deposits to it (primarily focussed on amounts over $10,000) and account balances after transactions. The July 2022 Memorandum addressed the following matters. 69 The liquidators were advised that I accepted Mr Iannuzzi's view that the Company's operations were part of a scam and on that basis, deposits to the Bank Accounts should be treated as having been held on trust having regard to the principles derived from Black v S Freedman & Co with the consequence that depositors to the Bank Accounts were not simply creditors and the Company held those funds as trustee for the depositors. I accepted that the Company's operations were part of a scam for essentially the reasons set out at [8] above. Accordingly, the liquidators were advised that I had formed the view that the depositors were relevantly in the same position as investors in litigation in the Supreme Court of New South Wales in relation to the Ponzi scheme operated by Courtenay House Capital Trading Group Pty Ltd. 70 I noted that submissions filed on the liquidators' behalf had relied on the decision of Rees J in Courtenay House at [5]-[14] in relation to principles relevant to the Court giving directions under s 90-15 of the Insolvency Practice Schedule, including the usual practice of the Court being provided with an opinion of a trustee's counsel. They had also relied on the Court of Appeal's decision in Caron v Jahani (No 2) in relation to the proposition that this is not a case where the Court is likely to be assisted by contradictors as to the appropriate distribution model. However, the submissions in support of the liquidators' application filed to that date did not address the following findings made in Caron v Jahani (No 2) which were noted in the July 2022 Memorandum at [1]: (a) Where evidence of particular investors' interests in a co-mingled fund is available, the lowest intermediate balance rule provides the fairest, most equitable and principled outcome for the allocation of limited funds between investors. This is because application of the lowest intermediate balance rule permits the tracing of surviving proprietary interests where that is possible: Caron v Jahani (No 2) [145]-[146], [164]; (b) The date of the freezing order did not provide a principled basis for differentiating between investors on either side of that line: Caron v Jahani (No 2) [166]-[168]; and (c) Distribution in accordance with the lowest intermediate balance rule may be of such complexity in a particular case that a liquidator would be justified and entitled to distribute on a pari passu basis: Caron v Jahani (No 2) [5], [153]-[154], [172]-[174]. 71 In relation to the St George Account, the July 2022 Memorandum noted (at [2]-[3]) that: (a) All of the funds deposited into it were deposited after the liquidator was appointed and there were no withdrawals from that account other than a bank fee and for liquidators' remuneration; and (b) Accordingly, the funds standing to the credit of the St George Account are available only for payment to the depositors to that Account and for payment of the liquidators' remuneration and expenses attributable to that Account. 72 In relation to the CBA Account, the July 2022 Memorandum noted that: (a) The Schedule summarised material deposits and withdrawals from the CBA Account between 29 January and September 2015; and (b) There appears to have been a pattern of allowing the build-up of deposits from named accounts which may generally be thought to have been made by people induced to acquire binary options. The exceptions to that are some large, round number deposits made shortly before a withdrawal which might be thought to be connected to people likely involved in the scam identified at the last dot point of [7] above. There were then substantial withdrawals leaving a relatively small account balance; those lowest balances were identified in the Schedule. 73 I note that the bank statements for the CBA Account relevantly show the following, although this table was not included in the Schedule. I have bolded information of particular relevance: 2015 Intermediate high $ Rounded or large deposits or (withdrawals) or event Intermediate low $ 26 Feb 123,074.08 (53,000) (20,000) 06 Mar (11,000) 607.65 10 Mar 16,071.67 11 Mar (13,798.81) 1,100.86 (1,150) 12 Mar 15,624,72 (1,000) 624.72 (14,000) 13 Mar 38,698.42 15,000 676.42 (38,000) 16 Mar 13,533.94 17 Mar (13,000) 533.94 18 Mar 33,402.96 19 Mar (33,000) 380.96 23 Mar 57,838.86 (50,000) 24 Mar 5,688.26 07 Apr 760,371.64 (710,030) 50,341.64 10 Apr 640,605.39 340,000 590,605.39 (50,000) 10 Apr 619,928.00 24,000 1,898.00 (618,030) 13 Apr 92,089.52 (50,000) 42,089.52 20 Apr 600,000.00 22 Apr 1,450,708.57 (1,300,030) 150,678.57 24 Apr 417,823.11 (400,000) 17,823.11 27 Apr 48,797.40 (39,000) 9,797.40 27 Apr 97,744.37 (87,000) 10,744.37 27 Apr 28,464.36 (19,000) 9,464.36 28 Apr 220,981.87 (210,000) 10,981.87 28 Apr 88,275.84 29 Apr (50,000) 23,377.40 29 Apr 153,386.82 (144,000) 9,386.82 29 Apr 86,154.47 30 Apr (50,000) 36,154.47 14 May 708,474.04 Last entry before day liquidator appointed 20 May 841,057.40 (5,973.63) to suspense account 835,083.77 26 May (836,289.58) to liquidator's account 0 30 Jun 16,938.29

[24]

74 The July 2022 Memorandum further noted: (a) The information set out at [27] above; (b) Other than a bank account fee of $10.00 that was withdrawn on 1 May 2015, the last withdrawal from the CBA Account before 15 May 2015 (the date Mr Iannuzzi was appointed as liquidator) was $50,000 on 30 April 2015 (30 April withdrawal), leaving an account balance of $36,154.47 (the 30 April balance); and (c) By the end of 14 May 2015, there was $708,474.04 in the CBA Account. There was therefore $672,319.57 contributed by depositors after the 30 April withdrawal of $50,000 up until the end of 14 May 2015 (the early May depositors). 75 The liquidators were asked to address the following issues: (a) Given that the CBA Account is a pooled fund in relation to which there were both deposits and withdrawals, whether there is a principled basis for treating deposits made by the early May depositors differently from the amounts contributed on or after 15 May 2015 in light of the Court of Appeal's decision in Caron v Jahani (No 2) and what was said at [166]-[168]. President Bell there accepted that the date on which ASIC obtained a freezing order did not provide a principled basis for differentiating the position of investors in the Ponzi scheme on either side of that line; (b) The principles espoused by Bell P in Caron v Jahani (No 2) did not suggest that it was necessary to go back all of the way in time in the calculation of investors' interests on the lowest intermediate balance rule if to do so would make that task too complex or expensive: see Caron v Jahani (No 2) at [172]-[175]. The liquidators were asked whether they had a view on how far back it would be practical to go in tracing the interests of persons who contributed to the CBA Account before 30 April 2015 through the lowest intermediate balance method; and (c) Without seeking to suggest an answer to the question asked above, the July 2022 Memorandum noted that the lowest intermediate balance preceding the withdrawal of $50,000 on 30 April 2015 resulted from the withdrawal of $144,000 on 29 April 2015 (last 29 April withdrawal) leaving an account balance of $9,386.82 (last 29 April withdrawal balance). An amount of $76,767.65 was deposited by 50 contributors after the $144,000 withdrawal and before the 30 April withdrawal. 76 The liquidators were asked to state their position in relation to: (a) Any required adjustment of proposed distributions out of the CBA Account in light of the decision in Caron v Jahani (No 2); (b) Whether there was a need to adjust the liquidators' already paid remuneration and expenses (eg, legal costs) as between the CBA Account and the St George Account and the manner in which any further remuneration and costs would be allocated as between the St George Account and the CBA Account; (c) The continued utility of a benchmark of $2,150 for an admitted claim in determining to whom a payment should be made after international transfer fees are taken into account; (d) Whether large round number deposits to the CBA Account (eg, $300,000 and $600,000 which might be thought to have been made by persons associated with the scam) should participate in distributions by the liquidators out of the CBA Account; (e) The fact that on 25 February 2022, a circular advising of the application for directions had been sent only to 385 depositors whose proofs of debt had been accepted (verified depositors) and the circular had suggested that distributions would be differentiated by whether a verified depositor made the deposit before liquidation on 15 May 2015 or post-liquidation creditors; (f) The relevance of the fact that only depositors with admitted claims were given notice of the hearing on 22 March 2022 in light of the significance placed by the Court of Appeal in Caron v Jahani (No 2) on the willingness of some depositors to act as contradictors. The liquidators were asked whether all possible depositors for whom the liquidators have addresses had received notice of the 22 March 2022 hearing and of the proposed basis of distribution so as to be in a position to act as contradictors should they wish to do so; (g) The Court's view that, as the Company held the funds in the CBA Account and the St George Account as trustee and that the depositors had a beneficial interest in the funds, they were not simply creditors; (h) Whether funds should be returned to all possible depositors for whom the liquidators have email or postal addresses, rather than just to those in respect of whom they have admitted claims; and (i) As the moneys paid out of the CBA Account did not appear to have been paid to anyone who had deposited money into it, there was no role for the application of hotchpot principles.

[27]

Proposed application of the "lowest intermediate balance" approach to the CBA Account 80 The liquidators considered that the most appropriate approach to the "lowest intermediate balance" with respect to the CBA Account would be to use the following three points: (a) Immediately following the withdrawal of a transfer fee on 19 March 2015 which left a balance in the CBA Account of $380.96 (19 March withdrawal); (b) Immediately following the last 29 April withdrawal of $144,000 which left the last 29 April withdrawal balance of $9,386.82 in the CBA Account; and (c) Immediately following the 30 April withdrawal of $50,000 which left the 30 April withdrawal balance of $36,154.47 in the CBA Account. 81 It was their view that: (a) The remaining balance after the 19 March 2015 withdrawal was so low that only one verified depositor prior to that date (Ms SK) would be able to receive a distribution larger than the international transfer fee and no Australian verified depositor deposited funds before that date. Ms SK's deposit comprised 84% of all verified deposits (from 20 verified depositors) before the 19 March withdrawal. The next largest verified deposit was $4,141.03 or 2.79% of the total deposits occurring before the 19 March withdrawal such that that foreign depositor cannot receive more than $10.62. On that basis, all but one of the pre-19 March depositors could be disregarded; (b) They should distribute $9,005.86 (being the last 29 April withdrawal balance of $9,386.82 less the 19 March withdrawal balance of $380.96) to all verified depositors who made their deposits between those dates. There were 311 verified deposits totalling $592,360.48. It was submitted that the last 29 April withdrawal point was appropriate because of the low balance at that date and it leads to the result that any verified depositor whose deposit occurred prior to that date will necessarily receive a small return. Recalculating every time a withdrawal was made up to that date would be costly and would not be justified given the small returns those verified depositors would likely receive; (c) They should distribute $26,767.65 (being the 30 April withdrawal balance of $36,154.74 less the last 29 April withdrawal balance of $9,386.82) to all verified depositors who deposited funds into the CBA Account between the last 29 April withdrawal and the 30 April withdrawal, being nine verified deposits totalling $10,797.43; and (d) They should distribute the remaining funds pari passu to all verified depositors that deposited funds into the CBA Account after the 30 April withdrawal, being 97 verified deposits totalling $174,031.88.

[30]

Utility of contradictors 86 In relation to the issue of whether there is utility in seeking out contradictors, the liquidator submitted that: (a) The only likely, and most appropriate, contradictors would be Australian verified depositors having regard to the difficulty and likely expense that would "inevitably" be involved in contacting and arranging for a foreign verified depositor to act as a contradictor. While the liquidators had suggested that the eight Australian verified depositors would not be appropriate because they provided their deposits before 15 May 2015, that position has been overtaken by the Court's view that liquidation is not a distinguishing characteristic as all moneys held to the credit of the Bank Accounts are trust funds; (b) There were 48 Australian depositors identified by the liquidators. Of them, four had insufficient contact details or requested not to be contacted again. Of the remaining 44, there were three "return to sender" responses to the liquidators' circular dated 17 December 2020. Of the remaining 41, only eight contacted the liquidators and they were informed of the hearing scheduled for 22 March 2022. (I note that no creditor appeared at the hearing). If the Court considered it appropriate, the cost of contacting them would not be prohibitive. However awaiting their response may further delay the resolution of the liquidation. Further, of the eight Australian verified depositors, seven made deposits before 29 April 2015 with the result that any distribution to them would be negligible so that it is unlikely that any of them would be prepared to act as contradictor. The remaining Australian verified depositor made a deposit of $4,000 on 5 May 2015, and he is likely to receive a larger distribution, but it is unlikely to be substantial enough to compel him to act as a contradictor; and (c) Given the difficulty in contacting depositors and seeking their engagement thus far, the Court may infer that depositors would be unlikely to be willing to contradict the application.

[31]

Verified depositors 87 The liquidators submitted that: (a) They have confirmed contact details for only 386 verified depositors. Of these, 385 were notified of the hearing scheduled for 22 March 2022 and the basis of the proposed distributions. The other verified depositor contacted the liquidator in July 2022; (b) They initially identified that there were 2,340 potential depositors that may have deposited funds into either the CBA Account or the St George Account. After conducting further investigations (including issuing subpoenas), by December 2020, the liquidators had names and contact details of 2,020 potential depositors to whom the liquidators sent circulars inviting them to provide details of any claim they might have on the assets of the Company; (c) The 17 December 2020 circular was sent to those 2,020 potential depositors. Seventy-one "return to sender" responses were received, meaning that the liquidators could theoretically send a further communication to only 1,949 potential depositors; (d) The March 2021 circular was sent to those 1,949 potential depositors; (e) The world at large was made aware that there was a hearing scheduled in this matter for 22 March 2022, as the relevant orders made by the Court were posted on the liquidators' website; (f) As at 1 February 2022, only 606 potential depositors had made any claim to the assets of the Company. Of the 606 potential depositors who submitted a claim to the liquidators, 385 were admitted, and 221 were rejected. Taking into account the depositor who notified the liquidators in July 2022, there are 386 verified depositors; (g) The reason for rejecting 221 claims was that the information provided did not establish that the claimants deposited funds into either of the Bank Accounts; (h) Of the 607 who made a claim: (i) All provided their names and an address, either residential or email; (ii) Most, but not all, provided a figure for how much they claimed to have deposited (in various currencies); (iii) Most did not provide a date on which they claimed to have made a deposit; (iv) Most did not provide the account their transfers were claimed to have gone into; (v) Most did not provide the bank from which their transfers were claimed to have been made; and (vi) Ultimately, if the name of the claimant matched the name of a depositor as noted in the bank statements for the CBA Account or the St George Account, then the liquidators admitted that claim for the amount as noted on the relevant bank statement. With respect to the rejected 221 potential depositors, not even the names they gave matched with a deposit as stated in the relevant bank statements; (i) Based on previous circulars, they estimate that the costs of sending a standard circular to all 1,949 potential depositors would range from $8,000 to $12,000; and (j) They have found no evidence that any verified depositor had any money returned to them. Accordingly, the liquidators agree that there is no scope to apply hotchpot principles to the distribution of funds in this matter.

[32]

Lowest intermediate balance methodology and oral submissions made on 26 October 2022 88 The September 2022 Letter set out a number of matters on which the liquidators sought guidance as to the Court's attitude. As a consequence, a further hearing was listed for 26 October 2022 at which Mr Scarcella again appeared. 89 The main issue addressed at that hearing was the fact that the proposed method of distribution of the CBA Account set out in the September 2022 Letter did not accord with the "lowest intermediate balance" methodology contemplated in Caron v Jahani (No 2), but rather, a variant of it. The methodology in Caron v Jahani (No 2) is designed to trace interests in the ultimate balance of the fund, not at the rests suggested by the liquidators. 90 By way of example, by applying the "lowest intermediate balance" methodology considered in Caron v Jahani (No 2) to the balances in the CBA Account, it is apparent that Ms SK had no relevant traceable interest in that account by 19 March 2015 for the following reasons: (a) The balance of the CBA Account after Ms SK deposited $122,276.90 (after international transaction fees) on 26 February 2015 was $123,074.08. There were no further deposits to that account until 2 March 2015; (b) Immediately after Ms SK's deposit, $73,000 was withdrawn, comprising electronic funds transfers of lump sums of $53,000 and $20,000 leaving a balance of $50,074.08 on 26 February 2015. There was then a series of what appear to be payments to purported option holders and transfer fees, together with an electronic funds transfer of $50 leaving a balance in the CBA Account of $5,402.11 on 1 March 2015. Ms SK's traceable interest was then $5,367.12 (rounded to nearest cent); (c) On 2 March 2015, there was a series of deposits (and no withdrawals) with a resulting balance of $13,341.14. On 3 March 2015, there was a series of withdrawals leaving a balance of $1,115.20. Ms SK's interest in the balance of balance of $1,115.20 was $448.64; (d) After the balance of $1,115.20 on 3 March and up to 5 March 2015, there was a series of deposits leading to a high of $17,216.81. On 5 March 2015, there was a payment out of the CBA Account which appears to have been made to a purported option holder, and a transfer fee leaving a balance of $9,689.86. Ms SK's interest in that balance was $252.49 (rounded down to the nearest cent). There were then some further deposits on 5 March leading to a high of $11,607.65 and an electronic transfer of $11,000 leaving a balance of $607.65. Ms SK's interest in that sum was $13.22 (rounded to the nearest cent); (e) Between 6 and 9 March 2015, there was a series of deposits (and no withdrawals) leaving a balance of $12,232.36. There was then a payment out and transfer fee on 10 March 2015 leaving a balance of $7,133.46. Ms SK's traceable interest in that amount was $7.71 (rounded to the nearest cent); (f) On 10 March 2015, there was a series of deposits leaving a balance of $16,071.67. On 11 March 2015, there were then two payments and a transfer fee leaving a balance of $1,100.86. Ms SK's traceable interest in that amount was $0.53 (rounded to the nearest cent); (g) After the balance of $1,100.86 on 11 March 2015, there were a series of deposits leaving a balance of $15,624.72 on that day. The first two transactions on 12 March 2015 were electronic funds transfers of $1,000 and $14,000 leaving a balance of $624.72. Ms SK's traceable interest in that balance was $0.02 (rounded to the nearest cent); and (h) After the balance of $624.72 on 12 March 2015, there were a series of deposits leaving a balance of $38,698.42 on 13 March 2015, before $38,000 and a transfer fee of $22 were withdrawn leaving a balance of $676.42. Ms SK's traceable interest in that balance was $0.00035. 91 At that case management hearing, the liquidators were asked to provide evidence concerning the traced interests of verified depositors and the likely return to verified depositors whose interests could not be traced if surplus (after payment of remuneration, traced interests and related international transaction fees) were to be paid to the remaining verified depositors on a pari passu basis.

[43]

109 Mr Pirina deposed that: (a) If the depositors of the pre-30 April withdrawal verified deposits receive a distribution only from the 30 April withdrawal balance of $36,154.47, those verified depositors will only receive a 4.81% return: see exhibit VJP-23; (b) There would be a remaining amount of $210,650.80 from which to pay a return to the post-30 April withdrawal verified depositors for which the aggregate amount of verified deposits is $174,031.88. Accordingly, those verified depositors would be repaid in full (excluding transaction fees). That would result in a surplus of $36,618.92: see exhibit VJP-23; (c) The aggregate amount of international transaction fees payable in respect of 352 foreign verified depositors to the CBA Account would be approximately $14,742. Given the likely surplus of $36,618.92, the liquidators proposed to pay these international transaction fees from the CBA Account surplus; (d) The liquidators calculated the total amount that a verified depositor who had made multiple verified deposits would be entitled to receive by way of distribution (including both pre-30 April withdrawal verified deposits and post-30 April withdrawal verified deposits). They were able to determine which verified depositors would be entitled to a distribution of less than $42. There were 56 instances where a particular foreign verified depositor made multiple deposits and where individual returns would not have exceeded $42 but where the aggregated deposits would result in a return exceeding $42: see exhibit VJP-24; and (e) After conducting those calculations, there were 118 foreign verified depositors to the CBA Account who would be entitled to receive less than $42, which means that any distribution to them would be wholly eaten up in the international transaction fees; with the effect that the liquidators would be expending funds without any benefit to any depositor. Accordingly, the liquidators intend to exclude those 118 foreign verified depositors from participating in any distributions (excluded depositors). The excluded depositors would all be pre-30 April verified depositors and their verified deposits would total $75,784.02: exhibit VJP-25 sets out the details of the 118 excluded depositors, including the total of their verified deposits to the CBA Account and the amounts they stood to receive on the basis of these calculations. This treatment would result in both the number and value of the pre-30 April withdrawal verified deposits decreasing as demonstrated in exhibit VJP-26 which sets out the details of the participating depositors and the remaining 319 verified deposits (participating deposits). 110 The information in [109(d)] and [109(e)] above may be represented as follows: Pre-exclusion of excluded depositors Post-exclusion of excluded depositors Participating depositors Pre-30 April withdrawal 282 164 Post-30 April withdrawal 92 92 Total CBA Account 360 242 Participating deposits Pre-30 April withdrawal 340 222 Post-30 April withdrawal 97 97 Total CBA Account 437 319 Value of participating deposits Pre-30 April withdrawal $751,172.41 $675,388.39 Post-30 April withdrawal $174,031.88 $174,031.88 Total CBA Account $925,204.29 $849,420.27

[47]

Last 29 April withdrawal point 114 Mr Pirina deposed that the liquidators conducted the same exercise in relation to the last 29 April withdrawal point. He said that, consistent with the procedure set out above: (a) The pre-last 29 April withdrawal verified deposits ($740,374.98) can only receive a distribution from the last 29 April withdrawal balance ($9,386.82). The last 29 April withdrawal balance comprised 1.27% of the pre-last 29 April verified deposits. Accordingly, each pre-last 29 April withdrawal verified deposit will only receive a 1.27% return; and (b) The post-last 29 April verified deposits would be "funded" from the remainder of the monies available for distribution from the CBA Account ($246,805.27) after deducting the last 29 April withdrawal balance, leaving the amount of $237,418.45. As this amount exceeds the total of the post-last 29 April withdrawal verified deposits (being $184,829.31), all post-last 29 April verified deposits would be entirely repaid (excluding international transaction fees). Further, there would be a surplus of $52,589.14. 115 Mr Pirina deposed that the distribution of the remaining funds in the CBA Account, on the basis that the lowest intermediate balance method is adopted, and that the point used is the last 29 April withdrawal, can be represented in the following table: Pre-last 29 April withdrawal verified deposits $740,374.98 Percentage return available to each pre-last 29 April verified deposit 1.27% Percentage return applicable to each post-last 29 April withdrawal verified deposit 100% Total return referable to post-last 29 April withdrawal verified deposits $184.829.31 Total return to verified deposits to the CBA Account $194,216.13 Total available for distribution from the CBA Account $246,805.27 Surplus referable to the CBA Account after distributions have been made (estimated) $52,589.14

[56]

CBA Account - a hybrid approach? 126 Mr Pirina submitted as follows in his affidavit sworn on 29 November 2022 at [91]-[94] (modified to adopt defined terms consistent with the judgment): 91. The advantage of adopting the pari passu distribution model is that it represents the maximum possible distribution to the verified depositors as a whole, as there will be no surplus after the distributions have been made. That is, all the funds that can be distributed, will be distributed. However, adopting this model has the potential to disadvantage (in some cases, severely) the post-30 April verified depositors in favour of the pre-30 April verified depositors. 92. The advantage of adopting the lowest intermediate balance distribution method is that it is more principled and perhaps overall more fair. In circumstances where funds can be traced, it is difficult to justify a distribution method (such as the pari passu method) which treats early deposits the same way as later ones when the reality is that by the time of Mr lannuzzi's appointment, very little of the early deposits (such as Ms SK's) would have remained in the CBA Account. However, if we consider all verified depositors as one "class", adopting this model has the potential to disadvantage the class as a whole as there will be a surplus after all distributions have been made, meaning that not all the funds that can be distributed, will be distributed. 93. However, it may be that a hybrid model, combining both the pari passu and lowest intermediate balance methods, produces the most equitable result. This might be achieved by applying the lowest intermediate balance method to all the post-30 April verified depositors, and the pari passu method to all the Pre-30 April verified depositors. 94. In this way, the post-30 April verified depositors will still have the entirety of their verified deposits returned (and therefore, will not be prejudiced) together with any applicable international transaction fees, and the surplus that would otherwise have remained would be utilised to increase the return to the pre-30 April verified depositors. 127 Mr Pirina summarised the approach as follows: Post-30 April verified depositors 92 Australian post-30 April verified depositors 1 Foreign post-30 April verified depositors 91 Value of post-30 April verified deposits $174,031.88 International transaction fees applicable to post-30 April verified depositors (estimated) $3,780.00 Total funds to be distributed to post-30 April verified depositors $177,811.88 Available funds from the CBA Account $246,805.27 Balance of funds available to be distributed to pre-30 April verified depositors $68,993.39 Value of pre-30 April verified deposits $751,172.41 Percentage return applicable to each pre-30 April verified deposit 9.184% Surplus (estimated) $0.00

[62]

Further: (a) All verified depositors to the St George Account would receive the amount of their verified deposit and international transfer fees would be paid from the surplus in that account; (b) All post-30 April verified depositors to the CBA Account (92) would receive the amount of their verified deposit ($174,031.88) and international transfer fees ($3,780) in respect of foreign post-30 April verified depositors (91) will be paid from available funds. The surplus that would otherwise remain will be utilised in increasing the return to pre-30 April verified depositors; (c) An amount of $68,993.39 would be available to pay pre-30 April verified depositors 9.184% of their verified deposits. However, in order to be a participating depositor in returns to pre-30 April verified depositors, a projected distribution must at least cover the $42 international transaction fee. As a result, there would be one pre-30 April excluded depositor whose projected return would not exceed $457.52 and who would, therefore, not receive a return; and (d) Any surplus would be paid to ASIC. 135 I considered the liquidators' evidence concerning the proposed return to verified depositors on each of the three proposed bases. I was persuaded that a hybrid approach was likely to provide the fairest outcome overall. That is for the following reasons: 136 First, where the interests of verified depositors could be traced, an amount equivalent to the traced interest would be returned to the depositor. However, I had reservations that the 30 April withdrawal was the correct starting point (as to which see [141] below). 137 Second, in this case, there would be a surplus of funds in the CBA Account after payment of the liquidators' remuneration and expenses and the traced interests of verified depositors at a particular date (whether it be the 30 April withdrawal or earlier). I accepted that the deposits were induced by a scam, such that all funds in the CBA Account were subject to a trust in favour of the depositors who had made them. I was confronted with the issue of whether it was appropriate to order that the surplus be paid to ASIC or whether the surplus should be used to return so much of the funds as possible to verified depositors. I was satisfied that it was fairer and appropriate to distribute any surplus on a pari passu basis to verified depositors because: (a) A period of over seven years had passed since the liquidator was appointed and the liquidator had gone to extensive lengths to identify the depositors to the CBA Account and make them aware that they could make a claim on the funds. Only 607 people made claims on the funds held by the liquidators and I accept the liquidators' opinion that it is unlikely that further responses would be made; (b) Of the people who did respond to the liquidators' notifications, 221 claims were rejected because the claimants could not establish that funds contributed through one of the platforms on which they thought they had traded in binary options had, in fact, been deposited in one of the Company's Bank Accounts. That is in circumstances where the evidence gathered by the liquidators indicated that serial companies were used to receive such funds and that payments to traders out of the CBA Account appear to have been made to people who did not make deposits to it as the names of depositors and payees did not match; (c) It is likely that at least some people did not respond to the liquidators' invitations to lodge proofs of debt because they thought that they had lost the "bet" represented by the option. If the course of dealings in the CBA Account referred to in (b) is any guide, it is also possible that some depositors to the CBA Account who did not respond to requests to lodge proofs of debt did not do so because they thought they had received a return on a binary option from an account with some other company into which funds were channelled from one of the platforms; and (d) Verified depositors to the CBA Account whose interests could not be traced nonetheless had an equitable charge over the CBA Account and their interests were better served by a pari passu distribution of funds (even after the deduction of international transaction fees) than the surplus funds being transferred to ASIC on behalf of Australian consolidated revenue.

[63]

COMMUNICATIONS ON 23 DECEMBER 2022 138 In their earlier communications, the liquidators' legal representatives pressed for authorisation of the liquidators' remuneration having regard to the amount of WIP that had accumulated and the relatively small size of the liquidators' firm. By email from my associate sent on 23 December 2022, I provided revised draft orders relating to the liquidators' remuneration adopting the original funds method. 139 Having regard to the matters addressed in these reasons, I considered that the claimed remuneration was fair and reasonable, despite the fact that it represented a substantial proportion of the funds held in the Bank Accounts. Unfortunately, as in this case, the difficulty of the issues that liquidators are called upon to address is sometimes not directly proportionate to the funds held and I accept that this matter involved considerable complexity having regard to the nature of the scheme of which deposits to the Bank Accounts formed part, the unavailability of corporate officers to explain the Company's operations, the unavailability of corporate records, and the need to address claims made by persons who had attempted to engage in binary options trading using the same platforms as the depositors to the Bank Accounts but who were not able to establish that they had claims on the Bank Accounts. I considered it appropriate to make remuneration orders having regard to the amount of WIP which had accumulated and the representations which had been made concerning the desirability of the orders being made because of the small size of the firm for whom that WIP was a significant matter. However, as the Court was not yet in a position to make orders for distribution of the remaining funds to depositors, I considered it appropriate to require that some part of that approved remuneration not be paid until the funds were distributed. 140 Accordingly, I made orders addressing remuneration on 23 December 2022 as follows: IN THESE ORDERS the following words bear the following meanings: already paid costs and expenses means the amount of $888,577.91 comprising: (a) The plaintiffs' allowed and drawn remuneration of $556,499.99 (GST inclusive); (b) Legal fees and disbursements as at 31 December 2021 totalling $257,096.26 (inclusive of GST) which have been paid to the liquidators' solicitors, Johnson Winter & Slattery; and (c) Other expenses which have been incurred and paid as at 31 December 2021 in an aggregate amount of $64,981.66 (GST inclusive); Bank Accounts means the CBA Account and the St George Account; CBA Account means the account with the Commonwealth Bank of Australia ending in "6266" in the name of the Company; Company means Fund Options (Australia) Pty Limited (in liquidation); liquidators means Vincent Joseph Pirina and Steven Naidenov in their capacities as liquidators of the Company and includes, where relevant, David Nicholas Iannuzzi in his capacity as liquidator of the Company before he was replaced by the plaintiffs; Original Funds Method means allocation of the liquidators' reasonable costs and expenses by reference to the funds in each of the Bank Accounts as at 28 August 2015 as a percentage of all funds held in the Bank Accounts on that date being: (a) $852,361.21 (or 62.18%) standing to the credit of the CBA Account; and (b) $518,443.62 (or 37.82%) standing to the credit of the St George Account; St George Account means the account with St George Bank Limited ending in "6551" in the name of the Company; and Total Expenses means liquidators' reasonable costs and expenses, both paid and anticipated, in an aggregate amount of $1,256,445.41. THE COURT ORDERS THAT: 1. The liquidators would be justified in: (a) treating funds held or formerly held to the credit of the CBA Account and the St George Account and any interest thereon and refunds of GST as separate pools; and (b) adopting the Original Funds Method for the allocation of Total Expenses to the separate pools in the manner set out in Orders 2 to 4. 2. The liquidators' already paid costs and expenses totalling $888,577.91 (inclusive of GST) be allocated to funds referable to the St George Account or the CBA Account as follows: (a) $336,060.17 (GST inclusive) be allocated to the St George Account; and (b) $552,517.74 (GST inclusive) be allocated to the CBA Account; and 3. The liquidators' reasonable costs in the period 1 September 2020 to the finalisation of the winding up of the Company be fixed in the amount of $254,425 excluding GST and disbursements (or $279,867.50 inclusive of GST) and be allocated to and paid from the separate pools as follows: (a) $96,224.51 (or $105,846.96 inclusive of GST) is to be allocated to the St George Account; and (b) $158,200.49 (or $174,020.54 inclusive of GST) is to be allocated to the CBA Account; and (c) Remuneration drawn pursuant to this Order 3 may be paid as invoiced by the liquidators provided that: (i) only fees for work done to the date of any invoice may be drawn down at any time; and (ii) no more than 80% of the liquidators reasonable costs payable in accordance with this Order 3 may be paid before the final distribution of funds to depositors to the Bank Accounts have been made. 4. The liquidators anticipated disbursements in the period 1 September 2020 to the finalisation of the winding up of the Company, being legal fees, totalling $80,000 excluding GST (or $88,000 inclusive of GST) be allocated to and paid from the separate pools as follows: (a) $30,256 (or $33,281.60 inclusive of GST) be allocated to the St George Account; and (b) $49,744 (or $54,718.40 inclusive of GST) be allocated to the CBA Account, provided that if the anticipated disbursements are less than the amounts described above, only those disbursements that are incurred may be drawn down pursuant to this order 4. 5. The liquidators have liberty to restore on 2 business days' notice. 141 Before corresponding with the liquidators' legal representatives on 23 December 2022, I considered what the traced interests of the verified depositors who contributed to the CBA Account might be based on the application of the lowest intermediate balance methodology and the annexures to Mr Pirina's affidavits for the following periods, but primarily focussing on verified depositors in the period after the withdrawal of $210,000 on 28 April 2015: Date Withdrawal Lowest balance after withdrawal 27 Apr (87,000) 10,744.37 27 Apr (19,000) 9,464.36 28 Apr (210,000) 10,981.87 29 Apr (50,000) 23,377.40 29 Apr (144,000) 9,386.82 30 Apr (50,000) 36,154.47

[64]

142 The email from my associate to the liquidators' legal representatives dated 23 December 2022 advised the liquidators' legal representatives that while I was generally disposed to accept that a "hybrid" method was the most appropriate for distributing funds to verified depositors, I did not accept that there had been appropriate consideration given to the lowest intermediate balance method. Attached to the email was a chart of traced interests for the liquidators' comment. The email advised that I could see no principled reason why verified depositors who made deposits after the last 29 April withdrawal of $144,000 and before the 30 April withdrawal should not receive their traced interests on the same basis as post-30 April withdrawal depositors. It appeared to me that those depositors would be disadvantaged if they received funds only on a pari passu basis and without the benefit of transaction fees being paid out of surplus. The chart provided with the email raised a similar issue concerning the interests of verified depositors after the withdrawal of $50,000 on 29 April 2015 (first 29 April withdrawal) but raised the issue of whether those depositors (who did have identifiable traced interests, but minimally so) would be better off receiving a pari passu return. 143 Some issues raised by the correspondence were discussed at a case management hearing held on 2 February 2023. Mr Scarcella advised the Court that if the hybrid method were adopted: (a) The liquidators had no objection to moving the time from which the lowest intermediate balances would be calculated from the 30 April withdrawal to the last 29 April withdrawal and for transaction fees payable in relation to the transmission of the traced interest of every verified depositor who contributed funds after the last 29 April withdrawal to be paid out of surplus; and (b) The impact that that would have on the return on verified deposits made before the last 29 April withdrawal (where depositors would receive a pari passu return out of the funds remaining in the CBA Account) is that the return would decrease from 9.2% to 7.83%. Two of the depositors would not receive a return because the amount that they would now otherwise be entitled to receive would fall below the $42 in international transaction fees which would be payable out of those funds. Mr Scarcella submitted that he was drawing this to the attention of the Court because the liquidators had the view that it would be "fairer" to distribute moneys to all pre-30 April withdrawal depositors on a pari passu basis. He nonetheless acknowledged that, applying the lowest intermediate balance method, pre-last 29 April withdrawal depositors would have virtually no traced interest while the post-last 29 April withdrawal depositors who contributed before the 30 April withdrawal had traced interests which would be greater than the amount they would receive on a pari passu basis.

[67]

148 Mr Pirina noted that one post-30 April withdrawal depositor is Australian (such that no international transaction fee is applicable to him) and one foreign post-30 April withdrawal depositor also made deposits to the St George Account and would have his international transaction fees paid from that account. Accordingly, international transaction fees would be paid in respect of 90 post-30 April withdrawal depositors. 149 The liquidators proposed that the nine verified depositors who made their deposits to the CBA Account after the last 29 April withdrawal and before the 30 April withdrawal (29-30 April depositors) in an aggregate amount of $10,797.43 should receive 100% of their deposit and international transaction fees should be paid from surplus. This appeared to be on the basis that the total of all deposits made after the last 29 April withdrawal and before the 30 April withdrawal was $76,767.65 and the aggregate traced interest into the funds held by the liquidators was $32,215.32. However, the traced interest of the nine depositors was only an aggregate of $4,531.11. 150 Mr Pirina deposed that applying the lowest intermediate balance method in respect of verified deposits made before the last 29 April withdrawal would be cost prohibitive and distribution of remaining funds should be made to them on a pari passu basis. 151 On 23 February 2023, I caused my associate to write to the liquidators' legal representative by email: (a) To enquire on what principled basis the nine verified 29-30 April depositors would get more than their traced interest and to confirm that the traced interest was greater than what they would receive on a pari passu basis; (b) To note that I had asked my associate to test the assumption that all verified depositors before the last 29 April withdrawal would be better off receiving payment by the pari passu method rather than receiving their traced entitlement. This was done by looking at 10 verified depositors who contributed to the CBA Account between the first 29 April withdrawal of $50,000 (leaving a balance of $23,377.40) (29 April depositors) and the last 29 April withdrawal of $144,000 (leaving a balance of $9,386.82) (see [73] above). The email noted that five of the ten 29 April depositors would receive less than their traced interest into the funds held by the liquidator if international transaction fees were deducted from the amount they would receive on a pari passu basis. While the amounts were minimal, by parity of reasoning with paying international transaction fees for 29-30 April depositors and depositors who contributed to the CBA Account after the 30 April withdrawal, the email enquired whether consideration should be given to paying some part of the transaction fees out of surplus for those depositors to ensure they are made whole for their traced entitlements; and (c) To note that, to further test the assumption, my associate had been asked to make the calculation of the traced interest of the six verified depositors between the withdrawal of $210,000 on 28 April 2015 (leaving a balance of $10,981.87) and the first 29 April withdrawal of $50,000 (leaving a balance of $23,377.40). The email noted that, based on those calculations, the six verified depositors would be left with more than their traced entitlement (after payment of transaction fees out of surplus) if they received a pari passu distribution and transaction fees were deducted from the pari passu distribution.

[68]

THE LIQUIDATORS' RESPONSE DATED 22 MARCH 2023 AND MR PIRINA'S AFFIDAVIT ON 28 APRIL 2023 152 The liquidators' legal representatives responded to the Court's email by letter dated 22 March 2023 which was followed by Mr Pirina's affidavit sworn on 28 April 2023. 153 In summary, the liquidators indicated that: (a) The position of the post-30 April withdrawal depositors would not change, they would be paid their deposits and international transaction fees would be paid out of surplus; (b) In relation to the nine verified 29-30 April depositors, the liquidators accepted that they had an aggregate traced interest of $4,531.12 and that would give them a return of 41.96% of the amounts deposited. Their international transaction fees would not be paid from surplus as there was no principled basis to do so; (c) In relation to the 10 verified 29 April depositors, four would receive less on a pari passu distribution than their traced entitlement. A portion of their international transaction fees would be paid from surplus to make them whole in relation to their traced entitlement; and (d) All remaining verified depositors who contributed before the last 29 April withdrawal (with the exception of two who would be excluded because international transaction fees would be greater than their pari passu entitlement) would receive a return of 8.71% less their international transaction fees. 154 While, with respect, I did not think there was a principled basis to pay 29-30 April depositors 100% of the amounts deposited out of the funds held by the liquidators, since that was more than their traced interest, where the liquidators accept that they should pay transaction fees in relation to the post-30 April withdrawal depositors and to pay some part of transaction fees for four 29 April depositors, to my mind it accorded better with principle that the 29-30 April depositors who were to be paid a traced interest have their international transaction fees paid. By email from my associate to the liquidators dated 18 May 2023, the liquidators were invited to comment on that position.

[69]

MR PIRINA'S AFFIDIAVIT SWORN 14 JUNE 2023 155 In his affidavit sworn on 14 June 2023, Mr Pirina deposed that the liquidators propose to proceed as follows in relation to the CBA Account: (a) Of the $246,805.27 remaining in the CBA Account which is available for distribution, $174,031.88 representing all post-30 April deposits of 92 verified depositors will be paid to them and $3,780 (for 90 deposits) will be paid in transaction fees leaving a balance of $68,993.39. The amount payable in transaction fees is slightly lower due to the fact that: (i) one depositor is Australian; and (ii) another has a deposit in the St George Account and the deposits will be combined before they are remitted, thus incurring only one international transaction fee which will be paid from the St George Account surplus; (b) In relation to the verified 29-30 April deposits, traced interests will be paid to the nine depositors and transaction fees will be paid from surplus, save in relation to one verified depositor who also has a post-30 April deposit. That depositor will receive both the post-30 April deposit and the traced interest in relation to the 29-30 April deposit which will be combined before the payment such that there will only be one transaction fee out of surplus. The total to be so distributed is $4,867.11, leaving an amount of $64,126.28 for distribution to all who made deposits before the last 29 April withdrawal; (c) On the basis that four of the 29 April depositors would receive less than their traced entitlement once international transaction fees were deducted if they were to be paid a pari passu distribution, those four depositors will be paid their traced interest and a portion of their transaction fees will be paid from surplus. One depositor will receive his full traced entitlement since he also has a post-30 April deposit. Those entitlements will be bundled and one international transaction fee will be paid from surplus; and (d) Save for two verified depositors whose pari passu return will not exceed international transaction fees, all other depositors to the CBA Account will receive an 8.670% return of their deposits from which international transaction fees will be deducted. 156 Exhibit VJP-34 is a table setting out the amount to which verified depositors to the St George Account will be entitled, including accounting for international transaction fees. 157 Exhibit VJP-35 is a spreadsheet setting out the calculations to which Mr Pirina deposed. 158 Exhibit VJP-36 is a table setting out the amounts to which each verified depositor to the CBA Account will be entitled on the above basis, including accounting for international transaction fees.

[70]

PRINCIPLES RELEVANT TO MAKING DIRECTIONS 159 I set out the principles relevant to consideration of an application for directions under s 90-15 of the Insolvency Practice Schedule in Pirina (No 1) at [39]-[42] and I will apply them to this application. 160 Having regard to the complex legal questions in this case, without the benefit of a direction, adopting any distribution model renders the liquidators potentially liable to attack from creditors or depositors. That is not a question of mere commercial judgment and they are therefore prima facie entitled to a direction. There is a clear benefit to the liquidation if the Court makes a direction as it enables the liquidators to distribute the realised assets to verified depositors and then to take steps to conclude the winding up of the Company. 161 I am satisfied that, due to the lack of books and records and the limited responses that the liquidators have received from communications with the directors of the Company and Managed Options and depositors who apparently sought to trade in binary options, this is an appropriate case for directions to be given to the liquidators. There are difficult issues to be resolved that are not issues of the liquidators' commercial judgment. Without directions, the liquidators would be exposed to claims from depositors and other possible creditors. It is beneficial to the external administration of the Company that directions be given so that winding up of the Company's affairs can be completed. 162 Despite the uncertainty surrounding the circumstances of the deposit of moneys in the Bank Accounts, the evidence reveals that the Company's purported binary options trading business was part of a wider scam and most deposits to the Bank Accounts were procured by fraud having regard to the matters set out at [6]-[8] above. The other deposits appear to have been made by those associated with the scam. Moneys currently held in the Bank Accounts should therefore be treated as being held on trust under the principles in Black v S Freedman & Co. 163 A similar finding was made in Re Courtenay House Capital Trading Group Pty Ltd (in liq) and Courtenay House Pty Ltd (in liq) [2018] NSWSC 404 (Brereton J) (Re Courtenay House) and In the matter of Courtenay House Capital Trading Group Pty Limited (in liquidation) and Courtenay House Pty Limited (in liquidation) [2019] NSWSC 1113 (Black J). 164 As noted by Rees J in Courtenay House at [10]: Ordinarily, the Court would be provided with a comprehensive opinion by the trustees' counsel who, out of court, has studied the problem to be solved, examined the factual context critically, analysed competing contentions in a comprehensive legal context and worked out a solution that commends itself to his or her professional judgement, being a judgement upon which the Court can responsibly be invited to rely: Re Estate Late Chow Cho-Poon; Application for judicial advice (2013) 10 ASTLR 251; [2013] NSWSC 844 at [113] per Lindsay J. Here, whilst the liquidators initially expressed views on how the funds should be distributed - before representative defendants were joined - the liquidators' counsel left the matter to the representative defendants' counsel at the hearing, consistent with the approach described by Finkelstein J in Sons of Gwalia Ltd (subject to deed of company arrangement) v Margaretic (2006) 232 ALR 119; [2006] FCAFC 92 at [6]: (citations omitted) When a "trust dispute" has come about because there is a dispute between two beneficiaries … the duty of the trustee as the trustee for all beneficiaries is to treat the beneficiaries impartially and remain neutral. Thus, unless the trust instrument itself provides otherwise, the trustees should bring the dispute into court for resolution but in the proceeding they are not entitled to favour one party over another by advocating a party's cause. To do otherwise would be a breach of the trustees' duty to deal impartially with all beneficiaries and to protect their interests. Of course, if the case is not properly presented by the beneficiaries the trustees may, indeed probably should, provide the court with their views. 165 Having regard to the amount of money available for distribution, the fact that no depositor has come forward to make submissions and the other matters raised by the liquidators that are summarised at [56] above, I accept their submission that it would not be appropriate in this case to appoint a contradictor. 166 Although the Court has not been assisted by an opinion prepared by counsel for the liquidators, I accept that the submissions prepared by the liquidators' legal representative can properly be regarded as being designed to raise legal issues necessary for the Court's determination, rather than exhibiting partiality in relation to any class of depositor. 167 The particular task undertaken by the Court when giving directions was well described by Brereton J in Re BBY Limited (receivers and managers appointed) (in liq) (No 2) [2018] NSWSC 346; (2018) 363 ALR 492 (Re BBY Limited) at [40]: … in a liquidator's application for directions, courts often have to do "rough justice" by reason of the limitations of the available evidence, in the light of what is reasonably practical and economical, and judgments may be made on evidence much inferior to that which would be required to sustain a beneficiary's claim in adversarial proceedings. 168 Further, "liquidators and Courts supervising them have to act on such evidence as is available, and the reasonably available inferences, without insisting on the proofs that would be required in a beneficiary's claim": at Re BBY Limited at [67]. Thus, "[w]hile the Court's powers to give directions … do not generally permit orders that depart from proprietary rights, this principle yields in cases where it is not pragmatic to ascertain proprietary rights with precision": see Re Courtenay House at [34]. 169 Having regard to these principles and the evidence then before the Court, before making the orders made on 23 December 2022, I formed the view that it would be appropriate to make a direction that the liquidators would be justified in: (a) Treating funds held or formerly held to the credit of the CBA Account and the St George Account and any interest thereon and refunds of GST as separate pools; and (b) Adopting the original funds method for the allocation of the Total Expenses to the separate pools in the manner set out in the orders made on 23 December 2022.

Barclays Bank Ltd v Quistclose Investments Ltd

At a glance

Court

Decision date

Before

Source

Judgment (71 paragraphs)

Parties

Legislation Cited (1)

Cases Cited (14)

Cited By (1)