In the matter of The Arms Global Group Limited (in Liquidation) [2018] NSWSC 512

Directions for payment in

1. Although the nine trust accounts to which I have referred were in some cases designated in a manner indicative of an intention that they operate for the benefit of a particular client - such as IAG, CGU, Westpac or GE - the liquidators' investigations have revealed that deposits were sometimes made by debtors into the wrong bank account, or without quoting reference numbers, and for that reason moneys in the trust accounts are not readily reconcilable with entitlements of any particular client beneficiary. Moreover, the liquidators' investigations have revealed that those in control of Arms Global have apparently, without authority, personally withdrawn some funds that have been unable to be identified with any particular client beneficiary. One consequence of these matters is that, although it is clear enough that the moneys in the accounts are held on trust for client beneficiaries, the liquidator is now unable to identify which client beneficiaries are entitled to what amounts in the various trust accounts. A second consequence is that if all the claims on those funds could be fully and properly identified, the funds would almost certainly be deficient to meet those claims.
2. The evidence suggests that there may have been a mixing of funds, in the sense that one client beneficiary may have been paid out of funds held in an account designated for another. The result is that, in all likelihood, the trust funds comprise a deficient mixed fund. If that be so, then all those who contributed to the deficient fund are equitable tenants in common of the funds with claims against it that are rateable according to their contributions.
3. Sometimes, where it is not possible to resolve such questions having regard to contributions, it may be possible to do so on a claims basis rather than a contributions basis, or on a contractual basis. These alternatives were discussed by Black J in Re MF Global Australia Ltd (in liq) [2012] NSWSC 994 at [103] to [180]; (2012) 267 FLR 27; see also Re Lehman Brothers International (Europe) (in admin) [2012] UKSC 6; [2012] 3 All ER 1. And where it is impossible to identify and quantify individual claims the court may direct that the liquidator would be justified in distributing the funds among the beneficiaries proportionately according to their claims: see Re French Caledonia Travel Services Pty Ltd (2002) 59 NSWLR 361 at 420-1; [186], see also Re BBY Ltd (No 2) [2018] NSWSC 346 at [40], [41], [61].
4. The problem in this case is first, that only Arms Global and its staff were in a position to know which debt due to which client beneficiary a payment received was attributable, and the records maintained by Arms Global do not enable that to be ascertained in respect of the remaining trust funds with any degree of confidence. Debtors may know and be able to establish that they have paid Arms Global, but will not be able to establish whether Arms Global has remitted their payment to a creditor, at least unless they had received a statement from the creditor. In any event, the debtors are unlikely to have any interest in cooperating with the exercise of ascertaining the ownership of the funds. Theoretically. it may be possible to trace payments made into the accounts but the evidence establishes that the cost would be prohibitive.
5. The client creditor beneficiaries, although they will know what debts have been referred to Arms Global for collection, will not know what funds Arms Global has received from debtors, except to the extent that debtors may have asserted to the creditor that payment was made to Arms Global. But that exception provides some basis on which a creditor would be able to establish a claim - that is, if it could show that, in respect of a referred debt, the debtor had paid Arms Global, but that Arms Global had not remitted funds in respect of that debt to the creditor.
6. Accordingly, the creditor beneficiaries are in the best position to establish a claim on the fund. But the liquidators say that to date they have not been able to do so. Confronted with those difficulties, the liquidators wish to discharge themselves as trustees by paying the trust funds into Court - which would have the consequence that any claimant on them would have to apply to the Court for payment out. In doing so, because the fund is a deficient one, it will be necessary for notice to be given to the other potential claimants, and then for the Court in effect to consider the proofs submitted by each, and ultimately distribute the fund pro rata - a task which liquidators and not the Court are normally expected to undertake. This is not an attractive prospect, especially since the funds, which amount now in the order of $700,000, are not insubstantial, and would be much better off in the hands of the parties entitled to it than in the hands of the Court.
7. The process of a liquidator calling for what would in effect be proofs against the fund, and then obtaining advice that the liquidator would be justified in distributing the fund amongst those who have lodged proofs, is one that has considerable attraction, and one that is not unfamiliar when it comes to liquidator trustees: see, for example, the course adopted in In the matter of AAA Financial Intelligence Ltd (in liquidation) ACN 093 616 445 (No 2) [2014] NSWSC 1270; (2014) 32 ACLC 14-052; and In the Matter of ICS Real Estate Pty Ltd (in liquidation) and In the Matter of Independent Contractor Services (Aust) Pty Ltd (in liquidation) [2014] NSWSC 479; see also In the matter of Independent Contractor Services (Aust) Pty Limited ACN 119 186 971(in liquidation) (No 2) [2016] NSWSC 106.
8. I have therefore given very close consideration as to whether it would be preferable to embark on that course, rather than to have the funds paid into Court at this stage. On the one hand, (NSW) Trustee Act 1925, s 95 appears to give a trustee a right to obtain a discharge by paying the trust funds into Court. On the other, the liquidators remain in office as liquidators of the company and, as they have indicated, would be prepared, if the Court so requires, to undertake the type of exercise which I have contemplated.
9. I appreciate the liquidators' concern that nothing more will be achieved by pursuing a course which they have already tried in part to adopt. But although the outcome may be very crude, and might even default to a division on the basis of equality if the quantum of claims cannot be established, it seems to me that any prospect of obtaining some basis for a division of the funds is superior to paying them into Court, where they will in all probability languish for the benefit of no-one.
10. For those reasons, I propose to make directions for the circularisation of persons with potential claims on the fund, with a view ultimately to giving advice to the liquidator that he would be justified in distributing the funds to those who make claims - or to those who make claims that the liquidator considers ought be admitted - and bearing in mind that a much lower standard might be required than would ordinarily be required in a proof of debt process.

Remuneration

1. The other aspect of the application involves the approval of the liquidator's remuneration. The liquidator claims remuneration of $190,000 plus GST of $19,000, plus disbursements of $88,000.
2. The disbursements are unexceptionable, although there is a relatively large amount for bank fees, that has been unavoidable in the circumstances.
3. The remuneration is claimed on a time basis, but I have cross-checked it on a proportionate basis, having regard to the rates of commission allowed in other cases - references to which are collected in, inter alia, AAA Financial Intelligence Ltd; [1] In the matter of Gramarkerr Pty Limited [2] and In the matter of Sakr Nominees Pty Ltd. [3]
4. A commission of 5% on recoveries of $3,410,000 would produce commission of $170,500, and adding GST of 10% would result in $187,500. That to me indicates that the time-based claim is a reasonable and proportionate one. I am satisfied that the claim for remuneration should be allowed.

Conclusion

1. The Court orders that: 1. The remuneration of the second plaintiff for and in respect of identifying, receiving, preserving, reconciling and allocating the trust funds identified in paragraph 54 of his affidavit sworn on 12 December 2017 be approved in the sum of $209,766.15 (inclusive of GST). 2. The second plaintiff would be justified in paying to himself from the said trust funds, in the proportions referred to in order (3), the said remuneration, together with his disbursements of $88,430.32. 3. The remuneration and disbursements referred to in orders (1) and (2) be paid from the following trust accounts in the following proportion: 1. Administration trust account 11.98%; 2. IAG trust account 27.32%; 3. Global trust account 30.19%; 4. Cosmos trust account 0.17%; 5. Purchase debt Westpac trust account 3.06%; 6. Bpay trust account 26.33%; 7. CGU trust account 0.19%; 8. Westpac trust account 0.76%. 1. The liquidator dispatch to each interested person referred to in tab 6 to exhibit MH1 herein, by email in the case of any interested person for whom he has an email address and otherwise by ordinary mail, a circular to the effect that: 1. on the information available to the liquidator, after all reasonable investigations, the liquidator is unable to ascertain the entitlements to the moneys in the trust accounts which are held for clients of Arms Global; 2. if all valid claims could be identified, there is likely to be a deficiency in those funds, so that claimants would not be paid in full; 3. any interested person wishing to make a claim on those funds must lodge with the liquidator, within a reasonable time to be fixed by the liquidator, a claim specifying the quantum of the claim and supported by any available evidence of it; 4. upon expiration of the time for making claims, the liquidator proposes to seek the Court's advice that he would be justified in disregarding any claim which has not been made within time, and in distributing the funds according to such determination as he might reasonably make having regard to the claims made and the available evidence; 5. the liquidator's application to the Court, the affidavit evidence in support of it, and the judge's reasons, may be accessed on the liquidator's website at www.corcordis.au/creditors. 1. The liquidator publish the Originating Process and his supporting affidavits and a copy of the reasons for judgment of 13 February 2018 on the said website. 2. The fees, costs and expenses of this application be paid out of the trust funds on an indemnity basis, in the same proportions as referred to in order (3).

Endnotes

1. In the matter of AAA Financial Intelligence Ltd (in liquidation) ACN 093 616 445 (No 2) [2014] NSWSC 1270 at [45]; (2014) 32 ACLC 14-052.
2. In the matter of Gramarkerr Pty Limited (No 2) [2014] NSWSC 1405.
3. In the matter of Sakr Nominees Pty Ltd [2016] NSWSC 709. 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: 24 April 2018