Burrup Fertilisers Pty Ltd (Receivers and Managers Appointed) v Oswal

Solicitor for the Members of the Trust: Goodwin & Co Lawyers

REASONS FOR JUDGMENT QUD 62 of 2020 IN THE MATTER OF ROYAL NATIONAL CAPITAL ALLIANCE LTD (ADMINISTRATORS APPOINTED)

ACN 601 566 803 DANIEL WALLEY AND DERRICK VICKERS AS JOINT AND SEVERAL ADMINISTRATORS OF THE ROYAL NATIONAL CAPITAL ALLIANCE LTD (ADMINISTRATORS APPOINTED) ACN 601 566 803 AS TRUSTEE OF THE ROYAL JC FUND First Plaintiff

ROYAL NATIONAL CAPITAL ALLIANCE LTD (ADMINISTRATORS APPOINTED) ACN 601 566 803 AS TRUSTEE OF THE ROYAL JC FUND Second Plaintiff

INTRODUCTION 1 Mr Daniel Walley and Mr Derrick Vickers have brought this application in their capacity as the joint liquidators (the Liquidators) of Royal National Capital Alliance Ltd (Royal National). Royal National is the trustee of the Royal JC Fund, an investment trust (the Trust). That is the only role that it has ever performed. In that role, it has incurred debts totalling more than $1,160,000. While it has no assets, the Trust does. Among other things, Royal National is currently the mortgagee in possession of a development property located at Southport in South East Queensland (the Southport property). The Liquidators therefore wish to exercise Royal National's right of indemnity, exoneration, or recoupment as trustee against the assets of the Trust. Adopting the course identified in a series of decisions of this Court, they have therefore applied under s 57 of the Federal Court of Australia Act 1976 (Cth) (the FCA) to be appointed as receivers of the Trust. They have also sought a large number of incidental orders. 2 Their application is opposed by 22 of the 26 beneficiaries of the Trust, described in the Trust Deed as its members (the Members). Instead of the Liquidators, the Members have sought the appointment of Mr Trent Devine and Mr Christopher Baskerville as receivers of the Trust (the alternative receivers). They claim that the pivotal issue for determination in this application is who, out of the Liquidators and the alternative receivers, should be appointed as receivers of the Trust. They want that issue determined "having regard to the principles set out in section 37M [of the] FCA", that is, justly, "according to law" and "as quickly, inexpensively and efficiently as possible". 3 If the Members were correct about the binary choice they have posed, that course would certainly be desirable. However, for the reasons that follow, I do not consider they are. On the other hand, for different reasons which I will explain hereunder, I do not consider the Liquidators' application should be acceded to either.

The materials 4 The Liquidators filed and relied upon three affidavits made by Mr Vickers and two affidavits made by their lawyer, Ms Aleksandra Symenovych. For their part, the Members filed and relied upon a number of affidavits made by Ms Chenzi Yang, their lawyer. The factual background set out below has been extracted from these affidavits.

The company 5 Royal National was first registered as a company on 1 September 2014. Its initial directors were Mr Robert Taylor and Ms Min Li. Ms Sophie Taylor, Mr Taylor's daughter, was appointed a director on 29 May 2015. Those three people remained its directors at the time of the Liquidators' appointment in early 2020. 6 As mentioned already, Royal National has only ever traded as the trustee of the Trust. 7 On 18 February 2020 the directors resolved, pursuant to s 436A of the Corporations Act 2001 (Cth) (the Act), to appoint Mr Walley and Mr Vickers as administrators of the company. 8 On 24 March 2020, at the second meeting of creditors, Mr Walley and Mr Vickers were appointed as Royal National's liquidators. 9 The Liquidators have ascertained from the books and records of Royal National and the proofs of debt received by them that seven creditors of the company are owed at least $1,160,000 collectively. Mr Vickers deposed in one of his affidavits that they are: Name Amount ($) Australian Taxation Office TBD Regal One Management Services Pty Ltd 867,716.00 AAC Group Pty Ltd 141,900.00 Hall Chadwick 38,768.00 Hall & Wilcox 108,672.30 Gold Coast City Council TBD McCullough Robertson Lawyers 6,430.64 1,163,486.94

10 With respect to the companies Regal Management Services and AAC Group, appearing in this list, Ms Yang has deposed that: 58. Regal One Management Services Pty Limited ACN 602 414 531 was registered on 20 April 2014. Its directors at registration were Robert Taylor and Min Li (ceased on 5 January 2015). The shareholders as at registration were Robert Taylor who held 50 of 100 issued shares and Min Li who held 50 of 100 issued shares … 59. AAC Group Pty Limited ACN 107 027 458 was registered on 13 November 2003. Robert Taylor is now the sole director and shareholder …

The Trust 11 The Trust was established under the terms of a Trust Deed dated 20 April 2015. Those terms included the following which are pertinent to the resolution of this application: (a) Under the "Introduction" section, the following clauses: A. This Trust Deed establishes the Trust for the benefit of all Unitholders. Those Unitholders are bound by this Trust Deed. B. The Trustee has agreed to manage the Trust formed by this Trust Deed for the benefit of Unitholders and at the end of its term, wind up the Trust. C. If this Trust is registered as a managed investment scheme under the Act, then the Trustee will be the responsible entity. D. The terms of the Trust Deed follow. (b) The following expressions defined in the following terms in cl 1.1: … Assets means Cash, Investments and all Mortgage Investments; … Custodian means the Trustee or a corporation nominated and appointed by the Trustee under clause 3.3; … Interest means a Member's individual legal interest in the Trust or any Mortgage Investment; Investment Manager means an Investment Manager appointed by the Trustee, from time to time; … Member means a person or body corporate who for the time being is registered in the Register as having lodged the Minimum Investment; … Mortgage Investment means an investment made by the Trust in any one or more of the following: a) a Mortgage; or b) a loan to a Borrower, howsoever secured; or c) an equity investment in a project to hold, develop or otherwise deal in Real Property; which conforms with clause 5 and meets the requirements disclosed in the applicable Supplementary Disclosure Document (if any) from time to time; … Register means the register of Members maintained by the Trustee or a party engaged by the Trustee; … Trust means the trust constituted by this Trust Deed; … Trustee means the Trustee for the time being and any other trustee appointed on the retirement or removal of the Trustee; [sic] … Trust Property means: (a) contributions of money or money's worth to the Trust; (b) money that forms part of the property of the Trust; (c) money borrowed or raised by the Trustee for the purposes of the Trust; (d) property acquired, directly or indirectly with, or with the proceeds of, contributions or money referred to in (a), (b) or (c); and (e) income and property derived, directly or indirectly, from contributions, money or property referred to in (a), (b), (c) or (d); (f) Mortgage investments acquired by the Trustee on behalf of the Trust; … (Italics in original) (c) Clause 3.1 - "Name of Trust": The Trust is called the Royal JC Fund or by such other name as the Trustee determines from time to time. (Italics in original) (d) Clause 3.2 - "Declaration of Trust": The Trustee declares that it holds the Trust Property on trust for the Members. (e) Clause 3.5 - "Binding on All Parties": This Trust Deed is binding on the Trustee, any Investment Manager appointed by the Trustee, any Custodian appointed by the Trustee and on all Members. (f) Clause 3.7 - "Term of Trust": This Trust Deed shall commence on the date specified and, unless sooner determined, the Trust constituted or established pursuant to this Trust Deed shall terminate and be wound up on the 80th anniversary of the day the Trust began. (g) Clause 3.9 - "Trustee's duties to Members": It is acknowledged that the Trustee, in carrying out its obligations and duties under this Trust Deed and in exercising any discretion under this Trust Deed, at all times must act in what the Trustee in its reasonable discretion perceives to be reasonable having regard to the best interests of the Members as a whole and its fiduciary obligations as Trustee. (h) Clauses 4.12 and 4.13 - "Interests in the Trust": 4.12 A Member's interest shall be as tenant in common with all other Members in the proportion of their Application Money. 4.13 Each Member has a beneficial interest only in the specific and particular Assets determined in accordance with this Trust Deed, in which they have invested. Members do not have any interest in the Assets as a whole. (i) Clauses 5.1 and 5.2 - "Mortgages in favour of the Trustee": 5.1 Mortgage Investments will be written: (a) in the name of the Trustee or a related corporation of the Trustee as defined in the Law; or (b) in the name of the Custodian. 5.2 In the event the Mortgages are not in the name of the Trustee, then they must be held by the Trustee in the following conditions: (a) all security documents are still to be held by the Trustee as custodian or an entity appointed as custodian; and (b) the Member, where applicable, grants under power of attorney the right to the Trustee to execute any document including a Transfer of Mortgage to the Trustee at any time. (j) Clause 7 - "Trustee's Right to Fees and Expenses": 7.1 The Trustee is entitled to be paid fees from Trust Property in accordance with this clause 7. 7.2 All costs, charges, and expenses incurred by the Trustee in relation to the proper performance of its duties in respect of the Trust are payable or reimbursable out of the Assets to the extent that such reimbursement is not prohibited by the law… and shall be indemnified out of Trust Property for liabilities or expenses incurred in relation to the proper performance of its duties… 7.3 In the event that the Trustee has not performed its duties, the lack of entitlement to payment of the fees pursuant to 7.1 is only in respect of that part of the payment which relates to the specific lack of proper performance on any given matter. Nothing in this clause shall be interpreted to mean that the Trustee is not entitled to be paid fees and expenses for work properly performed. 7.4 In the event of any dispute regarding the payment of fees and expenses, the Trustee shall be paid such fees and expenses until the dispute is fully determined. Any overpayment of the Trustee shall be repaid forthwith upon the identification of the overpayment. 7.5 The Trustee is entitled to recover fees and expenses from the Trust provided they have been incurred in accordance with this Trust Deed and the Law. 7.6 In clause 7.2, "costs, charges and expenses" includes internal expenses of the Trustee incurred in connection with matters referred to (including without limitation, costs or appointing and maintaining staff employed in connection therewith) and amounts paid by the Trustee to related bodies corporate for services provided to an Investment Manager in connection with the Trust where the cost, charges and expenses referable to the task performed or [service] provided by the related body corporate would have been reimbursable under this clause 7 had they been incurred by the Trustee. 7.7 As some of the expenses incurred by the Trustee will relate to the Trust in general, and some will be incurred only in respect of a particular Mortgage Investment, any expenses incurred by the Trust are to be appropriately allocated to the specific Mortgage Investment which caused the expense to be incurred. Where expenses are referable to the Trust and any other Trusts managed by the Trustee, the Trustee must apportion those expenses between the Trust and those other Trusts in accordance with generally accepted accounting principles. 7.8 Nothing in this Constitution shall prevent the Trustee from charging Borrowers any fees or charges in accordance with the contractual terms between the Borrower and the Trustee. … (k) Clause 9 - "Retirement, Removal and Replacement of Trustee": Retirement and Removal 9.1 The Trustee may retire as Trustee, if it wishes to do so and if it appoints a suitable replacement trustee and must retire when required by law. 9.2 If the Members want to remove the Trustee, they may call a Members' meeting to consider and vote on: (a) an Extraordinary Resolution that the current Trustee be removed; and (b) an Extraordinary Resolution choosing a replacement trustee. 9.3 If the Trustee retires or is removed, its successors as Trustee must, unless otherwise approved by the retiring Trustee, change the name of the Trust to a name that does not imply an association with the retiring Trustee or its business. 9.4 On retirement or removal, the Trustee is released from obligations relating to the Trust which arise after the point of retirement or removal. Appointment of New Trustee 9.5 On the retirement of the Trustee pursuant to clause 9.1, the Trustee shall appoint in its stead a reputable trustee nominated by the Trustee and approved by the Members PROVIDED THAT if the Trustee cannot find such a new trustee to accept office, the Trustee shall not retire prior to the expiry of twelve (12) months. 9.6 A new trustee is required to execute a deed acknowledging consent to be bound by this Trust Deed. (l) Clause 10 - "Winding Up the Trust": 10.1 The Trust shall only be wound up in accordance with this Trust Deed. 10.2 If on any date during the continuance of this Trust Deed the Trustee considers[:] (a) there are no outstanding Investments or Mortgage Investments and there are no other moneys which are or will become (either upon a contingency or otherwise) payable by the Trustee to any Member, in accordance with this Trust Deed; (b) that the purpose of the Trust: (i) has been accomplished; or (ii) cannot be accomplished, then the Trustee may commence the winding up of the Trust in accordance with the provisions of this Trust Deed. 10.3 The Trustee must wind up the Trust in the following circumstances:- (a) if the term of the Trust as detailed in this Trust Deed has expired; (b) the Members pass on [sic] Extraordinary Resolution directing the Trustee to wind up the Trust; (c) the Members pass an Extraordinary Resolution to remove the Trustee but do not at the same time pass an Extraordinary Resolution choosing a company to be the new trustee that consents to becoming the Trust's trustee; (d) the Court makes an order directing the Trustee to wind up the Trust. 10.4 The Trustee shall not accept any further applications for an interest in the Trust or invest any Members' funds in a Mortgage Investment at a time after the Trustee has become obliged to ensure the Trust is wound up or after the Trust has started to be wound up. 10.5 The Trustee shall manage the Trust until such time as a new trustee is appointed or until all terms of each Mortgage Investment have been met notwithstanding the fact that the winding up procedures have commenced. 10.6 The Trustee shall use its best endeavours to ensure that all Members' funds are redeemed at the expiration of each Mortgage Investment and returned to the Members together with any income earned from the Mortgage Investment and not distributed less any expenses of the Trust payable by the Member. 10 .7 The Trustee shall ensure that the financial accounts after the winding up are reconciled. (m) Clause 16 - "Governing Law": 16.1 The rights, liabilities and obligations interest of the Trustee, the Investment Manager and the Members shall be governed by the law of the State of New South Wales and any proceedings to enforce such rights, liabilities or obligations may be taken in the Courts of that State.

The Trust's business and investments 12 The Trust's business involved the pooling of capital contributed by its Members in order to make investments, principally in the form of loans secured by mortgages over real property. In one of her affidavits, Ms Yang described how the Trust marketed its investment products in the People's Republic of China (PRC) and Ms Li's role in that process as follows: 25. Min Li was a director of Aoye Investment Group Pty Limited from 29 May 2015 to 24 April 2018 and Aoye Group Pty Limited from 24 September 2015, both of which operated from Chatswood … 26. Min Li also controlled a corporate entity 'Guangzhou AOYE Immigration Services Co. Ltd' (AOYE China) based in Guangzhou, China. Either or both of Aoye Investment Group Pty Limited and Aoye Group Pty Limited operated in conjunction with Aoye Group Pty Limited. 27. [Royal National] was granted [Australian Financial Services Licence]No. 474015 which was effective from 20 April 2015… … 29. [Royal National] marketed 3 separate investments in respect of property developments at Southport, Hope Island and Orchid Avenue, Surfers Paradise. In broad terms, each project involved [Royal National] attracting PRC investors through the marketing of the AOYE China in the PRC. This involved the publication by [Royal National] of an Information Memorandum in respect of the Trust and then an Information Proposal which detailed each development separately. These documents were in both Chinese and English and distributed in the PRC mainly by the AOYE China. Employees of either Aoye Investment Group Pty Limited or Aoye Group Pty Limited undertook the translations of the Information Proposal from English to Chinese and then sent it to AOYE China for distribution. 30. The investors deposited moneys in the Trust and these were on-lent to the different developers being companies which were special purpose vehicles (effectively "$2 shelf-companies") but who were all controlled by Wayne Roddenby (as [sic] solicitor based in Newcastle) and/or Gregory Bell (a Ray White real estate agent on the Gold Coast) … 31. Upon an investor investing in the Trust: (a) Aoye China or Aoye Investment Group Pty Limited or Aoye Group Pty Limited received a fee; and (b) A fee was paid to a related entity of Robert Taylor. 32. Each project was charactered as follows: (a) the land purchase was entirely debt funded; (b) there was no valuation report prepared for mortgage purpose (at least prior to the issue of the Information Proposal); (c) no equity was being contributed by the developer; (d) there was uncertainty as to whether any equity would be contributed in the future; (e) the developer was a [special purpose vehicle]; (f) the development feasibility for the proposed project was unsubstantiated, if considered at all; (g) interest payments were being funded from investor funds; and (h) the investment was highly contingent on the completion of the development project and, should the project not proceed, they would be significantly exposed to a capital loss. (Errors in original) 13 The Trust therefore appears to have operated in a manner akin to that of a managed investment scheme under Part 7.9 of the Act. Indeed, cl C of the Introduction section of the Trust Deed (see at [11(a)] above) appears to have anticipated that the Trust may become registered as a managed investment scheme. However, since all its investors resided outside Australia, primarily in the PRC, there was no requirement to provide them with a Product Disclosure Statement in respect of any of the investments (see s 1012D(8) of the Act as modified by reg 7.9.07FB of the Corporations Regulations 2001 (Cth)). This, in turn, meant that the Trust was not required to be registered as a managed investment scheme (see s 601ED(2) of the Act). 14 From about late 2015, the Trust invested in three "mortgage investment[s]" (see definition at [11(b)] above) connected with three separate development projects, all of which were situated on the Gold Coast in Queensland. The brief details of those projects are as follows (see the schedule at [15] below): (a) 12 Members contributed a total of $15,000,000 in connection with an investment associated with the purchase and development of a combined commercial, retail and residential building located at Southport, Queensland (described in these reasons as the Southport property); (b) 13 Members contributed a total of $18,000,000 in connection with an investment associated with a property development located at Hope Island, Queensland; and (c) 8 Members contributed a total of $15,240,000 in connection with an investment associated with a property development located at Surfers Paradise, Queensland. 15 The following schedule was prepared by the Liquidators and details the members of the Trust and their respective investments in each of the three developments: Royal National Capital Alliance Ltd Royal JC Fund

Investor Southport Hope Island Surfers Paradise Kunlai Su 2,000,000 Ying Huang 2,000,000 1,000,000 Yong Zhong Zhang 1,000,000 Tong Cui 2,000,000 2,000,000 Zhitao Pan 2,000,000 Ying Xu 500,000 Huangshi Lao 500,000 MingQiang Chen 1,000,000 Jieming Xiao 1,000,000 500,000 1,720,000 Guoyong Shan 2,000,000 Zhonglai Zhao 1,000,000 4,300,000 Chijia Zeng 1,000,000 Shenda Tian 1,000,000 Yanfen Lu 1,000,000 1,720,000 YuanBao Yu 2,000,000 Min Wang 1,000,000 Xiaomin Chen 1,000,000 Ting Zhang 4,500,000 Changmin Li 1,000,000 Dongying Duan 2,000,000 Yuxia Qiu 500,000 Hong Luo 1,000,000 Chaoyang Liu 1,000,000 Jianwei Zhang 500,000 2,000,000 Onevue RE Services Ltd 2,000,000 Royal National Capital Alliance 500,000 15,000,000 18,000,000 15,240,000

16 Each of the above developments has since failed. The initial investigations by the Liquidators indicated that the investments in the Hope Island and Surfers Paradise developments were likely to be of no value. 17 However, the investment in the remaining development, the Southport property, still retains some value. That is to say, Ms Yang has deposed that that property would be likely achieve no "more than $5,000,000 on any arms' [sic] length sale and less so in the current market conditions". The details of the history of that investment are as follows. On 10 September 2015, Royal National entered into a loan deed by which it loaned $13,000,000 to Southport Central Pty Ltd. At the same time, Mr Wayne Roddenby, a director of Southport Central, and a company called Captain Enterprise Holdings Pty Ltd, of which Mr Roddenby was also a director, signed a deed of guarantee in respect of that loan. The loan amount was increased to $15,000,000 under a deed of variation dated 20 April 2016. The security for the loan included a registered mortgage over the Southport property. Southport Central defaulted under the loan and Royal National became mortgagee in possession of the Southport property on 10 August 2017. Preliminary investigations have revealed that Southport Central is indebted to Royal National in the amount of at least $8,445,000.

The Proceedings 18 The Members involved in the three investments described above have commenced proceedings against Royal National and its directors in the Sydney Registry of this Court. The proceeding concerning the Surfers Paradise investment has since been resolved. The two remaining proceedings are: (a) Yuanbao Yu v Royal National Capital Alliance Limited ACN 601 566 803 & Ors, being proceeding NSD2168/2018 (Hope Island Proceeding); (b) Zhitao Pan v Royal National Capital Alliance Limited (in liquidation) ACN 601 566 803 & Ors, being proceeding NSD2021/2019 (Southport Proceeding). 19 Both of these proceedings are representative proceedings taken by one of the investors, as the applicant, on behalf of all of the investors in each of the Hope Island and Southport investments respectively. As already noted, the respondents include Royal National (the first respondent) and its three directors (the second to fourth respondents). 20 The statements of claim in both sets of proceedings are structured in a similar form. In brief summary, the statement of claim in the Southport Proceeding alleges that Royal National made 12 sets of representations concerning that investment that were misleading or deceptive, or likely to mislead or deceive, such that they constituted 11 contraventions of s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth). It further alleges that the three directors of Royal National were involved in, and liable for, those contraventions and that, by the same conduct, Royal National had breached its duties as the Trustee of the Trust under ss 14A and 14B of the Trustee Act 1925 (NSW) (the Trustee Act).

McCullough Robertson's involvement 21 McCullough Robertson Lawyers acted for the directors of the company in establishing the Trust, obtaining an Australian Financial Services Licence (AFSL) and performing other legal work. Ms Yang deposed that the work included: (a) an application for an [AFSL]; (b) drafting a constitution for [the Trust]; (c) drafting a responsible manager consultancy agreement; (d) an application for variation of the AFSL; (e) drafting an AFSL compliance checklist; (f) effecting the transfer of units from one investor to another in relation to the Surfers Paradise development; and (g) the appointment of voluntary administrators to [Royal National]. 22 On this topic it is also appropriate to note the following. This proceeding was commenced in the very early stages of the Corona Virus Disease 2019 (COVID-19) pandemic. It was therefore affected by the measures the Court took to address the effects of that pandemic. As a result, the parties agreed that this matter should be determined on the papers. In their written submissions, the Members raised McCullough Robertson's involvement in advising the directors of Royal National and establishing the Trust. They did so in the following terms: 53. Lastly, the McCullough Robertson Poof of Debt was sought back on 4 March 2020 so that an understanding could be obtained of what work McCullough Robertson had done for [Royal National] and whether it was appropriate that they act for the administrators and potentially the receivers. As noted above, it was finally disclosed after 6 weeks. This itself raises questions as to why it was held back. 54. Having discovered that McCullough Robertson were directly involved in acquiring the AFSL for [Royal National] and setting up its AFSL procedures…, it then became apparent in the context of the allegations in the [Southport Proceeding] that it was likely that there may be conflict of interest. Mrs Yang set out her opinion of the likely problems [in her affidavit of 15 April 2020 at [63]]. (Errors in original) 23 Unfortunately, the Liquidators did not directly respond to these submissions in their reply submissions. Accordingly, I sought supplementary submissions from the parties on this matter. In those submissions, the Liquidators contended that there was no existing or potential conflict associated with McCullough Robertson acting for them in this application, and the possibility of one arising in the future "does not rise above hypothetical speculation". Nonetheless, they stated that McCullough Robertson's retainer would not be continued beyond the current stage of this matter should they be appointed as receivers. 24 In their supplementary submissions, the Members essentially reiterated their concerns as set out above.

The orders sought 25 In their originating application, the Liquidators sought the following orders: 1 Royal National Capital Alliance Ltd (Administrators Appointed) ACN 601 566 803 (Company) has a right of exoneration from the property of the Royal JC Fund (Trust) for debts incurred by the Company as trustee for the Trust which are provable in the Company's administration. 2 The First Plaintiffs, as the administrators of the Company, are justified, subject to paragraphs 6, 7, 8 and 9 below, in treating all proceeds of the property of the Trust in the administration of the Company pursuant to the right of exoneration referred to in paragraph 1 above as being available for distribution to Trust creditors in accordance with the order of priorities provided for in Division 6 of Part 5.6 of the Corporations Act 2001 (Cth) (Act). 3 Pursuant to section 57 of the Federal Court of Australia Act 1976 (Cth), the First Plaintiffs be appointed as receivers, without security, over all present and after acquired property, rights and undertakings of the Trust. 4 The First Plaintiffs be conferred with the following powers in respect of the property of the Trust: (a) the powers recited in section 420 of the Act, as if the references in that section to 'property of the corporation' was a reference to property of the Trust; and (b) the powers that an administrator has in respect of property of a company by section 437A of the Act. 5 The need for the First Plaintiffs, as receivers, to file a guarantee under rule 14.21 and rule 14.22 of the Federal Court Rules 2011 (Cth) be dispensed with. 6 The First Plaintiffs, in their capacity as receivers of the property of the Trust or in their capacity as administrators of the Company, may have recourse to the property of the Trust for their costs, expenses and remuneration in respect of the work undertaken to render that property available to meet the claims of creditors whose debts were incurred by the Company as trustee of the Trust. 7 The work referred to in paragraph 6 is to include work relating to: (a) the identification of Trust assets and liabilities; (b) the identification of Trust creditors; (c) the ascertaining of the state of the accounts between the beneficiaries and the trustee; (d) the recovering or attempting to recover Trust assets for the purposes of meeting the right of exoneration; (e) the realisation or the attempted realisation of the Trust assets for the purposes of meeting the right of exoneration; (f) the securing of Trust assets (or their value) to meet the right of exoneration and their application to the Trust creditors; (g) the distribution of funds which are the subject of the right of exoneration to those who are entitled to them; and (h) any matter in the administration of the Trust which is reasonably ancillary to the above to the extent to which it had been undertaken for the purposes of the identified tasks. 8 The amounts which the First Plaintiffs are entitled to from the property of the Trust under paragraph 6 above are to be determined by the Court. 9 It is declared that the First Plaintiffs have a lien over the property of the Trust in respect of the amounts to be paid to them under paragraphs 6, 7 and 8 above. 10 It is declared that the Company has an equitable charge over the rights and interest created by the mortgages registered in favour of the Company over the following properties to secure the amounts referred to in paragraphs 1 above: (a) Lot 49 on RP 4757 (Title Reference: 15112174); (b) Lot 50 on RP 4757 (Title Reference: 15112174); (c) Lot 51 on RP 4757 (Title Reference: 14404113); (d) Lot 52 on RP 4757 (Title Reference: 16416108); (e) Lot 53 on RP 4757 (Title Reference: 13916142); and (f) Lot 54 on RP 4757 (Title Reference: 13916142). 11 The costs of this application be costs of the administration of the Second Plaintiff.

CONTENTIONS 26 If appointed as receivers, the Liquidators indicated they intended to enforce the company's rights as mortgagee in possession and to sell the Southport property. They also indicated that they proposed to enforce its rights under the deeds of guarantee if it were commercially viable to do that. They submitted that they should be appointed receivers of the Trust by dint of their current positions as Liquidators and their "demonstrated experience and expertise in undertaking work of the type that will be required to sell the [Southport property]". They contended that the appointment of different persons as receivers to the Trust may cause difficulties due to the overlap of the duties and powers of a receiver and those of the liquidators (referring to the observations of Jackson J in Park & Muller (liquidators of LM Investment Management Ltd) v Whyte (receiver of the LM First Mortgage Investment Fund) [2015] QSC 283 (Park)). In response to the Members' concerns regarding the costs associated with their appointment, the Liquidators submitted that a simple comparison of the hourly rates they charged did not accurately measure the likely overall costs of the receivership. In any event, they stated that they were prepared to calculate their fees at the same hourly rate as that charged by Mr Devine and Mr Baskerville. The Liquidators also argued that they had already undertaken a significant amount of work in connection with the liquidation and the appointment of different persons as receivers would result in a duplication of that effort and therefore incur greater costs. 27 In response to the Members' contentions that an "independent contradictor" needed to be appointed as the receiver, the Liquidators argued that there was nothing to suggest that they lacked independence. Rather, they contended, the issues raised by the Members appear to be directed to the Liquidators' legal representatives, namely McCullough Robertson, who previously assisted Royal National and its directors. As already noted above, they sought to address this concern by indicating that they would engage a different firm of lawyers to assist them should they be appointed as receivers. 28 Finally, it is important to note that in one of his affidavits Mr Vickers made the following acknowledgments: The [Liquidators] are cognisant that: (a) the Members have the power under clause 9.2 of the Trust Deed to remove [Royal National] as trustee of the Trust, which will mean the [Liquidators] will no longer be able to cause [Royal National] to sell the [Southport property] without a court order; and (b) the allegations made in the proceedings [described at [18]-[20] above], if proven, may reduce the value of [Royal National's] right of indemnity against the Trust assets. 29 In one of her affidavits, Ms Yang set out the grounds on which the Members opposed the Liquidators' appointment as receivers in the following terms: … (a) The majority of members of the Trust oppose to the appointment of [the Liquidators] as receivers of the Trust; (b) The fees to be charged by the [Liquidators] are too high compared to alternate receivers. This will directly affect the amount of recovery by Members of the Trust; (c) There should be a different receiver so there is a proper contradictor to the claims of the proofs of debt lodged by Regal One Management Services Pty Limited and AAC Group Pty Limited (each of these entities are related to a current director of [Royal National] Robert Taylor and a current director of [Royal National], Min Li); (d) There is a potential for a claim by the [Liquidators] against the three directors of [Royal National] (Robert Taylor, Min Li and Sophie Taylor) … As at the date of this Affidavit, [the Liquidators] have refused to disclose the proof of debt lodged by McCullough Robertson in the administration. I have requested information directly from McCullough Robertson. As at the date of this Affidavit, it has not been provided. This refusal to disclose this basic information has, in part, led to the perception among the Members that [the Liquidators] will not be cooperative if they are appointed receivers; (e) McCullough Robertson acted for [Royal National] in setting up its AFSL procedures, including inter alia, drafting the AFSL compliance checklist… [T]his may create a potential or actual conflict if [the Liquidators] are both liquidators and receivers and investigating the directors using the lawyers who drafted the AFSL checklist. (Errors in original)

CONSIDERATION 30 The power of sale conferred on liquidators under s 477(2)(c) of the Act does not, without more, extend to property that an insolvent company holds on trust (see Taylor (Liquidator) v CJ & KL Bond Super Pty Ltd (Trustee), in the matter of CJ & KL Bond Pty Ltd (in liq) [2018] FCA 1430 at [16(c)] and the cases cited therein). Instead: [T]he appropriate course for a liquidator to take when seeking to sell assets of a trust in the exercise of the trustee's right to indemnity is for the liquidator to apply to be appointed as a receiver to realise the assets of a trust in the exercise of a lien or charge securing a trustee's right of indemnity. See Carrello, in the matter of Gembrook Investments Pty Ltd (in liq) [2019] FCA 1143 (Carrello) at [21] and the cases cited therein. 31 It is for these reasons that the Liquidators have applied under s 57(1) of the FCA. That section provides that "[t]he Court may, at any stage of a proceeding on such terms and conditions as the Court thinks fit, appoint a receiver by interlocutory order in any case in which it appears to the Court to be just or convenient so to do". This discretion has been widely construed (see Burrup Fertilisers Pty Ltd (Receivers and Managers Appointed) v Oswal (No 4) [2011] FCA 1503 at [5], Porter v Australian Prudential Regulation Authority (2010) 184 FCR 382; [2010] FCA 125 at [27]-[28], Coeclerici Asia (Pte) Ltd v Gujarat NRE Coke Limited [2013] FCA 882 at [107]-[108]). 32 As I remarked earlier, there is a long series of decisions of this Court in which s 57 of the FCA has been used, the two most recent of which are: Naidenov, in the matter of The Sweet Life Farms Australia Pty Ltd (in liq) v Dahbella Pty Ltd [2020] FCA 1474 (Naidenov) per Markovic J and Elkerton (liquidator), in the matter of CGB Property Holdings Pty Ltd (in liquidation) [2020] FCA 1464 (Elkerton) per Farrell J. 33 It should, however, be noted that the position with this Trust is somewhat different to that encountered in many of these decisions. Here, as the Liquidators have acknowledged (see at [28(a)] above), Royal National continues to be the Trustee of the Trust. That is to say, the Trust Deed does not contain a provision under which the company's position as Trustee was automatically terminated when the Liquidators were appointed (cf, for example, Naidenov at [6] and Elkerton at [12(b)]). 34 Furthermore, this Trust continues to operate in the sense that, as is mentioned above (at [17]), Royal National as Trustee is the registered proprietor as mortgagee in possession of the Southport property. It also holds the right to enforce the deeds of guarantee against Mr Roddenby and Captain Enterprise Holdings. As well, given the terms of the allegations made in the statements of claim in the proceedings that are presently on foot (see at [18]-[20] above), some of the proceeds of those proceedings, if successful, may constitute property of the Trust. 35 This means that the total debts of $1,160,000 for which Royal National as Trustee is seeking to enforce its right of exoneration comprise a relatively small proportion of the value of the assets of the Trust. On one measure, the debts comprise approximately 22% of the estimate Ms Yang has proffered for the upper value of the Southport property, namely $5,000,000. This, in turn, means, among other things, that the enforcement by Royal National of its right of exoneration will not exhaust the trust property such that the Trust will cease to exist once that right has been exercised (see In the matter of Austec Wagga Wagga Pty Limited (in liquidation) [2018] NSWSC 1476 (Austec) at [19] per Brereton JA). 36 However, the orders sought by the Liquidators do not reflect the somewhat unusual circumstances of this Trust. Specifically, while they anticipate a distribution of funds to those entitled to them as a consequence of the Trustee's right of exoneration in proposed order 7(g) (see at [25] above), their orders do not contain any provision for the distribution of the remaining funds or assets of the Trust to the Members as beneficiaries. Indeed, the only mention of the beneficiaries, or Members, of the Trust in their proposed orders is order 7(c) (see at [25] above) and that does not expressly address how it is proposed to deal with their beneficial interests in the remaining funds or assets of the Trust. Furthermore, the process outlined in their proposed orders does not appear to acknowledge the distinction made in cl 7.7 of the Trust Deed (see at [11(j)] above) between the general expenses of the Trust and those associated with particular mortgage investments. 37 I have highlighted these matters to make the point that simply appointing either the Liquidators, or the alternative receivers, as receivers of the trust property of this Trust does not address the more fundamental questions that arise in the circumstances of this matter: is it intended that this Trust be wound up by the receiver, so appointed and, if so, by what process? 38 The answer to the first question can, perhaps, be inferred from the tenor of the parties' submissions to be "yes". But there is little in their submissions to indicate that they have considered the second question. In this respect, Brereton J in Austec pertinently observed (at [13]) that: In the absence of provision in the trust instrument, a trust cannot be wound up in the same way as a company. A trust is not a legal entity, as a company is. There is no statutory right or power to wind up or terminate a trust, and generally speaking it is unconventional to speak of 'winding up' a trust… (Footnotes omitted) With respect to the "statutory right or power" his Honour mentions in these observations, I interpose to note, as I did earlier, that this trust is not a managed investment scheme under Part 7.9 of the Act. Accordingly, the statutory processes set out in that Part, as discussed in decisions such as Park, do not provide guidance in answering this question. However, as it turns out, his Honour's earlier mention of a "trust instrument" does provide that guidance. 39 It can be seen from the terms of the Trust Deed (at [11(l)] above) that cl 10 expressly deals with the "Winding up of the Trust". Moreover, cl 10.1 makes it clear that the Trust "shall only be wound up in accordance with this Trust Deed" (emphasis added). Then the succeeding subclauses of cl 10 set out how such a winding up is to occur. First, to dispose of the possibility that the Trust has been, or is about to be, terminated, it is to be noted that the term of the Trust is fixed by cl 3.7 to be 80 years. It follows that the termination of the Trust effected by cl 10.3(a) will not occur until 2095. Secondly, cl 10.2 provides the Trustee with a discretionary power to wind up the Trust if it considers the circumstances described in cll 10.2(a) and (b) exist. Thirdly, cll 10.3(b) and (c) provide the Members with the power to require the Trustee to wind up the Trust by passing an extraordinary resolution. Fourthly, cl 10.3(d) provides that the Trustee must wind up the Trust if a court makes an order to that effect. Finally, cll 10.4 to 10.7 contain provisions directing the Trustee on various aspects of the winding up process. 40 On the latter, cl 10.6 bears noting. That clause requires the Trustee to ensure that all Members' funds are redeemed and returned "less any expenses of the Trust payable by the Member". This subclause, together with other clauses of the Trust Deed such as cl 4.13 (see at [11(h)] above), appear to treat "each Mortgage Investment" separately. If that is so, it may result in various Members having different rights of redemption and different obligations to the Trustee depending on the "Mortgage Investment" in which they made their investment. 41 There is also a further important matter that needs to be considered in the winding up of the Trust. It stems in part from the Members' submissions, in part from the concession made by the Liquidators at [28(b)] above and in part from the following observations of Colvin J in Carrello (at [22]): If such a course [of appointing a receiver of the trust under s 57 of the FCA] is followed then, on the application for appointment as a receiver, the Court can scrutinise whether there are indeed interests of the beneficiaries of the trust that might need to be provided for, such as in cases where the power to resort to trust assets for exoneration of creditors has been compromised by the actions of the trustee or where the trust includes the benefit of rights (such as causes of action) that might be exercised by a trustee in the interests of the beneficiaries (but not by a receiver acting in the interests of realising assets pursuant to the trustee's right of indemnity) that need to be provided for in the making of such orders. Otherwise, such matters are left until after the event when the Court is asked to scrutinise whether particular actions were undertaken in the due administration of the trust in order to approve remuneration of the liquidator and the manner of distribution of proceeds recovered by the sale of trust assets. (Emphasis added) 42 Both of these concerns appear to emerge in this matter. On the first, as Ms Yang's affidavit demonstrates (see at [10] above), two of the creditors whose debts the Liquidators are seeking to recover are directly linked to the directors of the company. More significantly, those directors are presently respondents in the two proceedings in this Court described earlier, which include allegations that they caused the company to act in breach of trust. Among other things, this situation raises an issue whether those debts fall within the terms of cl 7 of the Trust Deed (see at [11(j)] above). This, in turn, raises the question whether the debts of those two creditors should be dealt with differently from the debts of the other seven. 43 Relatedly, and as to the second concern above, if the debts of those two creditors were to be quarantined, for the time being at least, the debts of the remaining seven creditors total approximately $150,000. This reduced creditors' figure would then compound the disparity mentioned above (at [35]) between the amount being sought by the Liquidators under the Trustee's right of exoneration, compared with the Members' interests in the remaining assets of the Trust. 44 Regrettably, there is little before me to indicate that the parties have turned their minds to any of these matters. On the Liquidators part, there is nothing in their submissions to indicate that they have given any thought to the discretion contained in cl 10.2. As well, the orders they have sought are narrowly focused on exercising the Trustee's right of exoneration and do not appear to have regard to the interests of the Members in the winding up of this Trust. Similarly, on the Members' part, there is nothing in their submissions to indicate that they have given any thought to the provisions of cl 10.3(b) or (c), or, for that matter, the power contained in cl 9.2 to remove the company as Trustee (see at [11(k)] above). The Liquidators have at least turned their mind to that prospect (see at [28(a)] above). 45 Finally, neither of the parties appears to have given any thought to cl 10.3(d) which provides for a court order to wind up the Trust. On this aspect, given the Governing Law provisions of cl 16 of the Trust Deed (see at [11(m)] above), consideration would also need to be given to the terms of any applicable New South Wales legislation such as the Trustee Act. 46 In my view, all of these matters need to be considered in developing a process to ensure that this Trust is duly wound up in accordance with the provisions of the Trust Deed and that the interests of the Trust's creditors and its Members are fairly accommodated. That includes any differing rights and obligations that may exist within those two groups as alluded to above. Until such time as this occurs, it would be premature, in my view, to appoint a receiver to the Trust. 47 This is, of course, far from a satisfactory outcome, particularly given the costs that are likely to have been expended on this application to date. To attempt to avoid exacerbating that state of affairs, rather than dismissing the Liquidators' application, I propose to adjourn it to a case management hearing to be held at a time to be fixed on 19 November 2020 to hear further from the parties once they have had an opportunity to consider these reasons. I certify that the preceding forty-seven (47) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Reeves.