In the matter of Independent Contractor Services (Aust) Pty Limited ACN 119 186 971(in liquidation) (No 2) [2016] NSWSC 106

Judgment

1. The applicant Mr Gleeson became administrator of the company Independent Contractor Services (Aust) Pty Ltd ("ICS") on 4 October 2012 upon resolution of its then sole director Mr Michael Smith. On 8 November 2012, a meeting of creditors resolved that ICS be wound up, whereupon Mr Gleeson became its liquidator ("the Liquidator").
2. The Liquidator applied by originating process filed on 19 December 2013 for directions, pursuant to the (CTH) Corporations Act 2001, s 511, to the effect that he would be justified in treating certain moneys standing to the credit of the company (and moneys owing to it) as assets of the company, there being doubt as to whether such funds were beneficially the property of the company and thus to be distributed in accordance with the provisions of the Corporations Act, s 556, or whether they were held by the company as trustee of the Independent Contractor Services Trust ("the trust"), in which case they would be distributed not as assets of the company but in accordance with the trust ("the first directions application"). In a judgment given on 29 April 2014 ("the previous judgment"), [1] with which this judgment should be read, I concluded that the evidence did not make good the contention that the trust arrangement was a sham, and that the Liquidator would not be justified in treating the amounts standing to its credit in its bank accounts or collected by the Liquidator since his appointment as beneficially owned by the company, nor in treating the claiming contractors in respect of whom invoices had been rendered by the company as unsecured creditors. I observed that it was a consequence of my reasoning that the true terms of the trusts were as documented: in other words, that they were discretionary trusts, in that the trustee had a discretion to exercise, whether or not it had regularly done so in the past; accordingly, it could not be accepted that the funds in question were or are held on trust absolutely for the individual contractors whose efforts generated them.
3. When the Liquidator was appointed as voluntary administrator, a balance of $1,212 stood to the credit of the ICS bank account. During the voluntary administration period, $150,461 was collected from debtors, and an interest of $29 was received, so that total receipts of the voluntary administration were $151,704. The administrator paid out funds collected which he was obliged to return of $8,800, and bank charges of $12, and at the conclusion of the voluntary administration transferred the balance of $142,892 to the liquidation account. Subsequently, the Liquidator paid himself administrator's remuneration and expenses of $29,574 (GST inclusive), less a refund of $863. This left a balance of $114,181 in the liquidation.
4. During the liquidation (from 8 November 2012) a further $81,907 was collected from debtors, interest of $8,908 was received, and there was a GST refund of $6,802. There are further amounts outstanding, but the Liquidator does not expect to make any further recoveries. Thus, there were total liquidation realisations of $211,799. The Liquidator has paid commission of $8,577 to Stoneink (which was retained to collect debts), a database extraction fee of $825 to Openhealth, his lawyers Gillis Delaney $52,179 for his legal costs of the first directions application, James Conomos Lawyers $16,500 for the contradictor Mr Lee's legal costs of that application, [2] and Johnson Winter Slattery $2,750 for taxation advice (in respect of proceedings in the Federal Court, to which reference will be made below). This expenditure totals $80,818, which leaves an amount of $130,980 available for distribution, before allowing for liquidator's remuneration.
5. The total of the claims made by contractors (as beneficiaries of the trust) is $232,368.84, of which the largest single claim is $43,807.50, by Mr Lee. The Australian Taxation Office ("ATO") has lodged a proof of debt of $11,593,808.38, which includes an amount of $2,274,004.44 for superannuation guarantee charge. There are other creditors, but their identity and quantum does not affect any issue considered in this judgment.
6. By interlocutory process filed on 9 April 2015, the Liquidator has now applied, relevantly, for the following relief: 1. Pursuant to s 473 of the (CTH) Corporations Act 2001, a determination that the applicant is entitled to remuneration in the amount of $49,510.50 plus GST; 2. A declaration that the applicant is entitled to be indemnified in relation to the legal costs he has incurred in the liquidation of Independent Contractor Services (Aust) Pty Limited (in liquidation) (ACN 119 186 971) ("ICS") in the amount of $2,500.00 plus GST; 3. A declaration that the applicant is entitled to be indemnified in relation to the expenses he has incurred in the liquidation of ICS in the amount of $8,574.15 plus GST; 4. A direction that the applicant is justified in paying the amounts determined in accordance with prayers 2, 3 and 4 herein from: 1. Any amounts standing to the credit of ICS in [account 14709922 with the Commonwealth Bank], 2. Any amounts owing to ICS in respect of services provided by contractors to third parties on behalf of ICS, 3. The amount standing to the credit of ICS on 4 October 2012, being the date of the applicant's appointment as voluntary administrator of ICS, in [account 83-262-7367 with the National Australia Bank], 4. Any amounts paid to ICS on and from 4 October 2012 in respect of services provided by contractors to third parties on behalf of ICS. 1. An order appointing the applicant as trustee of the Independent Contractor Trust. 2. A direction that the applicant as trustee of the Independent Contractor Trust would be justified in distributing the balance of the funds in the [CBA account] after deduction of the amount determined in accordance with prayers 2, 3 and 4 above: 1. To the Australian Taxation Office towards that part of its Proof of Debt lodged in the liquidation of ICS dated 26 March 2013 that relates to unpaid Superannuation Guarantee Charge; or 2. In the alternative, if the Court declines to grant the direction in prayer 7(a), to those contractors who have provided services on behalf of ICS named in Schedule A annexed to this Interlocutory Process and in accordance with the amount of their claims as appears adjacent to their names on Schedule A; or 3. In the further alternative, if the Court declines to grant the direction in prayer 7(b), into Court.
7. Schedule A to the interlocutory process lists 21 claiming creditors, with claims ranging from $748.15 to $43,807.50 (Mr Lee), and totalling $232,368.84.
8. On 7 April 2015, directions were made for notice of the application to be given, by an explanatory circular which was approved by the Court, to each claiming contractor/beneficiary and each creditor of ICS. Such notice was duly given; save for Mr Lee, no contractor or creditor has appeared. In particular, notice of the application was given to the ATO, which indicated that it did not wish to be heard.
9. The Liquidator's present application raises for consideration three main issues: 1. approval of the Liquidator's remuneration and expenses; 2. distribution of the trust assets, and in particular whether the liability to the ATO for superannuation guarantee charge is entitled to priority; and 3. appointment of a replacement trustee of the trust.
10. It is convenient to deal first with the issue concerning distribution of the trust assets.

Application of trust assets and the superannuation guarantee charge

1. The Liquidator now proposes that the trust assets should be applied (after payment of his remuneration and expenses) towards that part of the ATO liability that relates to unpaid superannuation guarantee charge, or alternatively to creditors of the company generally. This proposal is founded on the well-established propositions that (1) a trustee is entitled to resort to and apply trust assets for the discharge of liabilities incurred in the authorised conduct of the trust; [3] (2) such right of indemnity is secured by an equitable lien over the trust assets which arises by operation of law and confers a proprietary interest, in the nature of a security interest, in the trust property, and has priority over the claims of beneficiaries; [4] (3) upon the bankruptcy or liquidation of a trustee, its right of indemnity and lien vests in its trustee in bankruptcy or liquidator; [5] and (4) a trust creditor is entitled to be subrogated to the trustee's right and lien. [6]
2. The first question is whether the liabilities of ICS to its creditors, and in particular to the ATO, are covered by the indemnity. The indemnity is confined to expenses which are "properly" or "reasonably" incurred in their capacity as trustee, which has been held to mean "not improperly incurred". [7] Mr Lee submitted that it was not clear that the former trustee's debt to the ATO was incurred as trustee, so as to fall within the right of indemnity.
3. The context and circumstances in which ICS's tax liabilities arose were as follows.
4. An employer's superannuation guarantee shortfall comprises the sum of the employer's individual guarantee shortfalls, together with interest and administrative charges. [8] An employer's individual superannuation guarantee shortfall is calculated by multiplying the total salary or wages paid by the employer to a particular employee by the rate of compulsory superannuation contributions. [9] For this purpose, "salary or wages" paid by an employer to an employee includes payments in respect of the labour of a person working under a contract that is wholly or principally for the labour of the person. [10] The individual superannuation guarantee shortfall is reduced by the amounts which the same employer contributes to an RSA or a complying superannuation fund. [11] The amount of an employer's superannuation guarantee shortfall is payable by the employer as the superannuation guarantee charge. [12] Thus, superannuation guarantee charge is a liability incurred as an incident of having made payments which fall within the statutory definition of "salary or wages".
5. An employer who has a superannuation guarantee shortfall for any quarter must lodge a "superannuation guarantee statement" with the Commissioner. [13] Such a statement has effect as an assessment of the employer's superannuation guarantee shortfall for the relevant quarter and the superannuation guarantee charge payable on it. [14] If the employer has not lodged a superannuation guarantee statement for any particular quarter, the Commissioner may make a default assessment, and the superannuation guarantee charge payable in relation to it is payable on the day on which the assessment is made. [15]
6. On 25 May 2012, the Commissioner, after completing an audit of the company's PAYG withholding (PAYGW) and superannuation guarantee charge obligations of the company as trustee of the trust for the years ended 30 June 2009 and 30 June 2010, determined that ICS had a superannuation guarantee charge liability of $2,551,754, and imposed administrative penalties totalling $7,507,191 for failure to withhold, and $1,915,049 under Part 7 of the Superannuation Guarantee (Administration) Act ("SGAA"). The reasons for the decision explain that: 1. ICS paid $2,731,562 to contractors (which the Commissioner called "service providers") in 2009, and $19,511,966 in 2010; 2. ICS was required to withhold, under (CTH) Taxation Administration Act 1953 ("TAA"), Sch 1, s 12-60, 45% of the amounts paid to service providers, equating to $10,009,588; 3. ICS was, for the purposes of the SGAA, the employer of the service providers and was liable for superannuation guarantee charge in respect of superannuation guarantee shortfall calculated at 9% on the payments to contractors, being $2,077,434, to which was added interest and an administration fee payable under the Act to amount to a total superannuation guarantee charge liability of $2,551,754; 4. ICS was liable for an administrative penalty under TAA, Sch 1, s 16-30, for failing to withhold, in the sum of $7,507,191. The penalty was initially assessed at 100% of the amount that ought to have been but was not withheld, but 25% was remitted; 5. ICS was liable for a penalty under SGAA, s 59 concerning its superannuation guarantee charge liability, totalling $1,915,049.
7. Thus, ICS was found to be liable for superannuation guarantee charge of $2,551,754, "failure to withhold" penalty of $7,507,191, and Part 7 SGAA penalty of $1,915,049. On 14 June 2012, ICS applied to the Federal Court for review of those decisions, but that application had not been determined when ICS went into administration on 4 October 2012, and after obtaining advice the Liquidator discontinued it. Meanwhile, on or about 15 June 2012, the ATO issued assessments reflecting those findings. The amounts so assessed are debts due to the Commonwealth, [16] and are enforceable notwithstanding any application for review or appeal. [17]
8. The ATO's proof of debt is founded on those assessments. The liability of ICS to the Commissioner thus arises from the payment by ICS of distributions to the contractors. Payment of distributions to contractors/beneficiaries was plainly an authorised function of the trustee. The liability to pay superannuation guarantee charge, and to withhold PAYGW, was incurred by ICS by reason of its making those distributions. Those liabilities were visited on ICS as an unavoidable incident of its performance of its authorised functions as trustee. A trustee's right of indemnity extends to taxes payable as an inevitable incident of the operation of the trust. [18]
9. Moreover, the only function of the company was to act as trustee of the trust. [19] As ICS had no activity other than as trustee of the trust, all its liabilities were prima facie incurred in its trustee capacity, and as such trustee it was entitled to be indemnified out of the trust assets in respect of them. Accordingly, the liabilities of the company - including in particular its PAYGW and superannuation guarantee charge liabilities to the ATO - were incurred in the course of its acting as trustee, and the company (now, its liquidator) is entitled to be indemnified from the trust assets in respect thereof in priority to the interests of the beneficiaries.
10. The second question is whether the superannuation guarantee charge liability is entitled to priority and, if not, how the liabilities are to rank. The suggestion that the superannuation guarantee charge debt is entitled to priority arises from the Corporations Act, s 556(1)(e), which affords priority in a liquidation to superannuation guarantee charge payable by a company in respect of services rendered to the company by employees. Two subsidiary questions arise: (1) does the company's liability fall within s 556(1)(e), and (2) if so, does s 556 apply to the rights of trust creditors in respect of trust property. In my judgment, for the reasons that follow, the answer to both those questions is in the negative.
11. First, for the purposes of the Corporations Act, s 556, "employee" is defined in s 556(2)(a) as a person "who has been or is an employee of the company, whether remunerated by salary, wages, commission or otherwise". In my view, consistent with the conclusions reached in the previous judgment, the contractors are not employees. [20] SGAA admittedly contains, in s 12, an expanded definition of "employee", as follows: (1) Subject to this section, in this Act, employee and employer have their ordinary meaning. However, for the purposes of this Act, subsections (2) to (11): (a) expand the meaning of those terms; and (b) make particular provision to avoid doubt as to the status of certain persons. … (3) If a person works under a contract that is wholly or principally for the labour of the person, the person is an employee of the other party to the contract.
12. The Liquidator submitted that the references to "employee" in the Corporations Act, s 556(1)(e), should be read conformably with the expanded definition of that term in the SGAA, with the consequence that the superannuation guarantee charge payable by ICS in respect of the contractors would be entitled to priority. However, the extended definition in the SGAA applies only "for the purposes of this Act"; it does not apply for the purposes of any other Act - including, relevantly, the Corporations Act, s 556. Section 556 does not capture all superannuation guarantee charge payable by a company in liquidation, but only such as is in respect of employees as defined in s 556: priority is afforded to superannuation guarantee charge only to the extent that it is payable in respect of services rendered to the company by employees as defined in s 556. Moreover, the term "employee" is used in s 556(1)(e)(i) not only in respect of superannuation guarantee charge, but also in respect of wages and superannuation contributions, and also in s 556(1)(g) in respect of leave entitlements, and in s 556(1)(h) in respect of retrenchment payments; it would be anomalous to treat it as having an expanded definition in its application to superannuation guarantee charge but not in those other applications. Accordingly, although the expanded definition applies under the SGAA to make superannuation guarantee charge payable notwithstanding that the contractors are not strictly employees, the ensuing liability is not one in respect of an "employee" for the purposes of s 556, and is thus not entitled to priority under s 556(1)(e)(i).
13. Secondly, as to whether s 556 has any application in this context, the South Australian Full Court admittedly held in Re Suco Gold Pty Ltd [21] that in respect of each trust of which the company in liquidation was trustee, liabilities were to be paid from the trust property in the order laid down in (SA) Companies Act 1962, s 292 - the predecessor of s 556. However, this is virtually universally accepted to be incorrect, although what is the correct position remains unclear. It is incorrect because s 556 is concerned only with the distribution of assets beneficially owned by a company and available for division between its general creditors. [22] The essential alternatives are (as Daryl Williams QC suggested) that where the equities are equal, the trust creditors have priority according to the order in which the claims arose, on the basis that as each claim arose it brought with it an interest, via subrogation, in the trustee's lien over the trust assets; [23] or that the trust creditors' claims rank pari passu (as suggested by the authors of Jacobs' Law of Trusts, [24] and implicitly by McPherson J [25] and R P Meagher QC [26] ).
14. In my judgment, the latter view is to be preferred. The trustee's lien does not attach to any particular asset, nor secures any particular liability, but is in the nature of a floating charge over all the trust assets, [27] and secures the balance of the account as between the trustee and the beneficiary from time to time. [28] The creditors do not acquire any direct interest in trust assets, but have a right to be subrogated to the trustee's equitable lien; theirs is a derivative right, so that if there is no balance due to the trustee from the beneficiary, the creditor can assert no claim against the assets. [29] The creditor's right to be subrogated to the trustee's indemnity thus does not make the creditor a secured creditor of the trust in the ordinary sense, but gives the creditor a right to enforce the trustee's indemnity, only to the extent that the indemnity exists in the hands of the trustee. Where there are multiple creditors, they share that right. As the quantum of the indemnity fluctuates from time to time - as the trustee incurs debts to third parties, and incurs personal liability to the beneficiaries - as does the identity of the creditors - the better analogy is, as the authors of Jacobs' suggest, cases of competing claims by beneficiaries of different trusts to trace into a mixed fund, which produces a ranking pari passu. [30]
15. It follows that the company, as trustee, had, and its Liquidator now has, a right of indemnity from, and lien over, the trust assets, which has priority over the interest of the beneficiaries, for liabilities it incurred in acting as trustee. As all the company's liabilities were incurred in its trustee capacity, all its creditors (including in particular the ATO in respect of superannuation guarantee charge and PAYGW penalty) are entitled to be subrogated to the Liquidator's lien. The statutory priority referred to in s 556 does not apply in respect of trust assets, and the creditors share pari passu in the trust assets, after providing for the costs of administration including the Liquidator's remuneration and expenses. But even if the statutory order of priority did apply, ICS's superannuation guarantee charge liability would not, in the circumstances of this case, be entitled to priority under s 556(1)(e)(i), because the contractors, in respect of whom it is payable, were not "employees" of ICS for the purposes of s 556.
16. One consequence of this conclusion is that it is now apparent that there is no practical difference in the outcome whether or not the company's assets are held upon trust for the contractors: in either event, the creditors would be entitled pari passu. The first directions application can now be seen to have been unnecessary because, whatever the outcome, the creditors were entitled in priority to the beneficiaries, and their claims will exhaust the fund.

Remuneration

1. The liquidators of a company which is the trustee of a trading trust and has no other activities, are entitled to be paid their costs and expenses, whether for administering the trust assets or for 'general liquidation work', out of the trust assets. [31]
2. As to expenses, ordinarily, the Court's approval of a liquidator's remuneration does not include disbursements, the liquidator's right to indemnity for which depends on the general law relating to a trustee's right of indemnity. [32] Whether and to what extent a liquidator is entitled to recoup a disbursement from the estate ordinarily arises upon the taking of a trustee's accounts, or upon a misfeasance summons arising from a liquidator's accounts. [33]
3. In this case, the Liquidator is in effect seeking the Court's approval in advance, and thus protection for the payments he has made or proposes to make from the trust funds. While the Court is generally supportive of liquidators who have incurred disbursements in the exercise of their commercial judgment, the liquidators bear the onus of justifying their disbursements. An insolvency practitioner stands in a fiduciary relationship with the creditors, and must act with the same care as a prudent businessperson would act in their own affairs at their own cost and risk. [34]
4. The Liquidator seeks approval for expenses paid to Johnson Winter Slattery for legal costs of taxation advice in connection with the Federal Court proceedings ($2,750), to Stoneink for debt recovery ($8,577), and to Openhealth for database extraction ($825). In my view, these disbursements were reasonably incurred: it was appropriate for the Liquidator to obtain legal advice to inform his decision whether or not to pursue the Federal Court proceedings in which the tax assessments were challenged; the database extraction fee enabled the Liquidator to access scanned documents from an on-line database and from them identify and collect moneys owed to ICS and those who had claims on ICS; and the Stoneink commission reflects the generation of value by the recovery of debts due. The amounts claimed are also reasonable. Particularly given the small estate and the opportunity which Mr Lee, representing the contractors, has had if he had desired to question them, it is appropriate to constrain the scope for future dispute by approving them. The Liquidator would be justified in recouping those disbursements from the trust assets. While the Court will not give advice retrospectively where a liquidator has already acted without advice, [35] in this case, although the payments have already been made out of the trust assets, they may be regarded as provisional, as they could be adjusted out of remuneration if I were to decide that they were not justified.
5. As to remuneration, although the application is expressed to be made under the Corporations Act, s 473(3), that provision applies to a court-appointed liquidator, not a (deemed) voluntary liquidator such as the Liquidator is (by virtue of the Corporations Act, s 446A(1)(a)), whose entitlement to remuneration as such is governed by s 499(3) and (3A). Moreover, in the present context the court is not exercising the statutory jurisdiction under the Corporations Act, but its inherent equitable jurisdiction to allow remuneration out of trust assets in connection with the administration of a trust fund. [36] However, in allowing remuneration to a liquidator in these circumstances, the Court treats the work done in administering the trust as an incident of the liquidation, and approaches the application for remuneration as analogous to one by an official liquidator for approval of remuneration. [37]
6. In that context, liquidators are entitled to 'reasonable remuneration' for their services in winding up the company, and the Court has a very wide discretion in allowing and fixing the level and the basis of remuneration. [38] The liquidator bears the onus of establishing that the remuneration claimed is fair and reasonable, including that the work was properly performed in the due course of administration and that the amount claimed is a fair and reasonable reward for it. [39] Regard is had to the factors listed in the Corporations Act, s 473(10) and s 504(2). Remuneration may be by way of commission on assets realised and/or assets distributed, or time-based. Liquidators will not necessarily be allowed remuneration at their firm's standard hourly rates for time spent. Particularly in smaller liquidations, questions of proportionality, value and risk loom large. [40] In smaller liquidations, liquidators cannot expect to be rewarded for their time at the same hourly rate as might be justifiable where more property is available. [41] As I endeavoured to explain in AAA Financial Intelligence Ltd (No 2): [42] The liquidator's remuneration claim is based on his firm's quoted standard hourly rates. However, what is reasonable remuneration cannot be assessed solely by the application of a liquidator's quoted standard hourly rates to the time reasonably spent. Although virtually every application for remuneration that the Court sees is made on that basis, regardless of the amount of property involved, the application of a standard hourly rate to liquidations of diverse size and complexity cannot reflect some of the factors referred to in s 504(2), and in particular (d) the quality of the work performed, (g) the degree of risk and responsibility involved, and, above all, (h) the value and nature of the property involved. It does not reward liquidators for value, but indemnifies them against costs. It disregards considerations of proportionality. Thus it is wrong to assess "reasonable remuneration" by reference only to time reasonably spent at standard rates, which though a relevant consideration is only one of several, and should not be regarded as the default position or dominant factor, and is to be considered in the context of other factors, including the risk assumed, the value generated, and proportionality.
7. On the other hand ad valorem remuneration, while not without shortcomings, is inherently proportionate, incentivises the creation of value rather than the disproportionate expenditure of time, was - until the relative recent proliferation of time-based costing - conventional, and is still contemplated by the relevant statutory provisions. [43]
8. In Re Carton Ltd, [44] a proposal that remuneration be 5% on realisations and 5% on distributions was described as one which would require "special circumstances which would justify the fixing of such a large commission"; about half that amount was allowed. In AAA Financial Intelligence, where based solely on time spent at standard rates, the cost of the liquidators' services was $49,915, I took into account that the collection of debt had been outsourced, reflecting a transfer of risk and responsibility away from the liquidators, and ultimately did not generate but detracted from value; [45] and that while the value of the assets realised was $180,000 - of which $104,000 was already in hand when the liquidators were appointed - after disbursements and costs of the application, only $102,298 would remain to satisfy commission and pay dividend, such that a claim for remuneration equivalent to 70% of it was not proportionate, even allowing for additional complexities in dealing with multiple adviser claimants. [46] I allowed remuneration of $36,000, which was 20% of the assets realised, observing: That is a significantly higher percentage than seems to have been regarded as conventional. The time consumed by the liquidation has influenced me to allow a higher rate than might ordinarily be regarded as appropriate. I have also taken into account that the liquidators will not be remunerated for work in respect of the Stockbroker Funds - while noting that they have already recovered remuneration of $95,000 for their pre-liquidation administration work. [47]
9. In In the matter of Hellion Protection Pty Ltd (In Liquidation), [48] in dismissing a liquidator's application for review of the remuneration which had been approved by the creditors, subject to a ceiling, I said: 9 As it seems to me, taking a general view, the liquidator should be allowed 10 percent on the first $50,000 of realisations, which would be about $4,500, but given that the statute provides for a $5,000 starting point, I would start with $5,000. On top of that, while the GEERS receipts are not in truth receipts of the liquidation, it is fair to acknowledge that the liquidator has done work in connection with them, and I would allow the liquidator 5 percent on the GEERS receipts of approximately $250,000, which would be $12,500. 10 Accordingly, were I approaching this matter afresh, I would be inclined to allow the liquidator not more than about $20,000 in remuneration. However, as the creditors approved his remuneration, and no creditor has sought to review it, I would not disturb what has already been approved. But that approval was subject to a cap, and in a liquidation of this scale, I see no occasion to increase the amount above that cap.
10. In In the matter of Gramarkerr Pty Limited (No 2) [49] where the liquidator had on his application been appointed as receiver of a trust of which the company was trustee, and had negotiated and sold the trust real property, I said: 5 The liquidation had the additional unusual aspect of requiring an application to the Court for the appointment of the liquidator as receiver. Aside from that, although it can be said that the defendants/directors were less than cooperative, that of itself is hardly an unusual aspect of liquidations. … 10 So far as remuneration is concerned the liquidator, on what I take to be a time-cost basis, originally claimed approximately $64,000 for remuneration, which would represent about 12.5% of the total of the gross realisation of $495,000. Given the considerations - particularly that of proportionality - to which I referred inter alia in In the matter of AAA Financial Intelligence Ltd (in liq) No 2 [2014] NSWSC 1270, that seems to me to be a disproportionally high amount, notwithstanding the additional complexity involved in the application for appointment as a receiver. I would have been inclined to allow 10% on the first $100,000 and 5% on the balance, which would have generated remuneration of $27,750. That exceeds the $24,196.45 that the liquidator is now prepared to accept for remuneration. Accordingly, I am satisfied that the claim, reduced as it now is, is justified.
11. The Liquidator claims remuneration of $49,510. He says that the result of applying his firm's standard hourly rates to the time spent by him and his staff on the matter would be a claim of $115,146, but he has written off and does not seek payment of $65,635. Of the remuneration claimed, the greatest component by far - $40,965 - relates to the first directions application. The balance of the remuneration claimed totals $8,544, apportioned between identifying trust assets ($2,600), recovering trust assets ($3,070), corresponding with beneficiaries ($2,289), and updating trust records ($585). Neither the Liquidator nor his legal advisers seek any remuneration for work performed since the determination of the first directions application on 29 April 2014 (when it was determined that the funds held by the company were trust assets).
12. As mentioned above, the total liquidation realisations were $211,799, and after expenses of $80,818 there remains $130,980 available for distribution, before allowing for liquidator's remuneration.
13. In respect of realisations, most ($114,181) is attributable to the administration period, for which the Liquidator has already been separately remunerated (in the sum of nearly $30,000). The further collections of $81,907 during the liquidation involved little work by the Liquidator - the collection of books and records, extraction of scanned documents and correspondence with debtors by the Liquidator's staff took place during the voluntary administration, and collections during the liquidation were managed by Stoneink, who have been paid a commission for doing so; and this represents a transfer of risk and responsibility by the Liquidator to Stoneink.
14. The work undertaken by the Liquidator and his staff in connection with the first directions application included preparing for and obtaining and performing directions for service of the application; arranging web facilities to circulate the application and a circular to the creditors; preparing evidence of ICS's prior operations, including examining 40 past transaction to understand the business model; communicating with claiming contractors; and liaising with solicitors and counsel. The Liquidator sought advice on the legal relationships which arose from the arrangements between ICS, the contractors and third parties. At a cost of $2,750, he obtained specialist taxation advice from Johnson Winter Slattery in respect of the proceedings which ICS had instituted in the Federal Court to challenge the ATO assessments; the advice was to the effect that the Commissioner was more likely than not to succeed. He sought to maintain the company's position in the Federal Court proceedings while obtaining that advice, and subsequently discontinued the proceedings. The Liquidator's staff reviewed information provided by CXC in respect of 40 transactions involving 13 contractors in order to establish how ICS had operated. Consequent to that and other legal advice, he made the first directions application.
15. On the hearing of that application for judicial advice, I was satisfied that the Liquidator was faced with a substantial dilemma and that it was a proper application, and that although the advice sought was not given, the Liquidator should have his costs from the trust moneys. Mr Lee, the contradictor, then conceded that the application was properly brought and did not oppose payment of the Liquidator's legal costs. However, in his submissions on the present application, Mr Lee submitted that the application was contrary to the interests of the beneficiaries (as, if successful, it would have seen the trust property removed from the trust and treated as property of the trustee company), and that the Liquidator ought not be entitled to remuneration from the trust property where the company had (by virtue of his appointment) become a bare trustee. Fundamentally, he submitted that the beneficiaries should not have to bear the costs of an unsuccessful application for advice which, if successful, would have deprived the beneficiaries of the trust property. In addition, he submitted that the extensive delay in progressing the winding up was an additional factor. He also submitted that the total claimed remuneration and expenses of $66,643 was, in the context of the quantum of this trust fund of about $131,000 net, unreasonable and disproportionate, and that the Liquidator effectively acknowledged as much by abandoning any claim for the period after 29 April 2014.
16. I do not accept that by not claiming in respect of work undertaken after April 2014 (when the previous judgment established that the funds held were trust and not company property), the Liquidator is in any way acknowledging that his conduct was not justifiable; to the contrary, it reflects a recognition on the part of the Liquidator from that point that the funds were trust and not company property, and that a claim for full remuneration for all work done would produce an unacceptable result having regard to the available assets. It is no more than a means of moderating the amount claimed having regard to the circumstances.
17. Nor do I accept Mr Lee's submission that the Liquidator ought at a much earlier stage have approached Mr Smith as appointor to appoint a new trustee: it overlooks that the Liquidator was in communication with Mr Smith from at least 4 October 2012, that Mr Smith was unwilling to become involved, that the prospect of appointing a replacement trustee was affected by the limited resources for remuneration, and that a replacement trustee would not have obviated the need for an application in the nature of the first directions application - because the Liquidator would still have contended, for the benefit of the creditors, that the funds were company not trust property, which would presumably be opposed by a replacement trustee.
18. More fundamentally, Mr Lee's submission that the Liquidator should not be remunerated for work done on an application which was essentially adverse to the interests of the beneficiaries overlooks that the Liquidator is entitled to remuneration for 'general liquidation work', and while a direction that he was justified in treating the trust assets as company property might have been adverse to the trust, it would have been beneficial to the creditors. In short, his remuneration is for achieving the resolution of an issue arising in the winding up of the company, the only business of which was to act as a trustee. In that context, it is not to the point that it was only a bare trustee, nor that the advice sought might have been contrary to the interests of the trust, if it was a reasonable step to take in the winding up.
19. However, as to the quantum of the remuneration for that work, a number of matters are noteworthy. First, much of the burden was born, and the risk assumed, by solicitors and counsel, whose costs have already been allowed in full and recouped by the Liquidator from the trust assets in the sum of $52,166. This represents a significant transfer of risk and responsibility from the Liquidator to his lawyers. Secondly, as already mentioned, it can now be seen that the application was unnecessary, as the same ultimate result - that the assets are to be distributed to the creditors pari passu - would have been obtained whether or not they were the subject of a trust. These considerations significantly reduce the value of the Liquidator's work in this respect. To allow a total of in excess of $90,000 (costs and remuneration) in respect of it would be out of all proportion.
20. Thirdly, however, the second (present) directions application was necessary, and has also involved work by the Liquidator and his staff, for which he has not separately claimed remuneration.
21. Indicatively, I would be inclined to allow 2% on realisations ($4,236), reflecting the very limited work done by the Liquidator in respect of realisations; but 15% on distributions ($16,647), an unusually high rate mainly to reflect the complicating feature of the two applications for directions, in which respect there are analogies with AAA Financial Intelligence and Gramarkerr. This approach would result in a total remuneration of $20,883. However, I am also conscious that the Court ought not to discourage liquidators from undertaking small but difficult liquidations. In my view, having regard to the size of the fund, the totality of work undertaken and time expended by the Liquidator and his staff (including that for which he has not specifically claimed, or has written off), the challenges presented, and the extent to which others (including lawyers and debt collectors) were engaged and remunerated for associated work, the Liquidator should be allowed remuneration of $30,000 (which equates to about 14% of gross realisations). [50]

Appointment of new trustee

1. By the trust deed dated 16 November 2006, ICS Administration Pty Ltd ("Administration") was the appointor of the trust. However, it went into voluntary administration on the same day as ICS, and is now also in liquidation; the Liquidator is also the liquidator of Administration. If the trustee being a corporation goes into liquidation, the trustee is disqualified from holding office and the trusteeship is thereby terminated (cl 11.3.2). The appointor may by deed appoint an additional trustee (cl 11.5.2). If the appointor should be wound up or dissolved, then the directors of the trustee shall hold the office of appointor (cl 13.3). Accordingly, by operation of clause 11.3.2, the company is no longer the trustee (except as bare trustee pending replacement). As the appointor has been wound up, Mr Smith (as sole director of ICS the trustee) is the person entitled to appoint a new trustee. He has not done so, and has told the Liquidator that he would prefer to have no involvement, and knows of no person who would accept the appointment.
2. In the previous judgment, I observed that it may well be necessary for a replacement trustee to be appointed, and/or for the liquidator to seek alternative directions as to how the funds in question should be administered. My determination of the application of funds issue above addresses the second of those matters. The first was suggested in the context where it appeared likely that it would be necessary for the discretion to make distributions to beneficiaries to be exercised. Because, on the conclusions reached above, the claims of creditors will exhaust the assets, that will no longer be necessary.
3. Mr Lee submitted that in circumstances where it appeared that the Liquidator had scant regard to the interests of the beneficiaries, an independent trustee should be appointed to consider whether the ATO had a proper claim on the fund, and to complete the winding up of the trust. The consent of an official liquidator to be appointed as replacement trustee was proffered. The Liquidator, while not opposing this course, fairly pointed out that it would incur further expense, involve some duplication, result in further depletion of the assets, and not resolve the question of the lien and the priority of the superannuation guarantee charge liability. Those issues have been resolved in this judgment, and in circumstances where the assets are in liquid form, and are to be distributed among the creditors, and there is no requirement for the exercise of any trustee's discretion, there appears to be no utility in appointing a replacement trustee.

Conclusion

1. My conclusions may be summarised as follows.
2. ICS as trustee of the trust had, and its liquidator now has, a right of indemnity from and lien over the trust assets, which has priority over the interest of the beneficiaries, for liabilities it incurred in acting as trustee. As all the company's liabilities were incurred in its trustee capacity, all its creditors (including in particular the ATO in respect of superannuation guarantee charge and PAYGW penalty) are entitled to be subrogated to the Liquidator's lien. The statutory priority referred to in the Corporations Act, s 556, does not apply in respect of trust assets, and the creditors share pari passu in the trust assets, after providing for the costs of administration, including the Liquidator's remuneration and expenses. But even if the statutory order of priority did apply, the superannuation guarantee charge liability would not in the circumstances of this case be entitled to priority under s 556(1)(e)(i), because the contractors in respect of whom it is payable were not "employees" of ICS for the purposes of s 556.
3. The Liquidator would be justified in recouping, from the trust assets, the expenses paid to Johnson Winter Slattery for legal costs of taxation advice in connection with the Federal Court proceedings ($2,750), to Stoneink for debt recovery ($8,577), and to Openhealth for database extraction ($825).
4. Having regard to the size of the estate, the totality of work undertaken and time expended by the Liquidator and his staff (including that for which he has not specifically claimed), the challenges presented, and the extent to which others (including lawyers and debt collectors) were engaged and remunerated for associated work, the Liquidator should be allowed remuneration of $30,000 (which equates to about 14% of gross realisations), plus GST.
5. In circumstances where the assets are in liquid form, and are to be distributed among the creditors, and there is no requirement for the exercise of any discretion by the trustee, there appears to be no utility in appointing a replacement trustee.
6. The Liquidator does not seek costs in respect of this application. As indicated in the previous judgment, it is desirable in a case of this kind that the Court has the assistance of a contradictor, and necessary as a matter of practicality to make provision for the contradictor's costs. In this case, those costs have been kept to a minimum by the economical approach adopted on behalf of Mr Lee, in respect of whose costs a sum of $5,000 is sought and agreed.
7. The Court therefore orders that: 1. The plaintiff be allowed remuneration in respect of the administration of the Independent Contractor Services Trust from the trust assets in the sum of $30,000. 2. The defendant's costs in the sum of $5,000 be paid out of the trust assets. 3. The plaintiff as liquidator of Independent Contractor Services (Aust) Pty Limited ("ICS") would be justified in distributing the assets of the Independent Contractor Services Trust (including any amounts standing to the credit of ICS in CBA account 062-000 14709922, the amount standing to the credit of ICS on 4 October 2012 in NAB account 083-166 83-262-7367, and any amounts received in respect of services provided by contractors to third parties), as follows: 1. First, as to $12,152, in recoupment of his expenses in respect of Johnson Winter Slattery, Stoneink and Openhealth; 2. Secondly, as to $33,000, in payment of his remuneration and GST in accordance with order (1); 3. Thirdly, as to $5,000, in payment of the defendant's costs in accordance with order (2); and 4. Fourthly, as to the balance, pari passu among the admitted creditors of ICS.

Endnotes

1. In the matter of ICS Real Estate Pty Ltd (in liquidation) [2014] NSWSC 479. That judgment also addressed a similar application made in similar circumstances in respect of ICS Real Estate Pty Ltd. Because of the limited funds available in that liquidation, no further application has been made in respect of it, and so the present application and judgment concerns only Independent Contractor Services (Aust) Pty Ltd.
2. Mr Lee, who was the claiming contractor with the largest claim, was joined as a defendant to the first directions application to represent the claiming contractors, in order that there be a contradictor.
3. Octavo Investments Pty Ltd v Knight [1979] HCA 61; (1979) 144 CLR 360, 371; Chief Commissioner of Stamp Duties (NSW) v Buckle [1998] HCA 4; (1998) 192 CLR 226, 245.
4. Octavo Investments v Knight, 367, 370; Chief Commissioner v Buckle, 246.
5. Official Assignee of O'Neill v O'Neill (1898) 16 NZLR 638; Jennings v Mather [1901] 1 KB 108, 117; Savage v Union Bank of Australia Ltd [1906] HCA 37; (1906) 3 CLR 1170, 1188, 1196; Octavo Investments v Knight; Re Suco Gold Pty Ltd (in liq) (1983) 33 SASR 99, 109; Coates v McInerney (1992) 7 WAR 537; 6 ACSR 748; 10 ACLC 616.
6. Re Johnson (1880) 15 Ch D 548, 552; Re Blundell (1889) 44 Ch D 1, 11; Re Frith [1902] 1 Ch 342, 345; Vacuum Oil Pty Ltd v Wiltshire [1945] HCA 37; (1945) 72 CLR 319, 325, 336; Octavo Investments v Knight.
7. Re Beddoe [1893] 1 Ch 547. In Gatsios Holdings Pty Ltd v Nick Kritharas Holdings Pty Ltd (2002) ATPR 41-864, the utility of a test expressed in terms of liabilities which were 'proper' or 'reasonable' in the context of liability in tort was doubted, Meagher JA suggesting that the only clear exclusion was in respect of fraudulent conduct.
8. (CTH) Superannuation Guarantee (Administration) Act 1992, s 17.
9. Superannuation Guarantee (Administration) Act, s 19.
10. Superannuation Guarantee (Administration) Act, s 11(1)(ba), s 12(3); see further [21] below.
11. Superannuation Guarantee (Administration) Act, s 23.
12. (CTH) Superannuation Guarantee Charge Act 1993, s 6.
13. Superannuation Guarantee (Administration) Act, s 33
14. Superannuation Guarantee (Administration) Act, s 35.
15. Superannuation Guarantee (Administration) Act, s 36.
16. TAA, Sch 1, ss 250-10 and 255-5.
17. TAA, ss 14ZZM and 14ZZR.
18. Balkin v Peck (1998) 43 NSWLR 706, 713.
19. The Liquidator deposes that he has found nothing to suggest that ICS carried on any activity other than as trustee of the trust.
20. [2014] NSWSC 479, [39].
21. (1993) 33 SASR 99; (1993) 7 ACLR 873
22. Re Kayfords Ltd [1975] 1 WLR 279; B.H. McPherson, Law of Company Liquidation (4th ed), pp 305-6; Re Staff Benefits Pty Ltd [1979] 1 NSWLR 207; 4 ACLR 54; B.H McPherson, "The Insolvent Trading Trust", in Finn (ed) Essays in Equity (1985), p 154; J D Heydon & M J Leeming, Jacobs' Law of Trusts in Australia, 7th ed, [2115]; Bruton Holdings Pty Limited (in liq) v Commissioner of Taxation [2011] FCAFC 79; (2011) 193 FCR 442, [27]; H.A.J. Ford, Principles of the Law of Trusts [14.7310].
23. D R Williams, "Winding Up Trading Trusts: Rights of Creditors and Beneficiaries" (1983) 57 ALJ 273, 276-7.
24. J D Heydon & MJ Leeming, Jacobs' Law of Trusts in Australia, 7th ed, [2115].
25. B H McPherson, Law of Company Liquidation (4th ed), pp 305-6; B H McPherson, "The Insolvent Trading Trust", in Finn (ed) Essays in Equity (1985), p 154.
26. R P Meagher, "Insolvency of Trustees", (1979) 53 ALJ 648, 653 (14).
27. Stott v Milne (1884) 25 Ch D 710, 715; Dowse v Gorton [1891] AC 190; Jeffray v Webster (1895) 17 ALT 72; Octavo Investments v Knight, 367.
28. Re Johnson (1880) 15 Ch D 548; Re Evans (1887) 34 Ch D 597, 601; Jennings v Mather [1901] 1 QB 108, 113-4; Re British Power Traction & Lighting Co Ltd [1910] 2 Ch 470.
29. Re Johnson (1880) 15 Ch D 548, 552; Re Evans; Re Frith [1902] 1 Ch 342, 346; Re British Power Traction & Lighting Co Ltd [1910] 2 Ch 470.
30. J D Heydon & M J Leeming, Jacobs' Law of Trusts in Australia, 7th ed, [2115]; referring to Keefe v Law Society of New South Wales (1998) 44 NSWLR 451 and Re Sutherland and French Caledonia Travel Service Pty Ltd (in liq) (2003) 59 NSWLR 361.
31. Re Suco Gold Pty Limited (1993) 33 SASR 99; (1993) 7 ACLR 873; Grime Carter & Co Pty Limited v Whytes Furniture (Dubbo) Pty Limited [1983] 1 NSWLR 158; Re Sutherland; Re French Caledonia Travel Service Pty Ltd (in liq) [2003] NSWSC 1008; (2003) 59 NSWLR 361; 48 ACSR 97, [201]; Bastion v Gideon Investments Pty Ltd [2000] NSWSC 939; (2000) 35 ACSR 466, 480 [70]; In the matter of North Food Catering Pty Ltd [2014] NSWSC 77; In the matter of AAA Financial Intelligence Ltd (in liquidation) ACN 093 616 445 [2014] NSWSC 1004, [13].
32. Venetian Nominees Pty Ltd v Conlan (1998) 20 WAR 96, 100; Re Stockford Ltd [2004] FCA 1682; (2004) 52 ACSR 279, 296 [59]; In the matter of AAA Financial Intelligence Ltd (in liquidation) ACN 093 616 445 (No 2) [2014] NSWSC 1270, [14].
33. Mirror Group Newspapers plc v Maxwell (No 2) [1998] 1 BCLC 638 (at 662); Venetian Nominees v Conlan, 100; AAA Financial Intelligence (No 2) [2014] NSWSC 1270, [14].
34. As Finkelstein J observed in Re Stockford Ltd (at 296-7)(at [51]); see also AAA Financial Intelligence (No 2) [2014] NSWSC 1270, [14].
35. In the matter of Octaviar Limited (in liq) [2016] NSWSC 16, [14].
36. Alphena Pty Ltd (in liq) v PS Securities Pty Ltd atf Joseph Family Trust [2013] NSWSC 447; (2013) 94 ACSR 160, [37].
37. Alphena Pty Ltd (in liq) v PS Securities Pty Ltd atf Joseph Family Trust [2013] NSWSC 447; (2013) 94 ACSR 160, [53], [63]-[64]; AAA Financial Intelligence Ltd [2014] NSWSC 1004, [18].
38. Re Wm Rose & Co Ltd (1897) 3 ALR (CN) 65, 66; Re Stockford Ltd [2004] FCA 1682; (2004) 52 ACSR 279, [38]; Re Universal Distributing Co Ltd (in liq) [1933] HCA 2; (1933) 48 CLR 171; AAA Financial Intelligence Ltd [2014] NSWSC 1004, [18].
39. Re Anderson Group Pty Ltd [2002] NSWSC 764; (2002) 20 ACLC 1607; AAA Financial Intelligence Ltd (No 2) [2014] NSWSC 1270, [26].
40. AAA Financial Intelligence Ltd (No 2) [2014] NSWSC 1270, [45].
41. AAA Financial Intelligence Ltd (No 2) [2014] NSWSC 1270, [51].
42. AAA Financial Intelligence Ltd (No 2) [2014] NSWSC 1270, [45].
43. See for example, Corporations Act, s 473(3), which provides, in respect of a Court-appointed liquidator, that a liquidator is entitled to receive remuneration by way of percentage or otherwise.
44. Re Carton Ltd (1923) 39 TLR 194.
45. AAA Financial Intelligence Ltd (No 2) [2014] NSWSC 1270, [49].
46. AAA Financial Intelligence Ltd (No 2) [2014] NSWSC 1270, [51].
47. AAA Financial Intelligence Ltd (No 2) [2014] NSWSC 1270, [53].
48. In the matter of Hellion Protection Pty Ltd (In Liquidation) [2014] NSWSC 1299.
49. In the matter of Gramarkerr Pty Limited (No 2) [2014] NSWSC 1405.
50. Since reaching this conclusion, I have noticed that a resolution of the creditors' meeting of 8 November 2012 approved remuneration for work to be done as liquidator up to $30,000 plus GST. While not directly applicable - because the Liquidator's entitlement to remuneration from trust assets arises not under the Corporations Act, s 499, but in the Court's inherent jurisdiction, in circumstances where the remuneration will be from funds in which the same creditors would otherwise be entitled to share, it provides further support for the conclusion I have reached independently of it. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 23 February 2016