Bastion v Gideon Investments

Investigations into the Trust 7 In addition to investigating the general affairs of the company and related businesses, the liquidator's inquiries encompassed specific investigations into the existence of the Trust and its affairs. Shortly after his appointment as provisional liquidator, he interviewed Katie Byrnes, the company's part-time bookkeeper. She informed him that the company had acted as trustee of a trading trust that received money from investors, primarily in New Zealand and Australia, and then invested those funds. She provided him with a list of investors, and two unexecuted documents entitled 'Trust Deed - GHF Trading Trust' ('Trust Deed') and 'Management Agreement'. Ms Byrnes said that the only records she maintained for the company were a chequebook and a computer register of unitholders; she had never seen tax returns or financial records, and importantly, there was no separate bank account for funds received from investors or for the Trust. She said it was Mr Bastion's practice to move money into and out of various bank accounts without any apparent regard for the nature of the funds or the purpose or name of the account. 8 Subsequently the liquidator located a document entitled 'Gideon Investments - An Introduction' ('the Information Memorandum'), as well as various newsletters and quarterly reports (some under the company's letterhead and some headed 'GHF Trading Trust') addressed to individuals or 'Dear Clients' or 'Dear Investors ', and a summary of the financial position of the Trust in relation to the financial year ending 30 June 1996. The liquidator has formed the view that the reports of performance of the Trust are fictitious. He has also located documents on the company's letterhead called 'Return Statements', which appear to be statements of fees and distributions for individual investors. 9 The liquidator conducted an informal meeting with most of the New Zealand-based investors. He called for and reviewed proofs of debt, and then compiled what he believes to be an accurate list of investors based on all available sources of information. This is the list annexed to the first interlocutory application to which I shall refer. 10 He made contact with professional advisers engaged by Mr Bastion and the company, including two firms of solicitors (Gadens Ridgeway and Lane and Lane) and the firm named in the Trust Deed as the Trust's accountants, Charltons CJC Pty Ltd. He reviewed documents produced by them. 11 The solicitors' documents included legal advice given, apparently in relation to the Trust Deed and the Management Agreement. By letter dated 29 August 1995 Gadens advised Mr Bastion that they had perused the 'GHF Trading Trust Deed and the Gideon Investments Pty Ltd Management Agreement' which Mr Bastion had provided, and they recommended that he should no longer use those documents, since in their present form they were in breach of the Corporations Law. The reason given was that the funds investment portfolio which Mr Bastion had established gave rise to a 'prescribed interest' (now referred to as an interest in a managed investment scheme) under the Corporations Law, and the requisite statutory approvals had not been obtained. On 1 November 1995 Gadens wrote a longer letter advising Mr Bastion to change the status of the company to an unlisted public company, apply for an unrestricted dealers licence and a futures brokers licence, appoint a trustee and lodge a trust deed and prospectus for approval by the Commission. The records of the two firms of solicitors do not contain any draft amendments to the Trust Deed, and do not indicate whether any of Gadens' advice was acted on, nor whether the documents supplied by Mr Bastion for review were ever executed. The solicitors are unable to give further assistance. 12 The accountant produced files relating to the Trust but they did not contain any copy of an executed Trust Deed or Management Agreement nor provide any assistance in locating such documents. Mr Charlton, the principal of the accounting firm and the person named as settlor in the Trust Deed, indicated that the firm had not done any accounting work for the company for at least three years, and he was not aware of the company having any cash books, ledgers or other normal accounting records. 13 The documents indicate that the accountant performed some secretarial functions until 1997 and received completed application forms from investors which are in the same form as those attached to the Trust Deed. At least on one occasion the accountant received funds from an investor and probably deposited them into his trust account. The accountant also prepared unit certificates headed 'GHF Trading Trust', and a set of financial statements for the year ended 30 June 1994. Apparently on behalf of the company, the accountant despatched correspondence from Mr Bastion to investors and others, and received correspondence directed to the company. The accountant has no other records. 14 The liquidator also investigated a company called Morison Guildford & Associates Limited of New Zealand, which assisted the company in its dealings with investors based in New Zealand, receiving and depositing funds, periodically transferring them from New Zealand to Sydney, giving investors general assistance in relation to their investments, assisting investors to redeem their investments, and arranging insurances for the company. He inquired with the Office of State Revenue to find out whether the Trust Deed had been stamped. None of these investigations was fruitful. 15 He also made inquiries with the Australian Securities and Investments Commission and ascertained that Mr Bastion held various authorities as a dealers representative until May 1996. It appears from ASIC's correspondence that the Commission is conducting its own investigation into allegations of fraudulent behaviour by Mr Bastion, and a report is in course of preparation.

The Trust Deed, the Management Agreement and the Information Memorandum 16 The principal evidence for the existence of the Trust is found in the draft Trust Deed and draft Management Agreement, and the Information Memorandum, although there is other corroborating evidence as I have indicated. I shall describe these three documents.

The Trust Deed 17 The draft Trust Deed is a deed of settlement which states that Mr Charlton as settlor settled an initial sum on the company as trustee for the benefit of the initial unitholders who were named, and other unitholders from time to time, as beneficiaries. The name of the Trust was the GHF Trading Trust, according to a schedule. 18 The trustee was authorised to issue ordinary units in response to applications in the form annexed to the deed, and was required to issue unit certificates in the form specified by the deed. The trustee was given very wide powers of investment in shares, stocks, funds, securities, land or any other investment or property, and although the document stated that the trustee could not invest in 'Excluded Investments', a schedule indicated that there were none of these. The trust fund which was the subject matter of the deed was declared to be a separate and distinct trust fund and the trustee was required to keep complete and accurate books and accounting records. 19 The trustee was entitled to remuneration at a fixed-rate or on a commission basis in accordance with arrangements made between the trustee and the settlor before the execution of the Trust Deed, which could be varied by subsequent arrangements made between the trustee and the person having power to remove the trustee. A written memorandum was to be sufficient evidence of such arrangements. No such written memorandum is in evidence. Unless there is evidence of remuneration arrangements having actually been made, the trustee can have no entitlement to remuneration under the Trust Deed. 20 The trustee was entitled to be indemnified out of the trust fund against liabilities incurred in the execution or attempted execution of, or in consequence of the failure to exercise, any of the trusts and powers conferred by the deed. The trustee was not responsible for loss or damage occasioned by the exercise of its powers or any breach of duty, except where the trustee's conduct was 'in personal conscious and fraudulent bad faith'. 21 The person identified by the Trust Deed as 'the Appointor' was empowered to remove and replace the trustee. The Appointor was named by the deed as Mr Bastion, but the deed provided that if the Appointor died then his legal personal representative would have the power removal and appointment. Mr Bastion made a will, but a probate search on 1 September 2000 indicated that no probate application had been lodged in respect of Mr Bastion's will up to that time, and consequently it appears that there is no legal personal representative of the Appointor for the time being, for the purposes of the Trust Deed. 22 In many ways the Trust Deed is a standard form document which says very little about the nature or the activities of the Trust. Other evidence indicates that the Trust was operated by Mr Bastion as a vehicle for the investment of funds supplied by investors in various securities including shares, bonds, futures and options. 23 It has to be said that the Trust Deed is very much a draft document. In particular, cross-references in one clause to another clause or a schedule are frequently inaccurate, suggesting that clauses have been added without any overall revision of the document.

The Management Agreement 24 The parties to the draft Management Agreement are stated to be the company and unitholders (who are said to be listed in Schedule 1, which is in fact blank). It appears that the unitholders were to be issued with redeemable units in the Trust, but there appears to be no evidence that any such units were issued. 25 The document recites that the company is the trustee of the GHF Trading Trust, constituted by a deed dated 1 August 1993. It also recites that the parties have sought to redefine the manner in which the trustee would exercise management and control of the trust fund. It provides that in the event of inconsistency between its provisions and the provisions of the Trust Deed, the provisions of the Management Agreement will prevail. It states that the trustee has no power to invest other than in equities, bonds, currency markets and futures, without the consent in writing of at least three-quarters of the unitholders. It states that the trustee has no discretion to make any loan or distribute capital or income or any other benefit or advantage, other than to unitholders. It fixes the trustee's fees at 15% of gross profits for one unspecified year, and at 25% of gross profits for another unspecified year and all subsequent years. It requires the trustee, in the event of a loss resulting from investment activities in respect of the first unspecified year, to deposit into the trust fund an amount equal to the loss by way of non-interest-bearing loan, and 25% of the loss for other (evidently later) years. It requires the trustee to redeem the redeemable units at $1 per unit. 26 As with the Trust Deed, the Management Agreement is very much in draft form - perhaps even more than the Trust Deed, because the unitholders who are the contracting parties with the company are not even identified.

The Information Memorandum 27 The document is undated but the telephone numbers have the prefix '9' and an e-mail address, suggesting that was created in the second half of the 1990s. It records that the company was formed in May 1993 'to corporatise the various investment dealings of Mike Bastion and to provide a legal vehicle for intended future investment strategies'. After a profile of Mr Bastion, the document notes that the company is controlled and directed by him, and that it 'is currently managing in excess of $15 million in equity funds'. 28 Then there is a heading 'Gideon Hedge Fund' and a subheading 'GHF Trading Trust', and the document states that 'this fund is designed to operate in the three financial markets of equities, bonds and currency', focusing on opportunities in Australia and New Zealand. There is then a very imprecise description of the 'investment philosophy' and 'investment strategy', but at least it is made plain that futures contracts, options and other derivatives will be used. The document states that investments will be made in unlisted companies, limited to 15% of the company's share capital - an obscure statement, given that there were only two shareholders and the investments were to be in a trust. 29 After further claims about the approach to investment, the document explains that in the investor's first year, losses are guaranteed by the Gideon Group and 15% of profits are charged as a performance fee, and from year two, 25% of profits are taken by the Group, as well as 25% of the losses. The references to fees and guarantees imply that the document was prepared on the basis that the Management Agreement was in place. This is confirmed by the final sentence in the document, which states that a trust deed and management contract plus unit certificates will be provided to all investors as soon as practically possible after funds are lodged.

The liquidator's conclusions from inquiries made so far 30 In his affidavit supporting the applications, the liquidator has summarised his conclusions based on investigations to date. 31 The liquidator's investigations indicate that the assets legally owned by the company comprise some insurance policies on the life of Mr Bastion, worth about $3 million, a unit in Spring Street Melbourne, a 1999 BMW station sedan, a 2.77% shareholding in Asia Pacific Totalisators Ltd (a Vanuatu company), and some public company shares. As a result of the inadequacy of the company's records, he has been unable to identify whether assets registered the name of the company are assets of the company or the Trust. He has identified five 'non-trust' creditors of the company in a total sum of roughly $3,000, principally for services in connection with the Melbourne unit, which he intends to discharge upon the sale of the unit. 32 On the basis of his investigations, the liquidator has concluded that each of the investors in the list that he has prepared has invested money with the company, using application forms of the kind annexed to the Trust Deed. The investments total about $29 million. Most of the investors whom he interviewed said they believed they had invested in accordance with the Trust Deed and the Management Agreement. In the liquidator's view, if a trust exists of which the company is trustee, the company has committed numerous breaches of trust which have resulted in substantial losses to the trust fund.

The significance of determining whether there is a trust 33 The present applications have been made on the basis that the liquidator must decide whether there is a trust governing the investors' rights. The issue being uncertain, he properly seeks the protection of directions. 34 If there is no trust, the investors became unsecured creditors of the company when they deposited money with it. The liquidator must wind up the company and distribute its assets rateably to the unsecured creditors. The legal position is comparatively straightforward. 35 If there is a trust, the investors have equitable proprietary rights as beneficiaries and the company has the duties of a trustee, to be discharged by its liquidator. Those equitable proprietary rights are to be asserted against the trust fund and any assets into which the fund can be traced. It appears that there is no trust fund, but the company has acquired assets (the two insurance policies, the unit in Melbourne, and the shares) which might arguably be trust assets. The question becomes whether the beneficiaries can trace into those assets. 36 The evidence about the financial affairs of the company and the Trust is very slim, and the position is unlikely to become much clearer through further investigations (given the thorough work that has already been done). However, we do have the statements by Ms Byrnes, which are consistent with information supplied by Mr Charlton, that the company did not maintain separate bank accounts for the Trust or for moneys received from investors, and that Mr Bastion moved money in and out of accounts without any regard to the nature of the accounts or the sources of the money. Therefore (assuming there is a trust) the company has mixed all of the trust money received from investors with its own money, and has made some investments from the mixed fund and then dissipated the remainder. In such a case equity allows the beneficiaries to trace into the investments: Re Oatway [1903] 2 Ch 356; see Jacobs' Law of Trusts in Australia (6th ed, 1997), p 746. It follows, on this analysis, that of the company's remaining assets are trust assets which it holds for the benefit of the investors as beneficiaries. 37 The evidence does not point to any identified voidable transactions which might be attacked by the liquidator. However, any recovery of this nature would probably augment the trust assets rather than the company's own property, since on the tracing analysis presented above, money or assets used by the company in any such transaction would be presumed to be trust money or trust assets. It is likely that the company as trustee has a claim against Mr Bastion's estate for misappropriation of trust assets by him, but it appears that the estate is insolvent. I am unable to say, on the evidence, whether there is any basis for recovery from Mrs Bastion as the remaining director and if so, whether the proceeds of recovery would be for the benefit of the investors. 38 If there is no trust, the five 'non-trust' creditors rank as unsecured creditors with the investors, unless they have statutory liens or other similar protection. If there is a trust, the debts to the 'non-trust' creditors are best regarded as debts incurred by the trustee in the course of management of the affairs of the Trust. That would be so as regards debts connected with ownership of the Melbourne unit, and while the Telstra account is less clear, the trustee would be justified in treating it in the same way. Although the debts might have been incurred in the course of unauthorised activity, the trustee probably has a right of recoupment or exoneration out of trust assets for these debts, having regard to the nature of the debts and the terms of the Trust Deed. Consequently the debts are to be paid in full out of company's assets (all of which are trust assets, on the present analysis).

The applications 39 The applicant seeks relief, by two interlocutory applications, on a basis that will require the Court to infer, on the balance of probabilities, that there was a trust on the terms of the draft trust deed. I made a similar finding recently in Graf Holdings Pty Ltd v Parer Holdings Pty Ltd [1999] NSWSC 217. 40 In the first application, he seeks directions under s 479 (3) of the Corporations Law, in his capacity as liquidator, that he would be justified in: · recognising the existence of an express trust on the terms of the Trust Deed; · recognising certain persons, identified as investors in his searches and listed in a schedule to the application, and any others who may subsequently file a proof of debt supported by appropriate evidence, as beneficiaries of the trust; · either admitting a claim against the company by the receiver and manager of the trust (referred to in the second application) for the total amount of the losses suffered by the beneficiaries, or admitting claims against the company by each of the beneficiaries for their respective losses; and · treating certain specified assets (the two insurance policies of the company on the life of Mr Bastion worth about $3 million) as assets of the company in its own right, and not trust assets. 41 In the second application he seeks orders that: · he be appointed receiver and manager without security of the property, assets and undertaking of the trust, with the powers prescribed by s 420 of the Corporations Law as if the trust were a corporation; · he be paid his expenses and remuneration as receiver and manager calculated in accordance with specified rates or rates agreed by the beneficiaries in general meeting, and in the event that the assets of the trust are insufficient to satisfy his expenses and remuneration, that he be entitled to payment out of assets of the company; · his costs, expenses and remuneration to date (including the costs of the present applications) be paid from the assets of the trust to the extent that the assets of the company are not sufficient; · in acting as receiver and manager, he would be justified in acting in accordance with Part 5.6 Division 5 of the Corporations Law and Part 5.6 of the Corporations Regulations as if all references to 'liquidator' were references to 'receiver and manager' and as if all references to 'creditors' were references to 'beneficiaries'.

Notice of the applications 42 There are no named respondents to the applications, which are interlocutory applications in the winding up proceedings instituted by Mrs Bastion. However, notice of the applications has been given to various people, as I shall explain. 43 The list of people identified by the liquidator's investigations as beneficiaries is Schedule B to the first application. There are roughly 250 names. By a notice dated 18 August, addressed 'Dear Creditor/Investor', the liquidator informed the people listed as beneficiaries that in accordance with the advice of senior counsel, he would make the present applications, and that they would be heard by me on 4 September 2000 (as they were). The notice said that the liquidator's legal advice was that there would be no conflict of interest between his position as liquidator and his proposed position as receiver and manager, and that the dual appointments would save investors a significant amount of money, because if someone else was appointed receiver and manager of the trust assets, that person would need to duplicate the extensive investigations that had already been undertaken. 44 I am satisfied by the evidence before me that reasonable efforts were made to contact and serve the people listed. However, three of them were not served with the notice, because the liquidator does not have contact details. 45 The notice invited the recipient to obtain copies of the applications and the liquidator's supporting affidavit, and said that anyone who wished to oppose the applications should give notice of their opposition to his solicitor. Up to the date of the hearing, five requests for copies of the documents had been received, and copies of the applications and the liquidator's supporting affidavit were duly despatched in accordance with the requests. No objection was made to the orders and directions sought by the liquidator, and none of the investors appeared at the hearing on 4 September 2000. 46 The applications and the notice were served on Mrs Bastion, the plaintiff in the proceedings. The liquidator gave notice of the application to the trustee of the bankrupt estate of the late Mr Bastion.

Directions under s 479 (3) 47 McLelland J analysed the nature of applications under that subsection, and the consequences for the liquidator, in Re G B Nathan Pty Ltd (in liq) (1994) 24 NSW LR 674. He concluded (at 679) 'that the only proper subject of a liquidator's application for directions is the manner in which the liquidator should act in carrying out his functions as such, and that the only binding effect of, or arising from, a direction given in pursuance of such an application (other than rendering the liquidator liable to appropriate sanctions if a direction in mandatory or prohibitory form is disobeyed) is that the liquidator, if he has made full and fair disclosure to the court of the material facts, will be protected from liability for any alleged breach of duty as liquidator to a creditor or contributory or to the company in respect of anything done by him in accordance with the direction'. 48 In my opinion the subject matter of the first application is a proper subject matter for an application for directions under s 479 (3). It is appropriate for the liquidator, confronted by unsatisfactory corporate records and uncertain indications that a large part of the company's business was conducted as trustee, to bring the facts before the Court and seek the protection of directions under s 479 (3). It is appropriate for the Court to give the direction sought by the liquidator once it is satisfied, as I am, that all reasonable inquiries have been made by the liquidator to establish the true facts. In this case I am impressed by the thorough and systematic investigations that have been conducted. 49 The directions are sought by the applicant as liquidator under s 479 (3). No direction is sought by the company in liquidation under s 63 of the Trustee Act 1925 (NSW). I should note the very limited scope of the protection that directions under s 479 (3) will give in the present circumstances. The directions will not determine as between the company and the investors whether there is a trust or any particular person is a beneficiary or any particular assets are held by the company in trust for the investors, and will not protect the company or liquidator from any claims by persons who do not receive a distribution but are able to establish that they should have been recognised as beneficiaries. As McLelland J pointed out in the G B Nathan case (at 681), the significance of the directions is only that if the liquidator acts in accordance with them and has made full and fair disclosure of the material facts, he will be protected from claims by unsecured creditors or contributories in respect of any alleged breach of his duties as liquidator. 50 I turn to the question whether, the application for directions being in principle an appropriate application, the particular directions sought by the liquidator should be given.

Directions relating to the Trust 51 In my opinion the evidence, though in some respects flimsy (like the evidence that was before me in the Graf Holdings case), persuades me that the funds of investors were collected by Mr Bastion on behalf of the company as trustee of an investment trust, and it is more likely than not that the terms of the investment trust were contained in the Trust Deed. I have indicated that the Trust Deed is very much a draft document, noting particularly that internal cross-references were frequently incorrect. However, one can work out the correct references, with patience, and so in the end the terms of the trust are reasonably precise. The most serious problem is that the number of units held by each initial unitholder is not set out in the schedule, as it should be according to clause 3 (2), but the liquidator appears to have worked out the value of their investments from other evidence. 52 I am particularly influenced by the fact that the draft Management Agreement recites that the GHF Trading Trust was constituted by a deed dated 1 August 1993 (evidently the Trust Deed), and the evidence that investors believed that they were investing in accordance with it. 53 On the evidence before me I cannot reach the conclusion that the Trust was amended by the Management Agreement. I note that the Information Memorandum appears to proceed on the basis that the Management Agreement was at that time operative, and some investors appear to have believed that they invested on the basis of the Management Agreement. However, the draft Management Agreement seems to contemplate the issue of new redeemable units, and I can see no evidence that any such units were issued. 54 Even if I had formed the view, on the evidence, that the Management Agreement became operative, its terms would not apply to investors who had become beneficiaries prior to its commencement. 55 The significance of this conclusion may be that it affects the question whether the company has acted in breach of trust by investing in property other than equities, bonds, currency markets and futures. It will be recalled that the powers of investment in the Trust Deed are very wide, but they would have been restricted if the Management Agreement had become operative. 56 In summary, I am prepared to give the direction sought in paragraph (1) of the interlocutory process, since that paragraph identifies the Trust Deed but not the Management Agreement. 57 Having regard to the liquidator's evidence of his thorough investigations, I am prepared to give a direction in terms of paragraph (2) of the interlocutory process, to the effect that he would be justified in recognising as beneficiaries the persons listed in Schedule B and others who file a proof of their claims supported by appropriate evidence. I doubt that claims by investors as beneficiaries are best treated as proofs of debt, but that is a matter of machinery for the liquidator to decide upon. Additionally, I should draw attention to the limited nature of the protection that will be given by my direction to the liquidator. When the liquidator acts in recognition of the claims of the beneficiaries, he will be acting (for the most part) on behalf of the company in its capacity as trustee. My direction, given under s 479 (3) rather than under s 63 of the Trustee Act, will not protect the company as trustee, and may not protect the liquidator as its agent. 58 The liquidator seeks a direction, as liquidator, either that he would be justified in admitting a claim against the company by the receiver and manager of the Trust (to be appointed under the second application) for the total amount of the losses suffered by the beneficiaries, or that he would be justified in admitting claims against the company by each of the beneficiaries for their respective losses. With some hesitation, I have reached the conclusion that neither direction should be given, at least at this stage. For the reasons I have given, the liquidator would be justified, having recognised the existence of the Trust, in treating the assets of the company as trust assets. I am prepared to give a direction in those terms, if it is sought. That being so, the assets are under his control for the purposes of administration of the Trust. The claims to recovery by the investors should be treated as claims for distribution of their beneficial entitlements, to the extent that assets remain in the Trust, and claims for compensation for breach of trust to the extent that the available assets fall short of the amount of the claim. The assessment and disposition of the investors' claims is (for the reasons I shall give) a task for the company as trustee, to be performed on its behalf by the liquidator. In my opinion the receiver and manager does not need to have a role in that process, and it would be at least premature and probably unnecessary to give any direction about the assessment of the claims. 59 The final order sought in the first application is an order that the liquidator would be justified in treating the two insurance policy assets as assets of the company in its own right, not as assets of the Trust. I cannot give any such direction, on the evidence before me at this stage. The evidence is that no one can tell whether any of the assets of which the company is the legal owner are trust assets or assets of the company. There is a suggestion that Mrs Bastion believes that some assets were acquired by the company in its own right rather than as trustee for the benefit of investors, but there is no direct evidence before me from Mrs Bastion, nor anything to indicate the basis upon which she may have formed such a view. On the analysis presented earlier, which relies on such cases Re Oatway [1903] 2 Ch 356, the insurance policy assets should be treated as trust assets.

Appointment of liquidator as receiver and manager of the Trust 60 The questions for consideration are whether it is necessary to appoint someone to the new office of receiver and manager in order to complete the administration and winding up of the trust and the company, and if so, whether the liquidator should be appointed to that new office. 61 In Grime Carter & Co Pty Ltd v Whytes Furniture (Dubbo) Pty Ltd (1983) 7 ACLR 540 questions arose as to whether the liquidators were entitled to accept appointment as new trustees and if appointed, whether they would be entitled to be paid remuneration under the trust instrument in priority to the trust creditors. McLelland J held that the question whether liquidators should accept appointment to another office depends upon whether there is any real prospect of conflict of duties, or conflict between interest and duty, arising from holding both offices. In the circumstances of that case he found that there would be no real prospect of any such conflict. But he held that the new trustees would not be entitled to remuneration under the trust instrument in priority to trust creditors because the whole of the trust assets would be applicable in satisfaction of the right of indemnity of the former trustee (the company). In the present case the remaining assets of the company, after paying the five 'non-trust' creditors and the liquidator's costs and expenses to date, are trust assets out of which a new trustee would be entitled to be indemnified for remuneration and expenses. 62 In the G B Nathan case McLelland J noted that the degree of administration of the trust that is necessary for the liquidator to carry out must depend on the particular circumstances (at 688). In some cases an application the Court for appointment of a new trustee may be an appropriate course; in other cases the appointment of a receiver and manager of the trust assets may be warranted; and in other cases the appropriate course may simply be for the liquidator to complete the administration of the trust by making distributions to the beneficiaries. As to the third possibility his Honour said (at 688-9): 'Where, as appears to be the position in the present case, the company holds assets on what are virtually bare trusts for other persons, there seems to be no sufficient reason why the liquidator should not simply cause the company to comply with any demand by the beneficial owners to transfer the assets to them, thus giving effect to, and terminating, the trusts.' 63 His Honour dealt with the second possibility, the appointment of a receiver and manager of the assets of the trust, in Re Indopal Pty Ltd (1987) 5 ACLC 278. That was a very different case from the present. There the directors of the company in liquidation, which was the trustee of a trust of which they were beneficiaries, failed to discharge their statutory duty to submit a verified report as to the affairs of the company to the liquidator. The company had substantial liabilities in respect of which it appeared to have a right of indemnity against trust assets. McLelland J held that it was clearly expedient to protect the company's interests (and hence, the interests of the trust creditors) by the appointment of a receiver and manager. The appointment of the liquidator to that office was a convenient and sensible course in the circumstances. 64 In the present case, in contrast with the Indopal case, there are no substantial trust creditors (assuming that the investors are beneficiaries), there is no suggestion of lack of cooperation by Mrs Bastion, and the assets are safely under the control of the liquidator. Nevertheless my opinion there is a justification for appointing a receiver and manager to the assets of the trust. Section 67 of the Supreme Court Act 1970 (NSW) gives the Court a wide discretion to appoint a receiver and manager of assets upon an interlocutory application, and the jurisdiction is clearly available to protect trust assets. The appointment will not be made unless the case in favour of it is a strong one ( Yunghanns v Candoora No 19 Pty Ltd (No 2) [2000] VSC 300 (4 August 2000), since receivership is an expensive process which could adversely affect rights of third parties. But the Court will not hesitate to act where there is a real risk to the assets of a company or trust, as the Indopal case shows. 65 Here the problem is not only that the affairs of the Trust are in disorder. To a substantial degree that is a problem to be addressed by the liquidator as such, and he has ample powers to do so. The difficulty is that he is the liquidator of a company which may have duties as trustee to the investors, requiring the company to ascertain, protect and ultimately distribute trust assets to them. But he does not know whether there is a trust in favour of the investors, and consequently whether those duties apply. The Court is able to give him directions which will protect him in the steps he takes as liquidator, to the effect that he would be justified in recognising the existence of the Trust. But those directions would not give any protection to third parties, including those who may wish to acquire the assets from the liquidator should he decide to sell them in the course of administration. 66 It seemed to me, therefore, that if I leave the liquidator to discharge the company's duty as trustee by realising the assets for the purpose of making distributions, he is likely to have difficulty in persuading buyers, especially in the case of the real estate, that he has good title to the assets. The problem will be overcome if I appoint him receiver and manager with an express power of sale as well as the powers contained in s 420 of the Corporations Law. That is what I intend to do. 67 The functions of the receiver and manager will relate to protection and realisation of the assets of the company, which are trust assets on the analysis that I have presented. I shall make orders requiring him to prepare a report on the performance of his functions, and to distribute it to the investors for their consideration, and then to account as receiver and manager to the company as trustee for the amount realised, after taking into account the investors' views. I shall make an order treating the receiver and manager as a liquidator and the investors as creditors the purposes of Part 5.6 Division 5 of the Corporations Law and Part 5.6 of the Corporations Regulations, so as to provide machinery for the convening and conduct of the meeting of investors that I envisage. I have in mind that the realisation of assets, the report and the meeting should take place within three months of the date of this judgment, though I shall hear any submissions the liquidator has to make on that subject. 68 As long as he is required to report as receiver and manager to a meeting of investors in the manner that I envisage, I am prepared to appoint the liquidator as receiver and manager. The issue for the Court to consider is whether there is any real possibility of conflict between the duties of the two offices, or between duty and interest, as McLelland J pointed out in the Grime Carter and Indopal cases. Given that the principal investigations have already been carried out, and in light of the limited functions of the receiver and manager, my opinion is that there is no such risk of conflict as would justify the cost involved in engaging another person as receiver and manager.

Costs 69 There is a distinction between costs and expenses incurred by the liquidator in the course of administration of a trust which the company is trustee, and costs and expenses of the liquidation, though it is not always easy to draw: G B Nathan case, at 688. Some of the costs and expenses incurred by the liquidator in the present case have been costs and expenses concerning the administration of the Trust. The administration of the trust, in this context, includes identifying trust assets and those entitled to them: G B Nathan at 689. While the liquidator of a company trustee has a duty as such to ascertain what assets belong to the company beneficially ( G B Nathan at 688), the company itself has a duty as trustee to identify the assets which it holds on trust and upon its liquidation, the liquidator must act in a responsible way in the administration of the trust: G B Nathan at 688, citing Re Crest Realty Pty Ltd (in liq) [1977) 1 NSWLR 664, at 672. To the extent that those costs and expenses have been reasonably incurred, the trustee has a right of recoupment and exoneration out of trust assets which entitles the liquidator to recover his reasonable costs and expenses out of the assets held by the company. 70 The remainder of the liquidator's costs and expenses have been incurred by him in investigating the affairs of the company as its liquidator. In the Grime Carter case (at 542) McLelland J held that the liquidator of a company which was a trading trustee is entitled to apply trust assets in satisfaction of the costs and expenses of the winding up, including the liquidator's remuneration - at any rate where, as in that case and the present case, all of the assets and liabilities of the company are trust assets and trust liabilities. In reaching this conclusion, he preferred the judgment of the Full Court of the Supreme Court of Victoria in Re Enhill Pty Ltd (1982) 7 ACLR 8 to the judgment of Needham J in Re Byrne Australia Pty Ltd [1981] 2 NSWLR 364; 5 ACLR 475. That conclusion now appears to be generally accepted, although the reasoning was, in my respectful opinion, better articulated by his Honour in the G B Nathan case (at 685-6, citing Re Suco Gold Pty Ltd (in liq) (1983) 33 SASR 99) than in the Grime Carter case (at 542). 71 In light of these principles, and my opinion that all the assets of the company should be treated as trust assets, the liquidator is entitled to be paid his reasonable remuneration, costs and expenses both for the work done to date as liquidator (including the costs of these applications), and the work done to date on behalf of the trust, out of the assets of the company. I propose to make an order that the amount of the liquidator's remuneration, costs and expenses to date be determined by the Registrar, but I shall hear any further submissions that the liquidator may wish to make on that matter. 72 Paragraph (3) of the interlocutory process proposes that the expenses and remuneration of the receiver and manager be calculated in accordance with the rates attached to the application or any other rate as may be agreed by the beneficiaries in general meeting. It seems to me appropriate to seek the approval of the investors to the remuneration, costs and expenses of the receiver and manager, and therefore I am prepared to make an order on the lines of paragraph (3), provided that the attached rates apply only in default of approval of remuneration by the general meeting. The remuneration, costs and expenses will be payable out of the assets of the trust. 73 I assume that once the assets have been realised by the receiver and manager, and the non-trust creditors have been paid and the liquidator/receiver and manager has recovered his remuneration costs and expenses, there will be something left for the investors. That will be distributable to them by the liquidator on behalf of company as trustee, in accordance with the principles enunciated by McLelland J in the G B Nathan case. The reasonable costs of doing so will be costs of the trustee properly recoverable out of the trust assets.

Orders 74 I shall grant each person listed in Schedule B to the first interlocutory process, liberty to apply to me on 48 hours notice to the applicant, and I shall direct the applicant to serve a copy of my orders on those persons. I shall grant the applicant liberty to apply to me without notice to any other party, although the nature of any orders I may be able to make will be affected by whether notice has been given to appropriate persons. 75 I shall stand the matter over for mention before me at a date shortly after the time limit for the receiver and manager reporting to a meeting of investors, so that I may be informed of state of affairs and deal with any problems that may have arisen. 76 I shall direct the applicant to bring in short minutes of orders to reflect these reasons for judgment. * * * * * * * * *

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