In the matter of Australian Institute of Professional Education Pty Limited (In Liquidation) [2018] NSWSC 1028

Affidavit evidence and agreed facts

At the hearing on 25 May 2018, the Liquidators read, without objection, the affidavit of Mr George Georges sworn 22 December 2017 and tendered Exhibit GG-1 to that affidavit. Mr Georges there referred to the nature of the Company's business, and registrations and approvals which it held with Australian Skills and Quality Authority ("ASQA") and the Tertiary Education and Quality Skills Authority ("TEQSA") and on the Commonwealth Register of Institutions and Courses for Overseas Students as a provider of vocational education and training, higher education and English language intensive courses for overseas students. Mr Georges noted that, from 31 October 2016, the Company had ceased to provide education courses to domestic and overseas students. Mr Georges also referred to the nature of the courses provided to overseas students, the enrolment processes for such courses, the manner in which tuition fees were paid, and the circumstances in which the Company's registration with ASQA had been cancelled, an appeal against that cancellation was brought in the Administrative Appeals Tribunal ("AAT"), and liquidators were appointed to the Company. He refers to the steps which were taken by the TPS to transition overseas students to alternate courses or refund amounts paid by them, after the Company ceased providing courses of study. Mr Georges' affidavit also dealt with the steps which had been taken by the Liquidators, the claims by the TPS Director in respect of a "protected amount" under s 29 of the ESOS Act, the steps which have been taken by the Liquidators to calculate that amount, and the current financial position of the Company.
The Liquidators also read the affidavit of Mr Georges sworn 23 February 2018, which referred to evidence which had been led in relation to dealings with overseas students in liquidators' examinations, to notification of the hearing of this application to creditors, and to recent correspondence between the solicitors acting for parties. The Liquidators also read the affidavit of Mr Georges sworn 11 May 2018, which updated his evidence as to those matters, and tendered Exhibit GG-2 to that affidavit. The Liquidators also read the affidavit of Mr Georges sworn 24 May 2018 which identified the amounts that were received by the Company from overseas students and how they were treated, and referred to other proceedings which had been brought by the Liquidators in connection with the liquidation.
The TPS Director read, also without objection, the affidavits of Mr Vipan Mahajan affirmed 17 May 2018 and 25 May 2018. Mr Mahajan there referred to a determination under s 50A of the ESOS Act that the Company had defaulted within the meaning of s 46A of the Act, and to a call made on the Overseas Students Tuition Fund ("OTSF") in respect of the Company under s 50A of the ESOS Act. Mr Mahajan's evidence was that he caused an amount to be paid out of the OSTF sufficient to meet refund requirements under Pt 5 Div 2 of the ESOS Act and had paid an amount of $1,717,318.60 out of the OSTF. His evidence was that that amount included an amount of $420,688.40 allocated to refunds to students who were yet to commence their studies, and a further amount to students who had commenced but not completed their studies.
The parties agreed a complex factual narrative for the purposes of this proceeding, which I largely set out below. In doing so, I adopt the array of acronyms adopted by the parties, in deference to their use of them. It is not apparent that all of the agreed facts affect the narrow issues raised by the proceedings. I am satisfied that the relevant agreed facts were established by the affidavit evidence and provide a proper basis for the declaratory relief sought. Those agreed facts identify the fact of disagreement between the parties as to some matters, and the proceedings were largely not conducted in a manner that would establish that the view of either party was correct as to the matters as to which they disagreed. The parties agreed as follows: Registrations and approvals 6.1 Prior to the appointment of the Liquidators, and relevantly during the period 2013 to 2016, the Company: (a) carried on a business of providing educational courses to domestic and overseas students; (b) was approved by [ASQA] as a registered training organisation ("RTO") under the National Vocational Education and Training Regulator Act 2001 (Cth) ("NVETR Act"); and as a registered provider under the ESOS Act in relation to vocational education and training ("VET") courses (ESOS Act, s 6E(b); and English Language Intensive Courses for Overseas Students ("ELICOS") programs (ESOS Act, s 6E(d)), offered by the Company to overseas students; (c) was registered with [TEQSA] as a higher education provider under the Tertiary Education Quality and Standards Agency Act 2011 (Cth) ("TEQSA Act"); and a registered provider under the ESOS Act in relation to higher education ("HE") courses offered by AIPE to overseas students (ESOS Act, s 6E(a)); (d) was registered on the Commonwealth Register of Institutions and Courses for Overseas Students ("CRICOS") as a provider of VET, HE and ELICOS programs; and (e) was approved as a VET Provider and a Higher Education Provider by the Department of Education ("Department") for the purposes of the Higher Education Support Act 2003 (Cth) ("HESA"). 6.2 Since at least 2013, the Company provided and sought to provide VET, HE or ELICOS courses to domestic and overseas students. With effect from 31 October 2016, the Company ceased to provide all courses of study to domestic and overseas students. Enrolment process for intending overseas students 6.3 Prior to commencing a course with the Company, an intending overseas student had to apply for admission into the relevant course by completing and submitting an application form. If the intending overseas student's application was successful, the Company issued a Letter of Offer to the intending overseas student which set out the course or courses offered to the intending overseas student and the total tuition fees for each course, any enrolment conditions to be satisfied prior to commencing the course and the initial course fees to be paid to the Company upon accepting the offer. 6.4 In the period 2013 to October 2016, the Company received applications for enrolment in various courses from intending overseas students. Successful enrolment in a course required the intending overseas student to pay a certain amount of the tuition fees payable for that course prior to the intending overseas student commencing the course of study with the Company. The amount of tuition fees required to be paid in advance of the course depended on the course in which the student was enrolling. 6.5 The Company's 'International Student Enrolment Agreement' dated 21 May 2014 and examples of the Company's Letter of Offer to international students dated 19 March 2014, 6 February 2015 and 16 July 2015 specify that fees, including tuition fees, were to be paid into a Commonwealth Bank of Australia Business Transaction Account in the name of the Company with account number [redacted] ("CBA Transaction Account"). Payments and tuition fees received from intending overseas students and overseas students 6.6 In the period 2013 to October 2016, the Company received tuition fees from overseas students or intending overseas students, including from those whom, as at the date of appointment of the Liquidators, had not commenced their course of study with the Company for which the tuition fees had been paid. 6.7 During FY2015, on the basis of investigations conducted by the Liquidators, the Company received from overseas students, and intending overseas students, payments (including tuition fees) in the amount of $12,559,550.45 with: (a) $12,543,160.85, being approximately 99.9% of the amounts received from overseas students and intending overseas students, paid into the CBA Transaction Account; and (b) $16,389.60, being approximately 0.1% received from overseas and intending overseas students, paid into a Westpac Banking Corporation account in the name of the Company with account number [redacted] ("WBC Account"). 6.8 In relation to transactions on the CBA Transaction Account: (a) the opening balance of the CBA Transaction Account on 1 June 2015 was the amount of $117,422.03; (b) during the course of 10 June 2015, the balance of the CBA Transaction Account was reduced to the amount of $2,670.33; (c) on 16 June 2015, the amount of $10,416,666.08 was deposited into the account from the Department of Education, which amount related to VET FEE-HELP payments for tuition fees for domestic students; and the amount of $10,000,000 was transferred out of the CBA Transaction account into a Commonwealth Bank of Australia Direct Investment Account with account number [redacted] in the name of the Company ("CDI Account"); (d) on 22 June 2015, the amount of $5,000,000 was transferred from the CDI Account and deposited back into the CBA Transaction Account; (e) on 24 June 2015, $5,000,000 was withdrawn from the CBA Transaction Account and deposited into a Bank of Queensland account in the name of the Company with account number [redacted] ("BOQ Account"); (f) on 30 June 2015, the closing balance of the CBA Transaction Account was the amount of $366,229.48 in credit. 6.9 From these transactions, the $5,000,000 paid into the BOQ Account was from funds received from the Department of Education by way of VET FEE-HELP payments in relation to domestic students. 6.11 On 4 November 2015, ASQA provided the Company with notice of its intention to cancel the Company's registration as an RTO under the NVETR Act and as an approved provider under the ESOS Act (for VET and ELICOS courses). 6.12 On 16 December 2015, in response to a request made by the TPS Director for details of the designated account and its current balance: (a) Mr Amjad Khanche, the Chief Executive Officer of the Company, sent the TPS Director an email which attached a copy of a bank account statement for the BOQ Account which held, at 30 June 2015, the amount of $5,000,000. The email from Mr Khanche said "We currently hold $5,000,000 in the account". (b) the Company provided a schedule that identified tuition fees paid in advance for future students in the amount of $667,597.00. 6.13 On 21 December 2015, ASQA gave notice to the Company that on 17 December 2015 it had decided to cancel the Company's registration as an RTO under the NVETR Act and as an approved provider under the ESOS Act (for VET and ELICOS courses) with effect from 1 February 2016 (the ASQA Decisions). 6.14 On 23 December 2015, by email to the TPS Director, Mr Khanche of the Company said: "Nominated Tuition Fee Account I can confirm that the BOQ specialist account is the designated account for prepaid fees. AIPE also operates an everyday bank account, to receive all the tuition fees and make the payments." 6.15 On 23 December 2015, the Company applied to the Administrative Appeals Tribunal ("AAT") for a review of the ASQA Decisions and for orders staying the operation of the ASQA Decisions pending resolution of the application for review ("AAT Proceedings"). 6.16 On 22 January 2016, the AAT made an order staying the ASQA Decisions pending the resolution of the AAT Proceedings, the effect of which meant that the Company remained registered as an RTO under the NVETR Act and an approved provider under the ESOS Act. 6.17 During FY2016, on the basis of investigations conducted by the Liquidators, the Company received from overseas students, and intending overseas students, payments (including tuition fees) in the amount of $12,260,355.92 with: (a) $12,217,474.97, being approximately 99.7% of the amounts received from overseas students and intending overseas students, paid into the CBA Transaction Account; and (b) $42,880.95, being approximately 0.3% of the amounts received from overseas students and intending overseas students paid into the WBC Account. 6.18 By a series of transactions between April 2016 and 23 May 2016, the $5,000,000 held in the BOQ Account was transferred to a National Australia Bank (NAB) term deposit account with account number [redacted] ("NAB Term Deposit"). The TPS Director was not informed of the movement of $5,000,000 in funds from the BOQ Account to the NAB Term Deposit. The parties agreed that this series of transactions was accurately set out in a flow of funds diagram to which they referred. 6.19 From 1 July 2016, all payments (including tuition fees) received from overseas students and intending overseas students were paid into the CBA Business Transaction Account. 6.20 By a series of transactions in August 2016, the amount of just in excess of $5,000,000 was transferred from the NAB Term Deposit to an account with National Australia Bank Limited ("NAB") with account number [redacted]. On 19 September 2016, that account was transferred into the name of International Education Management Pty Ltd, the sole shareholder of the Company. 6.21 In relation to transactions on the CBA Transaction Account in FY2017: (a) during the course of 23 September 2016, the balance of the CBA Transaction account was reduced to the amount of $1,397.31 in credit; (b) payments made into the CBA Transaction Account in the amount of $146,925.10 received in the period 24 September 2016 to 6 October 2016, appear to relate to payments received from overseas students or intending overseas students; (c) after 23 September 2016 and by 30 September 2016, in addition to payments in relation to overseas students and intending overseas students, deposits were made into the CBA Transaction Account in the total amount of $1,050,000 from the CDI Account; (d) in October 2016, and up to and including 6 October 2016, in addition to payments in relation to overseas students and intending overseas students, deposits were made into the CBA Transaction Account in the total amount of $7,000,000 from the CDI Account; and in the amount of $2,000,000 with the description "money transfer"; (e) the closing balance of the CBA Transaction Account on 6 October 2016 was $603,676.18. Overseas Students Tuition Fund and TPS Levies 6.22 During FY2015 and FY2016, the Company paid the TPS Levy to the TPS Director. Appointment of Liquidators 6.23 At 6pm on 5 October 2016, a meeting of the directors of the Company took place, at which the directors of the Company passed a resolution that: (a) the directors could not sign a solvency declaration declaring that the Company would be able to pay its debts in full within the coming 12 months; and (b) the directors recommend to the shareholders of the Company that the Company be wound up voluntarily. 6.24 On 6 October 2016, International Education Management Pty Ltd transferred the amount of $1,000,000 (of the $5,000,000 held in the BOQ Account) to a NAB account in the name of the Company with account number [redacted] ("NAB Account"). 6.25 At 4pm on 6 October 2016, a meeting of the members of the Company took place and it was resolved that the Liquidators be appointed to act as liquidators of the Company. Immediately after this meeting the Liquidators took control of the Company's assets and operations. 6.26 On 18 October 2016, the Liquidators activated the tuition assurance arrangements for domestic students and notified the relevant bodies and entities that the Company would cease providing courses of study with effect from 31 October 2016. 6.27 Shortly after their appointment, and in October 2016, the Liquidators activated tuition assurance for overseas students and commenced discussions with the TPS in relation to the cessation of courses of study. Financial position of the Company on appointment of the Liquidators 6.28 The combined pre-appointment bank balance, immediately before the appointment of the Liquidators at 4pm on 6 October 2016 was $2,672,834.68, comprised of funds held in specified accounts and petty cash. 6.29 On appointment of the Liquidators, the Company did not hold the BOQ Account or any active account with the Bank of Queensland and did not hold any account described as a designated account, protected amount account, pre-paid tuition fees account or tuition fees account. 6.30 The report as to affairs signed by Mr Khanche, the chief executive officer of the Company, did not provide any information to the Liquidators in relation to the protected amount or amounts of pre-paid tuition fees received from students who had not commenced their course of study with the Company. 6.31 On 12 October 2016, the Liquidators transferred the amount of $603,676.18 from the CBA Transaction Account; $808,461.89 from the CDI Account; and $1,067,259.70 from the NAB Account, to account number [redacted] ("Liquidation Account"). 6.32 On 20 October 2016, the Liquidators transferred the amount of $192,904.89 from the WBC Account to the Liquidation Account. Liquidators' calculation of potential pre-paid fees amount and consolidation of Company accounts 6.33 On 12 October 2016, Mr Vipan Mahajan, the TPS Director, sent an email attaching a letter to the Liquidators in relation to the Company's obligations as a registered education provider under the ESOS Act. The letter said, inter alia: "As discussed, the Tuition Protection Service (TPS) is aware that the Australian Institute of Professional Education entered voluntary liquidation on 6 October 2016. I am writing to you regarding AIPE's obligations as a Commonwealth Register of Institutions and Overseas Students (CRICOS) registered education provider. As a CRICOS registered education provider, AIPE has obligations that it must meet as specified under the ESOS Act. Section 29 of the ESOS Act requires AIPE to maintain a 'designated' account to keep sufficient funds (the protected amount) to repay all tuition fees to every overseas student who has paid fees but not yet commenced their course. The TPS is aware that AIPE maintained such an account. I would appreciate it if you could advise the status of the designated account, including its balance as at 6 October 2016, to the TPS, by no later than Wednesday 19 October 2016. Please note under section 29(6) of the ESOS Act, the protected amount is not available for payment of a debt of any creditor of the provider, other than as referred to in section 29 subsection (4); and is not liable to be attached or taken in execution under the order or process of a court at the instance of any creditor of the provider. If a provider ceases to deliver courses to overseas students, this may result in 'provider default' (as described under section 46A of the ESOS Act). In this case the provider is required to meet its obligations under section 46D of the ESOS Act within 14 days of the date of default. These obligations relate to assistance to overseas students and intending overseas students. The provider can discharge its obligations by either arranging placements in suitable alternative courses for the affected overseas students or by providing a refund of unspent tuition fees." 6.34 Shortly after the appointment of the Liquidators, in October 2016, a report was extracted from the Company's student relationship management system which contained information in relation to intending overseas students and overseas students who had pre-paid tuition fees to the Company and whom were due to commence their course of study on or after 3 October 2016. This report was generated by the former Chief Financial Officer of the Company in order for the Liquidators to determine a preliminary estimate of the amount of tuition fees the Company may have received in relation to intending overseas students and overseas students who had not commenced the course of study with the Company by 3 October 2016, being the commencement of the week in which the Liquidators were appointed. 6.35 The preliminary estimate of the amount of pre-paid tuition fees received from intending overseas students was the amount of $1,078,911.23. 6.36 As at 7 December 2016, there was $1,897,278.51 in the Liquidation Account which included funds that had been transferred into the Liquidation Account from the CBA Transaction Account, the WBC Account and the NAB Account. 6.37 On 8 December 2016, the amount of $1,100,000 from the combined funds held in the Liquidation Account was deposited into the Liquidators' Term Deposit Account pending directions from the Court. Communications with overseas students and intending overseas students 6.38 After the appointment of the Liquidators, the Liquidators, the TPS Director and the TPS Administrator contacted overseas students and intending overseas students to inform them of the Company being placed into Liquidation, the cessation of courses of study and informed the students to contact the TPS in relation to the transition to a new RTO to commence or complete their course of study, or in order to receive a refund of unspent tuition fees. Emails were sent: (a) on 19 October 2016, to all email addresses recorded in the Company's records for overseas students and intending overseas students enrolled in ELICOS courses with the Company; (b) on 28 October 2016, to all email addresses recorded in the Company's records for overseas students and intending overseas students enrolled in VET courses with the Company; and (c) on 31 October 2016, to all email addresses recorded in the Company's records for overseas students and intending overseas students enrolled in HE courses with the Company. Cancellation of registrations and cessation of courses 6.39 On 27 October 2016, TEQSA gave notice to the Liquidators that it had decided to cancel the Company's registration as a Higher Education Provider under the TEQSA Act, with effect from 31 December 2016 (TEQSA Notice). Registration as a Higher Education Provider under the TEQSA Act is a prerequisite for TEQSA granting approval pursuant to the ESOS Act to education providers offering HE courses to overseas students. As the decision to cease all courses of study had been made, the Liquidators took no steps to challenge or set aside the TEQSA Notice. 6.40 As at 31 October 2016, AIPE had ceased to provide all courses of study to students, specifically: (a) on 16 October 2016, HE students concluded their trimester and were subsequently notified on 2 November 2016 that the next trimester for HE due to start on 7 November 2016 would not commence; (b) on 19 October 2016, ELICOS students were notified that their courses would no longer be offered as at the close of business on 21 October 2016; and (c) on 28 October 2016, VET students were notified that their courses would no longer be offered as at the close of business on 31 October 2016. 6.41 On 3 November 2016, the Liquidators agreed to consent orders dismissing the AAT Proceedings seeking a review of the ASQA Decisions. On 4 November 2016, the AAT Proceedings were dismissed with the effect that the Company's registration as an RTO under the NVETR Act and its approval as a provider of VET and ELICOS courses under the ESOS Act were cancelled from 4 November 2016. Effective 4 November 2016, the Company was no longer a registered provider within the meaning of ss 6E(b) and 6E(d) of the ESOS Act. Further calculation of pre-paid amount for intending overseas students (potential protected amount) 6.42 Between 20 October 2016 and 4 November 2016, the Liquidators, with the assistance of the former Chief Financial Officer of the Company, prepared and provided to the TPS Administrator spreadsheets extracted from the student management system which contained information in relation to all overseas and intending overseas students enrolled with the Company in HE, VET and ELICOS courses ("Student Spreadsheets"). 6.43 The Student Spreadsheets identified amounts that had been received by the Company from the overseas students and intending overseas students. From the Student Spreadsheets the Liquidators calculated that that the amount which had been received from intending overseas students and overseas students who had not yet commenced the course of study to which the amount paid relates was in the total amount of $1,065,421.44 ([p]otential [p]rotected [a]mount). The difference in the [p]otential [p]rotected [a]mount and the preliminary estimate of this potential amount referred to above is due to a later course cut-off date being used in the Student Spreadsheets and because earlier data was not checked for errors at the time the data was extracted from the student database. 6.44 In early October 2016, the TPS Director determined: (a) that the Company had defaulted in relation to an overseas student or intending overseas student within the meaning of s 46A of the ESOS Act; (b) the default day in relation to the Company was 6 October 2016; (c) the Company was unlikely to be able to discharge its obligations under s46D of the ESOS Act within the relevant period. 6.55 Following the determinations by the TPS Director, the TPS Director commenced the student placement service pursuant to s 49 of the ESOS Act and determined to make a call on the Overseas Students Tuition Fund ("OSTF") in relation to overseas students and intending overseas students for the purposes of s50A of the ESOS Act. 6.56 As a call was made on the OSTF and the student placement service had been commenced, the TPS Director instructed PricewaterhouseCoopers, who at the time performed the function of the TPS Administrator to commence the claims and assistance process for affected students. 6.57 In October and November 2016, the Liquidators (including by employees of the Liquidators), the TPS Director and the TPS Administrator carried out the tuition assurance process (including the student placement service and the student refund process) which involved the following steps: (a) communications being sent by the TPS Administrator to all overseas students and intending overseas students enrolled in a course provided by the Company by email and/or text message requiring the student to register with the TPS Administrator and provide proof of identity; (b) on campus meetings being held for overseas students to discuss the tuition assurance process were held by the Liquidators and TPS; (c) where possible TPS arranged the transfer of enrolment of intending overseas students and overseas students to courses with a different provider that would result in a similar qualification being attained. Where a student transferred to an alternate course, the TPS Director pays an amount equal to the unspent tuition fees paid by the student to the defaulting provider, calculated in accordance with section 49D(6) of the ESOS Act to the alternate provider; and (d) where a transfer of enrolment was not possible or not wanted by the relevant intending overseas student or overseas student, documents in relation to the amount of tuition fees paid to the Company were requested by TPS from each student and, on occasion, from the Liquidators and reconciled against the Student Spreadsheets and the data in the Provider Registration and International Student Management System (PRISMS) to which the TPS Administrator and the TPS Director had access. 6.58 PRISMS is an electronic system established by the Secretary of the Department of Education pursuant to s 109 of the ESOS Act for the purpose of receiving and storing information about overseas students and intending overseas students. Section 19 of the ESOS Act requires providers to enter certain prescribed information in relation to a person that becomes an accepted student of the provider into PRISMS. 6.59 The Liquidators do not have access to the records in PRISMS. The Liquidators were not responsible for completing the reconciliation of amounts paid by overseas students and any refund payable to each student by TPS, but did provide to the TPS Administrator any information and student records from the Company's records to assist with this process. 6.60 A number of intending overseas students and overseas students were transferred to alternate providers including students who had not commenced their course of study as at the date of the Liquidators' appointment and whom had been included in the calculation of the [p]otential [p]rotected [a]mount. The Liquidators do not have details of which intending overseas students or overseas students were transferred to alternate providers. The Liquidators do not know the details of any amounts paid to alternate providers in relation to students who have transferred to an alternate provider. 6.61 The TPS Administrator was responsible for determining the refunds to be paid to students enrolled with the Company that had not commenced their course of study. 6.62 The refund amount for students: (a) who have had their visa refused due to the provider default is the sum of prepaid tuition fees and non-tuition fees minus an administrative fee of 5% of the course fee or $500, whichever is the lesser; (b) who have not had their visa refused is the quantum of the tuition fees paid to the provider. TPS Director's claim for repayment 6.63 On 31 August 2017, the TPS Director sent, by email, a letter to the Liquidators which the cover email described as "regarding the possible reimbursement of prepaid tuition fees for affected students of AIPE". The letter said, inter alia: "The Tuition Protection Service (TPS) is seeking reimbursement of pre-paid tuition fees (as per section 27 of Education Services for Overseas Students Act 2000 (ESOS Act) for affected students of Australian Institute of Professional Education (AIPE). Section 29 of the Education Services for Overseas Students Act 2000 (ESOS Act) stipulates the obligation on a provider relating to protected monies. A registered provider who receives, in respect of an overseas student or intending overseas student, tuition fees for a course before the student has begun the course, must pay the fees to the credit of an account maintained in accordance with section 28 of the Act. The provider must pay these fees into the account within five business days of receiving the fees. These fees under the ESOS Act are considered as the 'protected amount'. It is also worth noting that the protected amount is not available for the payment of a debt of any creditor of the provider. The TPS is aware that AIPE maintained such an account for the protection of tuition fees. The table below provides information on the pre-paid tuition fees for students, who were yet to commence their course on the date of your appointment as voluntary liquidator. Table 1: Australian Institute of Professional Education as at 6 October 2017 [it is accepted this should be 2016] Default Date Round Total 6/10/2017 ELICOS $ 194,681.34 6/10/2017 VET $ 67,936.40 6/10/2017 Higher Education $ 199,095.00 Total $ 461,715.74 Please note the amount in the table above only relates to pre-paid tuition fees. The total amount of fee refunds paid out by the TPS for former AIPE students as at 31 August 2017 is $1,674,183." 6.64 The letter from the TPS Director set out that the amount of pre-paid tuition fees for students in VET, HE and ELICOS courses that had not commenced their course of study on the date of the Liquidators' appointment was the amount of $461,715.74 ("TPS Protected Amount Claim"). This claim includes amounts paid by students who have accepted a place with an alternate provider. 6.65 On 12 September 2016, the TPS Director provided revised spreadsheets which set out the overseas students and intending overseas students enrolled in VET, HE and ELICOS courses of study with the Company who had not commenced their course of study with the Company as at the date of appointment of the Liquidators ("TPS Spreadsheets"). The TPS Spreadsheets identified the amount refunded by the TPS Director in relation to each student. The total amount of refunds referred to in the TPS Spreadsheets is the amount of $461,715.74 (being the TPS Protected Amount Claim). 6.67 The Liquidators attempted to reconcile the Student Spreadsheets (and the [p]otential [p]rotected [a]mount) with the TPS Spreadsheet (and the TPS Protected Amount Claim) to determine the reason for the difference in the [p]otential [p]rotected [a]mount identified in the Student Spreadsheets, being $1,065,421.44 and the amount of $461,715.74 identified in the TPS Spreadsheets. 6.68 The difference in the [p]otential [p]rotected [a]mount and the TPS Protected Amount Claim is $603,705.70. 6.69 From the reconciliation attempted by the Liquidators, the differences identified include the following, all of which relate to persons who had not commenced the relevant course of study with the Company at the date of the appointment of the Liquidators: (a) there are students named in the Student Spreadsheets who are not named in the TPS Spreadsheet; (b) students named in the Student Spreadsheets whom have been refunded by TPS an amount different to that recorded as the pre-paid amount in the Student Spreadsheets. In approximately 5% of the students there was an inconsistency with the tuition fees recorded in PRISMS and the Student Spreadsheets and in this instance, the TPS Administrator sought additional documents from students to support the amounts paid to the Company; (c) students listed in the Student Spreadsheets with pre-paid amounts recorded whom have not had any amount refunded by TPS; (d) students recorded in the TPS Spreadsheet with a "-" as the amount refunded by TPS for whom the Student Spreadsheets record a potential pre-paid amount. Students marked with a "-" in the TPS Spreadsheet have a total amount of $641,352.70 recorded as the pre-paid amount in the Student Spreadsheets. 6.70 In addition, an administrative fee is applied prior to the refund in some instances. 6.71 The difference in the [p]otential [p]rotected [a]mount and the TPS Protected Amount Claim is predominantly due to students in the Student Spreadsheets, also identified in the TPS Spreadsheets, but in respect of whom no amount has been claimed in the TPS Protected Amount Claim. These students are identified in the Student Spreadsheets as having paid the amount of $641,352.70 (referred to above). 6.72 A complete reconciliation of the differences between the Student Spreadsheets and the TPS Spreadsheet would result in significant costs being incurred in the Liquidation and would result in a duplication of work already completed by the TPS Administrator. 6.73 The Liquidators, by matching student identification numbers against deposits in the WBC Account have determined that none of the students referred to in the Student Spreadsheets paid amounts into the WBC Account. From the Liquidators' investigations it appears that amounts received from overseas students referred to in the Student Spreadsheets were paid into the CBA Transaction Account. 6.74 As at 23 September 2016, the CBA Transaction Account had a balance of $1,397.31 in credit. 6.75 From 24 September 2016 until the appointment of the Liquidators, as set out above, the amount of $8,050,000 was deposited into the CBA Transaction Account from the CDI Account and the amount of $2,000,000 was transferred into the CBA Transaction Account with the description "money transfer". Significant withdrawals were made from the CBA Transaction Account and the balance of the CBA Transaction Account on appointment of the Liquidators was $603,676.18. 6.76 The Liquidators have identified payments made into the CBA Transaction Account in the period 24 September 2016 to 6 October 2016, which appear to relate to payments received from overseas students or intending overseas students. The Liquidators have identified the amount of $146,925.10 as being the amount received after 23 September 2016 from overseas or intending overseas students. Approximately 75% of these payments included a student identification number. Using these student identification numbers, the Liquidators were able to match certain students with the students on the TPS Spreadsheet. Other deposits appear to relate to students who had already commenced their course of study and whom are not the subject of the TPS Protected Amount Claim. 6.77 The results of this matching exercise are in a table to which the parties refer. 6.78 From this matching exercise, the Liquidators have identified that: (a) after 23 September 2016, the amount of $40,633 was received from overseas students who had not commenced their course of study with AIPE on 6 October 2016; and (b) the TPS seeks repayment of the amount of $23,640 (as part of the TPS Protected Amount Claim) in relation to these students. 6.79 There may be additional deposits from overseas students received after 23 September 2016 who had not commenced their course of study and in respect of whom TPS has sought repayment as part of the TPS Protected Amount Claim. However, the Liquidators have no easily accessible records as to the payment date for each student deposit, from which to identify these amounts and the identification of these additional amounts would require a detailed and manual reconciliation of amounts received on or after 24 September 2016. Financial position of the Company 6.80 As at October 2017, the current cash on hand (including the $1,100,000 held in the Liquidators Term Deposit Account) was $1,693,886.31 and the Liquidators had received notice of potential claims against the Company in an amount just in excess of $80,000,000. 6.81 As at 24 May 2018, the current cash on hand in the Liquidation was $1,460,014.89. 6.82 The Liquidators have not yet called for formal proofs of debts in relation to the claims against the Company. Potential further claims by overseas students or intending overseas students 6.83 The Liquidators, on 22 January 2018, 30 January 2018, 13 February 2018 and 22 February 2018 caused circulars to be issued to creditors of the Company in relation to these proceedings. No request for information concerning this proceeding has been received by the Liquidators. 6.84 Other than the TPS Protected Amount Claim, the Liquidators have not received notification of any potential claim or any actual claim by any overseas student or intending overseas student for a refund of amounts paid to the Company by way of prepaid tuition fees or any other claim in relation to the [p]otential [p]rotected [a]mount. 6.85 In relation to the TPS Protected Amount Claim ($461,719.74) as at 8 May 2018, $420,688.40 has been paid by the TPS Director from the OSTF to overseas students or intending overseas students; and $41,027.34 had been identified as part of the TPS Protected Amount Claim but have not yet been paid from the OSTF by the TPS Director. 6.86 Other than the TPS Protected Amount Claim ($461,715.74) by the TPS Director, the Liquidators have not received any claim for payment from the [p]otential [p]rotected [a]mount in relation to the students identified in the Student Spreadsheets.

Whether the TPS Director is entitled to payment under s 50C(2) of the ESOS Act and whether a trust is established

The TPS Director advanced an alternative submission that, if the Deposit Amount was not a "protected amount", it is entitled to payment of an amount of $461,715.74 (now reduced in oral submissions to $420,668.40 as noted above) pursuant to s 50C(2) of the ESOS Act; the Deposit Amount constitutes trust monies; and the Deposit Amount can be used toward making the payment under s 50C(2) of the ESOS Act in priority to payment to other creditors of the Company. It is by no means clear that an issue as to the application of s 50C(2) of the ESOS Act in this manner was properly raised in this application, where the Liquidators sought directions and declarations as to specified questions, and the TPS Director did not file any interlocutory process seeking to have any other matter determined in the application. However, parts of this issue were also raised by the Liquidators' submissions as to whether there was a trust over the relevant monies, and I will address it on that basis.
I accept the first step in Mr Assaf's submission, that an amount is payable to the TPS Director under s 50C of the ESOS Act, the application of which, as I noted above, extends beyond a registered provider to an entity that formerly had that status. However, that section expressly provides for that amount to be recoverable as a debt owed to the Commonwealth, which could be proved in a winding up. The second step in this submission is that the Deposit Amount is subject to a "constructive trust" for the benefit of the TPS Director. Mr Assaf submits that: "The present case is one in which a constructive trust may be imposed as the appropriate form of equitable relief in circumstances where the Company (through its liquidators) could not in good conscience retain for itself a benefit, or the proceeds of a benefit, which it has appropriated to itself in breach of its contractual or other legal or equitable obligations to another: Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 125."
Mr Assaf submits that the matters that justify the imposition of a constructive trust are that, first, if the Court accepts the Liquidators' submissions, then the Company did not operate its accounts as provided for in ss 28 and 29 of the ESOS Act. It appears that the Company operated accounts as required by s 28 of the ESOS Act so far as they were held in an Australian ADI, although I accept that the balance of the CBA Transaction Account, at least for a period, appears to have fallen below the required protected amount. The TPS Director points to the fact that the Company continued to accept tuition fees from students and failed to provide any consideration for the receipt of the tuition fees. While that proposition is correct, in respect of students to whom no services were provided, the claim here is brought by the TPS Director, not by students, and the TPS Director accepts that students who have received refunds from it no longer have any claim against the Company by reason of s 50C of the ESOS Act.
Mr Assaf submits that the Company "has accordingly gained a windfall benefit by failing to provide any courses and in circumstances where it has failed to comply with express statutory obligations under the ESOS Act". Mr Assaf also at one point advanced a submission, which is no longer pressed, as to the lack of availability of a remedy under s 50C of the ESOS Act. That submission was not correct by reason of the extended operation of that section to which I referred above. Mr Assaf also submits that, where there are no other remedies available to the TPS Director, the Court should readily grant the imposition of a constructive trust. There is, of course, another remedy available to the TPS Director under s 50C of the ESOS Act, by proving for his debt in the winding up. In supplementary submissions, Mr Assaf also submits that, if there was non-compliance with the ESOS Act, then the Company would benefit from its own wrong and that: "It would be unconscionable for [the Company] to fail to comply with the ESOS Act and then effectively have the benefit of the protected money to be used to pay the general body of creditors (which in itself would be a further contravention of the ESOS Act)."
Mr Pritchard responds that there is no suggestion that tuition fees were paid by any mistake or that the liquidators should be treated as having knowledge of the mistake, by contrast with the position in Wambo Coal Pty Ltd v Ariff [2007] NSWSC 589; (2007) 25 ACLC 809. He submits that there are other remedies available to the TPS Director, which must include at least proving for the debt created by s 50C of the ESOS Act in the winding up, by contrast with the position in Bathurst City Council v PWC Properties Pty Ltd [1998] HCA 59; (1998) 195 CLR 566. The Liquidators also submit, and I accept, that a constructive trust could not be imposed in favour of overseas students, who have already received refunds from the TPS Director or transferred to an alternate provider, with the potential for double recovery, and that a constructive trust in favour of those students would not permit payment to the TPS Director in any event.
I recognise that a constructive trust may be established, in an appropriate case, where it would be unconscionable for a party to assert the legal title to property, particularly where it was acquired or would be retained in breach of duty of in breach of the parties' understanding. In Hospital Products Ltd v United States Surgical Corp [1984] HCA 64; (1984) 156 CLR 41 at 125, in a case of breach of fiduciary duty, Deane J observed that "[a] constructive trust may be imposed as the appropriate form of equitable relief in circumstances where a person could not in good conscience retain for himself a benefit, or the proceeds of a benefit, which he has appropriated to himself in breach of his contractual or other legal or equitable obligation to another."
In Muschinski v Dodds [1985] HCA 78; (1985) 160 CLR 483 at 614, a constructive trust was established where the personal relationship between the parties had failed, and there were no other arrangements that addressed the division of the relevant property on failure of the relationship. Deane J observed that "The constructive trust can properly be described as a remedial institution which equity imposes regardless of actual or presumed agreement or intention (and subsequently protects) to preclude the retention or assertion of beneficial ownership of property to the extent that such retention or assertion would be contrary to equitable principle." His Honour there referred to the position where contracts were frustrated or partnerships or contractual joint ventures were terminated, and equity would or could allow a return of each party's contribution to that party, and, in that context, expressed a relatively broad view of the circumstances in which a constructive trust could be imposed, observing (at 616-617) that "Some text writers have expressed the view that the constructive trust is confined to cases where some pre-existing fiduciary relationship can be identified … neither principle or authority requires however that it be so confined to that or any other category or categories of case … once its predominantly remedial character is accepted, there is no reason to deny the availability of the constructive trust in any case in which some principle of law or equity calls for position on the legal owner of property, regardless of actual or presumed intention, of the obligation to hold or apply the property for the benefit of another."
The reference here to conduct that is against conscience, or contrary to equitable principle, is not at large. Although a constructive trust can be imposed, for example, in a case of breach of fiduciary duty, or where property is held within a venture or relationship that has broken down, that remedy is not available merely because a party's conduct may be perceived as unfair or because an apparently meritorious claimant seeks priority over a defendant's other creditors. A Court will also consider alternative remedies before imposing a constructive trust and a constructive trust may not be imposed if another remedy is available: Bathurst City Council v PWC Properties Pty Ltd above at 585; Giumelli v Giumelli [1999] HCA 10; (1999) 196 CLR 101.
It does not seem to me that the TPS Director has identified any recognised equitable principle that would authorise the imposition of a constructive trust in these circumstances, so as to prefer the interests of particular claimants, including students (whose claims have in any event been met and extinguished as noted above) or the TPS Director under the ESOS Act, to the interests of other creditors of the Company in the relevant circumstances. It does not seem to me that this claim falls within the class of claims in which a constructive trust is generally imposed and, even if it did, the statutory regime that creates a debt in favour of the Commonwealth, and the intervention of insolvency, provide strong reason to leave the TPS Director to prove his claim in debt in the winding up, rather than preferring his interests to the interests of other creditors of the Company.
For completeness, I note that the Liquidators also submit that the Company had given "consideration" for monies paid to it, including the making of offers to students and enrolment of students in courses that it was to provide, but did not provide by reason of its external administration and the cessation of its registration, and by the payment of annual levies to the TPS Director. The TPS Director responds that payment of the levies was not consideration and that the Company had received the protected money while giving nothing in return. It does not seem to me that this question advances the question whether a constructive trust should be imposed, where the TPS Director has paid out funds in accordance with the statutory regime created by the ESOS Act and s 50C of the ESOS Act allows a claim by the TPS Director for debt in the winding up. As I noted above, there seems to me to be nothing unconscionable with permitting the operation of the statutory regime in accordance with its terms, whether or not the Company could be said to have provided "consideration" for the payments made pursuant to that regime.
The Liquidators identify a further question whether the ESOS Act establishes an express trust in favour of students or, possibly, the TPS Director. I will address that question for completeness although the TPS Director accepted that no express trust was created having regard to the available evidence and the authorities. The Liquidators point to authority that the creation of a trust requires certainty of intention, particularly in a commercial context where acceptance of an assertion that assets are held in trust is likely to defeat the interests of creditors of the suggested trustee: Re Mowbray College (in liq) (rec and mgr apptd) [2013] VSC 565 at [53]; Re Courtenay House Capital Trading Group Pty Ltd (in liq) and Courtenay House Pty Ltd (in liq) [2018] NSWSC 404 at [19], [23]. Tuition fees were paid largely into the CBA Transaction Account and also into the WBC Account, both of which were applied to pay business expenses of the Company; the amounts paid into those accounts were not segregated from other amounts; and the amounts held in that account were from time to time paid out into other accounts, and ultimately transferred to the Company's shareholder. The majority of the documents issued by the Company to international students do not suggest that monies are held in trust, although the International Students Enrolment Policy (Ex GG 2, Tab 2, p 14) contained a suggestion that the Company would hold "all prepaid tuition fees in trust without penalty until the student enrols in the course". A trust of that kind would not the assist TPS Director, since it appears the relevant students enrolled in the course, and the difficulty in the present case is that services were not provided to them after that occurred. I am not satisfied that an intention to create a trust has been established so as to give rise to an express trust.
The Liquidators also identified a question whether the ESOS Act establishes a statutory trust in respect of the relevant funds. I do not understand the TPS Director to have put his case on that basis but I will also address that question for completeness. The Liquidators refer to my observations in Re MF Global Australia Ltd above as to the circumstances in which a statutory trust may be established, by reference to the legislative intention, as determined primarily from the words of the statute, construed in the context in which they appear, and ascertained by ordinary principles of statutory interpretation. The Liquidators point out that the provisions of the ESOS Act do not, in terms, refer to funds being held in trust. The absence of such a reference is significant, where other statutory regimes which seek to establish trust arrangements adopt such language: compare ss 722 and 981H of the Corporations Act. By contrast with the present form of the ESOS Act, the predecessor legislation in this field, including the Education Services for Overseas Students (Registration of Providers and Financial Regulation) Act, contained an express obligation for a provider to operate a trust account on behalf of students, which was subsequently repealed. The Liquidators submit, and I accept, that the structure of s 29 of the ESOS Act is inconsistent with a trust arrangement, so far as it permits the provider to use the funds in the account for any purpose, subject to the statutory obligation to retain the protected amount in that account. Even the limited support for a trust arrangement which might have been found in a reference to a "designated account" no longer exists, since the obligation to place funds in such an account was repealed on 1 July 2014. Where the legislative amendments to which I referred above removed the trust arrangements that previously applied, preferring the business convenience of education providers and relying upon the regime administered by the TPS Director, I am not persuaded that such a trust was retained by implication.

At a glance

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Judgment (9 paragraphs)

Legislation Cited (11)

Cases Cited (24)

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