Some authorities concerning the right to recover costs, expenses and remuneration
164 The following authorities provide an illustration of the various and diverse approaches to the justifications for payment of an insolvency administrator's costs, expenses and remuneration from trust assets.
165 The decision in Re Enhill Pty Ltd has been briefly considered above. There the Court dealt with the winding up of an insolvent corporate trustee pursuant to the provisions of the Companies Act 1961 (Vic). It took the view that the "proceeds of the trustee's lien are available for division amongst the bankrupt's creditors generally, not only among creditors of the trust business, and in the case of a company in liquidation are subject to the control of the liquidator under s.292" (at 564 per Young CJ; see also 569 per Lush J). The approach in Re Enhill was to regard the right of exoneration as a right in the trustee to beneficially appropriate trust funds to itself in an amount equal to the liabilities incurred in the performance of the trust regardless of whether or not the funds would be used to discharge those liabilities. It was a logical extension of that conclusion that such funds were property divisible amongst all of the trustee's creditors and, indeed, property from which the liquidator's priority claim for remuneration and expenses might be paid under the Companies Act 1961 (Vic). As explained earlier in these reasons, the foundation of the decision has subsequently been shown to be in error by McLelland J in Re ADM Franchise Pty Ltd (1983) 7 ACLR 987.
166 The decision in Re Suco Gold provides a stark exemplar of the difficulty encountered when the court accurately identifies the limited nature of the right of exoneration, but then attempts to meet the claims of the external administrators of the insolvent trustee from that right. There, the Court correctly identified the right of exoneration as being the entitlement to discharge trust liabilities by use of trust funds (at 105, per King CJ), with the consequence that the trustee had no right to use or apply the trust property for any other purpose. At 107-108, King CJ said:
It seems to me, however, that the right of indemnity can only produce proceeds for division among the creditors generally if the trustee has discharged the liabilities incurred in the performance of the trust and is therefore entitled to recoup himself out of the trust property. If he has not discharged the liabilities, the right of indemnity entitles him to resort to the trust property only for the purposes of discharging those liabilities. He may apply the trust monies directly to payment of the trust creditors or he may take it into his own possession for that purpose. If he takes the trust property into his possession to satisfy his right to be indemnified in respect of unpaid trust liabilities, it seems to me that the property retains its character as trust property and may be used only for the purpose of discharging the liabilities incurred in the performance of the trust.
Given that conclusion, it is surprising that the Court allowed the liquidator's costs, expenses and remuneration to be paid from funds which could be used "only" for the purposes of discharging trust creditors. Somewhat incongruously, after rejecting the decision in Re Enhill in so far as it held that the right of exoneration was property which was able to be used to meet the claims of all creditors, King CJ relied upon it as being "highly persuasive authority for the proposition that the liquidator's costs, expenses and remuneration may be paid out of the trust property". That was particularly unusual given that the conclusion in Re Enhill, that the trust assets might be used to meet the liquidator's costs, expenses and remuneration, was only reached as a consequence of the determination that the right of exoneration beneficially placed trust funds at the disposal of the trustee. That point of principle had been expressly rejected by King CJ and the other members of the Court. Nevertheless, after stating that there were strong practical considerations in favour of allowing the use of trust funds to meet the liquidator's expenses and remuneration, King CJ held that it could be "justified by reference to the obligations of the trustee company arising out of the carrying on of the business authorised by the trusts" and that on winding up the company's debts may only be paid in accordance with the provisions of the Companies Act 1961 (Vic). That necessarily required a liquidator to incur costs and expenses and be paid remuneration. The learned Chief Justice then referred to the existing provision of the Companies Act, s 292 which provided for the payment of the expenses and remuneration of the liquidator in priority to other unsecured debts and said (at p 110):
As the company's obligation as trustee to pay the trust debts incurred in carrying out the trust cannot be performed unless the liquidation proceeds, it seems to me to be reasonable to regard the expenses mentioned above as debts of the company incurred in discharging the duties imposed by the trust and as covered by the trustee's right of indemnity.
(Emphasis added)
The learned Chief Justice was, no doubt, troubled by the approach of effectively "deeming" liabilities to be "trust debts", with the consequence that he identified an alternative basis upon which the trust funds could be used to meet the liquidator's claims:
If the reasoning is wrong I would, like Lush J in Enhill Pty Ltd be prepared to rely on the principle enunciated by Dixon J in Re Universal Distributing Co Ltd (in liquidation).
(Citations omitted)
As appears from the discussion which follows, recent authorities have identified the twin principles in Re Universal Distributing Co and Berkeley Applegate as providing a more solid foundation for granting relief to insolvency distributors.
167 The orders made by the Court in Re Suco Gold (see p 111) were to the effect that the cost, expenses and remuneration of the liquidators and the costs of the winding up application were to be paid in priority to the trust creditors. Unfortunately, the primary basis on which the Court held that the liquidator's costs, expenses and remuneration were to be paid from the trust assets; being that they were to be "regarded" as trust debts; does not adequately explain how it is that they were to be accorded priority over the other trust creditors. If it were the case that the liquidator's costs, expenses and remuneration were trust debts, it would necessarily follow that they would rank pari passu with all other trust debts.
168 In Re Suco Gold, Jacobs J agreed with the Chief Justice as to the entitlement of the liquidators to be paid from the trust assets or right of exoneration. His Honour relied upon a construction of s 292 of the Companies Act 1962 (SA) as permitting the use of trust assets for the meeting of those expenses. He held (at p 113) that the right of trust creditors to prove in the liquidation was specifically identified in the provisions of the Companies Act to be subject to the priority regime:
Looking at the whole legislative scheme, therefore, I can find nothing in the language or structure of the legislation to deny the proposition that, in a case such as this, s 292 can operate upon the trust assets to provide for the remuneration of the liquidator in priority to other claims, more particularly as the other provisions of s 292 would seem clearly to be available to regulate the rights of creditors inter se. To hold otherwise would defeat, or at least frustrate, the legislation. The liquidator is appointed by the Court, and is answerable to the Court, and is clearly entitled to remuneration for his services whether fixed by the Court or by the creditors whose proofs have been admitted. He would not be available to act at all unless the Act is allowed to speak according to its tenor; and indeed, unless the Act so speaks, the Court itself would be in no better position to recover the costs and expenses of the winding up, if the winding up were undertaken by the Court without the intervention of a liquidator. I cannot think that the legislature intended such a result, and I am not persuaded that the language of the Act, or the general law, compels such a result.
His Honour concluded (at p 115) that the priority regime in the Companies Act applied to the insolvent trustee's right of exoneration and, therefore, it was available for meeting the liquidator's claims. Whilst it is difficult to discern in his Honour's reasons how it might be that the trustee's right to apply trust funds only in discharge of the trust creditor's debts might be reformulated into a right to use trust money for other purposes, perhaps the answer is in Lush J's observations (ibid) that, "I prefer to rest my decision upon what appears to me to be the manifest intention of the legislation, derived from the structure and language of the Act".
169 Whilst the outcome in Re Suco Gold in relation to the costs, expenses and remuneration of the liquidator is pragmatic, undoubted tension remained between the nature of the right of exoneration and the ability to use it for those purposes. The conclusion of Jacobs J appears to come perilously close to contravening the prescription which exists in the statutory insolvency regimes (albeit implicitly in the Corporations Law) that trust assets are not to be used to meet the claims of ordinary creditors and the costs and expenses of the administration of the insolvency.
170 An important decision in this context is that of Brereton J in Re Independent Contractor Services (Aust) Pty Ltd (in liq) (2016) 305 FLR 222. It has been discussed above and, it will be recalled, in it his Honour determined that the right of exoneration was a trust asset to which s 556 of the Corporations Act did not apply. The further question considered by Brereton J concerned the ability to utilise the assets of the trust to meet the liquidator's costs, expenses and remuneration. Given that his Honour accepted that property which is not beneficially owned by a company is not available to meet the claims of its creditors (Re Australian Home Finance Pty Ltd [1956] VLR 1; (1955) 63 Arg LR 247; Re Kayford Ltd [1975] 1 All ER 604), it is somewhat counter intuitive that he determined that the funds might be used to meet the liquidator's claims. In this respect his Honour made the rather broad statement that:
[27] The liquidators of a company which is the trustee of the trading trust and has no other activities, are entitled to be paid their costs and expenses, whether for administering the trust or for "general liquidation work", out of the trust assets.
His Honour referenced the following cases as supporting that proposition: Re Suco Gold Pty Ltd (In Liq) (1983) 33 SASR 99; Grime Carter & Co Pty Ltd v Whytes Furniture (Dubbo) Pty Ltd [1983] 1 NSWLR 158; Re French Caledonia Travel Service Pty Ltd (in liq) (2003) 59 NSWLR 361; 184 FLR 280 at [201]; Bastion v Gideon Investments Pty Ltd (in liq) (2000) 35 ACSR 466 at [70]; In the matter of North Food Catering Pty Ltd (2014) 32 ACLC 14-049; Re AAA Financial Intelligence Ltd (in liq) ACN 093 616 445 (in liq) [2014] NSWSC 1004 at [13]. His Honour had made an almost identical comment in the last of these cases where he had described the statement as being the "first principle" to be applied when considering claims by liquidators for their costs, expenses and remuneration from trust assets held by an insolvent trustee company. It seems to be implicit in his Honour's statement of principle that the insolvent trustee company has remained as trustee despite the winding up order and has retained ownership of the assets which were the subject of the trust.
171 The reliance by his Honour on Re Suco Gold as supporting that "first principle" necessarily suggests that it should be more accurately stated as being that the costs, expenses and liability for remuneration arising out of the liquidation are trust debts of the trustee and must be met by the exercise of the right of exoneration from the trust assets. The difficulty with this is that the approach in Re Suco Gold which deems the liquidator's imposts to be "trust debts", does not afford any sound basis for according the payments to the liquidator any priority over the other trust creditors. In fact, in his subsequent decision in Re Independent Contractor Services, Brereton J himself asserted that Re Suco Gold was in error in applying the priority provisions of the Corporations Act 2001 (Cth) to payments out of the assets of the trust. Despite all of that, it seems to be implicit in the comments of Brereton J in Re AAA Financial above that, not only are the assets of the trust available to meet the costs, expenses and remuneration of the liquidator, but that the liquidator is entitled to priority over the other trust creditors.
172 Justice Brereton also specifically cited Grime Carter and Co v Whytes Furniture (Dubbo) Pty Ltd [1983] 1 NSWLR 158, a decision of McLelland J, in support of the proposition that the liquidator was entitled to recover amounts in relation to the costs, expenses and remuneration from the trust assets. However, that decision and its reasoning must be doubted given McLelland J's subsequent judgment in Re ADM Franchise Pty Ltd (1983) 7 ACLR 987, where he repudiated the underlying reasoning which led him to the conclusion in Grime Carter & Co that the trust assets were available to meet the costs, expenses and remuneration of a liquidator.
173 His Honour further relied upon the decision of Campbell J in Re French Caledonia Travel Services Pty Ltd (in liq) (2003) 59 NSWLR 361; [201] in support of his first principle. That decision, however, merely relied upon the approach of King CJ in Re Suco Gold to the effect that the costs and expenses in the liquidation process should be "regarded" as debts of the trustee incurred in discharging the trustee's duties. The decision of Austin J in Bastion v Gideon Investments Pty Ltd (in liq) (2000) 35 ACSR 466, [70] was also cited by Brereton J in support of his first principle. Again, there is some inconsistency in that Austin J purported to follow the inconsistent decisions of Enhill and Suco Gold, neither of which formed the basis of Brereton J's conclusion that the right of exoneration was a trust asset.
174 Lastly, Brereton J relied upon his earlier decision in In the matter of North Food Catering Pty Ltd (2014) 32 ACLC 14-049. There he referred to a number of authorities which had adopted a variety of approaches to support the payment of the costs, expenses and remuneration of liquidators of trustee companies and said:
17 Those cases appear to me to establish clearly enough that in the present case the liquidators are entitled to be paid their remuneration, whether for administering the trust assets or for general liquidation work, out of the trust assets, since the company has no assets other than trust assets.
Unfortunately, his Honour did not identify which of the various foundational principles caused him to reach that conclusion. His Honour did refer to the decision of Black J in Re MF Global Australia Ltd (in liq) (No 2) [2012] NSWSC 1426, which, in part, adopted the approach of Campbell J in Re Application of Sutherland (2004) 50 ACSR 297, which, itself, relied upon the inherent power of a Court to allow a trustee's costs, expenses and remuneration out of the assets of a trust.
175 From this brief review of the "first principle" of Brereton J in AAA Financial (which was repeated in Re Independent Contractors), it is apparent that the authorities on which his Honour relied are, themselves, based upon a variety of inconsistent foundations. That is not to say that his Honour's first principle is not broadly correct. However, a more precise focus upon the underlying rationale for the principle might assist in elucidating its boundaries. In particular, an understanding of its juridical basis would disclose whether liquidators should be entitled to be paid out of the trust assets per se or only those assets in respect of which the insolvent trustee has a right of exoneration. The terms in which the first principle are stated suggest that liquidators of a trustee company which had no right of exoneration would, nevertheless, be entitled to recover their claims for their work in the winding up out of the trust assets. It would be most unusual were the first principle to extend that far and no case suggests that the beneficial interest of beneficiaries in trust assets ought to be applied in this manner.
176 The decision of Farrell J in Bell Hire Services is also important in this context and particularly so given that her Honour identified that the insolvent trustee's right of exoneration was merely the right to cause the trust assets to be applied to discharge trust debts. However, it appears that her Honour adopted the view that the power to order that the liquidators be paid their costs, expenses and remuneration was unconnected with the right of exoneration and that the discretion of the Court to make an order in this respect was at large. At paragraph [22] her Honour said:
[22] The liquidator's remuneration and expenses in respect of work relating to trust assets which is properly done for the purpose of winding up the company's affairs should be paid out of non-trust property of a trustee company to the extent that such property is available. However, if non-trust property is not available and a liquidator would not otherwise be required to undertake that work, it would normally be appropriate for the cost of the work to be paid from trust assets: see Re AAA Financial Intelligence Ltd (in liq ACN 093 616 445) [2014] NSWSC 1004 (AAA) per Brereton J at [13].
This approach appears to be inconsistent with her Honour's consideration of how the costs of the winding up application ought to be dealt with. Her Honour held that those costs had to be treated as trust debts in accordance with the decision in Re Suco Gold, but that they did not enjoy any priority over other trust debts such that they ranked pari passu with other trust creditors.
177 A careful review of the significant authorities concerning the entitlement of a liquidator of a corporate trustee to be paid their costs, expenses and remuneration from trust assets was recently undertaken by Robson J in Re Mamounia Pty Ltd (in liq) [2017] VSC 230 at [111] - [162]. There is no need for that discussion to be repeated here. Importantly, his Honour ultimately determined at [169] that the correct approach was to apply the principles established in Re Universal Distributing which entitled the liquidator of a trustee company to access trust assets for his reasonable expenses and remuneration incurred in taking steps to investigate and conduct certain public examinations to ascertain and assess the validity of the claims by certain creditors and the related parties against the trust assets as well as the existence of any claims against various entities. This was founded upon his Honour's earlier identification (at [111]) that the principle to be derived from Re Universal Distributing permitted payment from the fund of money created by the liquidator of so much of the remuneration "fixed for work done in the winding up which was referable to the calling in and conversion of the assets producing the fund" and which would include expenses reasonably incurred in the care, preservation and realisation of the property.
178 The exact nature of the principles which underlie the Court's power to permit the external administrator of an insolvent trustee to recover from trust assets its costs, expenses and remuneration in priority to the trust creditors, does not emerge from the disparate authorities on this topic. That is not surprising given that the antecedent question of what are the rights of the insolvency administrator to access the right of exoneration or the trust assets is, itself, uncertain. Nevertheless, what is clear is the appreciation that the administration in the insolvency of a trustee necessarily has the consequence that trust creditors will have their claims met or dealt with in one way or another. In the circumstances where no new trustee is appointed, the discharging of such debts can only occur through the liquidation process which, in itself, will often involve substantial work in administering the trust. The net result is that trust creditors will be paid, in whole or in part, as a consequence of the work undertaken by the insolvency administrator.
179 In Re Universal Distributing the company being wound up had issued debentures which were secured by a floating charge over all of its undertaking. Its assets were insufficient to meet the claims of the debenture holders, yet the liquidator sought to be allowed his remuneration and disbursements from the proceeds realised in the sale of those assets. The debenture holders objected to the granting of this priority to the liquidator at the expense of their secured entitlements. Central to the decision of Dixon J was the notion that, regardless of how the assets were realised, the cost of doing so would inevitably be borne by the debenture holders. If they were realised at the suit of the holders themselves, they would bear the realisation costs as they could only ever receive the net proceeds of sale after the Court appointed receivers' costs had been deducted. Necessarily, that foundational conclusion resulted in a distinction being drawn between the work which was necessary to be carried out in the preservation and realisation of the secured assets on the one hand, and the conduct of the winding up on the other. In this respect Dixon J concluded at pp 174 - 175:
In applying this principle, only those expenses appear to have been thrown against the fund belonging to the debenture-holders which have been reasonably incurred in the care, preservation and realisation of the property. In the present case the liquidator has employed a material part of his time and energies in recovering moneys, both uncalled capital and debts, which enure for the debenture-holder, and in so far as these services increase the remuneration which he receives, I see no reason why the burden should not be thrown upon the proceeds. The question is not whether moneys available for unsecured creditors should be relieved at the expense of the security. In such a case it may be said that the service of collecting enough to discharge the debenture must in any event be performed in order that a surplus may then arise in which the unsecured creditors may participate. The question in the present case is whether the liquidator can charge against the fund passing through his hands, as between himself and the person to whom it is payable, so much of the remuneration fixed for work done in the winding up as is referable to the calling in and conversion of the assets producing the fund. I see no reason why remuneration for work done for the exclusive purpose of raising the fund should not be charged upon it.
180 The principle in Re Universal Distributing has been applied in a variety of cases to justify the payment to a liquidator or a bankruptcy trustee their costs, expenses and remuneration in relation to the realisation of trust funds which are otherwise subject to the subrogated lien of trust creditors. In Re Dungowan Manly Pty Ltd (in liq) (2015) 105 ACSR 648 at [85] Black J suggested that the Re Universal Distributing principle extended the liquidators entitlement to recover expenses for work performed for the purpose of "identifying or attempting to identify trust assets; recovering or attempting to recover trust assets; realising or attempting to realise trust assets; protecting or attempting to protect trust assets; distributing trust assets to the persons beneficially entitled to them". He did so by reference to the comments of Finkelstein J in 13 Coromandel Place Pty Ltd v CL Custodians Pty Ltd (in liq) (1999) 30 ACSR 377 at [34]. It is, perhaps, arguable that the comments of Finkelstein J were actually directed to the related principle in Berkeley Applegate rather than that in Re Universal Distributing, although Finkelstein J, himself, may not have differentiated between them. Whether or not that is so may not matter given that any difference in the range of activities for which compensation might be allowed within the scope each principle is probably insignificant.
181 In the recent decision of Freelance Global v Bensted Ltd (in liq) [2016] VSC 181 at [64], Riordan J considered that the Universal Distributing principle entitled a liquidator of a trust company who has acted reasonably, to be indemnified out of the trust assets for their costs and expenses in "identifying or attempting to identify trust assets; recovering or attempting to recover trust assets; realising or attempting to realise trust assets; protecting or attempting to protect trust assets; and distributing trust assets to the persons beneficially entitled to them" (see also the discussion by Markovic J in Kite v Mooney (No 2) at [142]ff). In Dixon v Wieselmann (2013) 93 ACSR 576 at 588; [41], Robson J identified that it was not necessary to demonstrate that the work and expenses actually had the consequence of adding value or benefiting the persons interested in the property. What was necessary in order to establish the entitlement to remuneration and the recovery of costs was that the work was necessary, that the costs were reasonably incurred, and that there was a sufficient nexus with the "salvage objective".
182 It has been observed that the right created by the Universal Distributing principles gives the entity undertaking the work in the realisation of the assets a charge over the proceeds derived by their work (Stewart v Atco Controls Pty Ltd (in liq) (2014) 252 CLR 307; Coumanios v Giunti [2017] FCA 678 at [75]).
183 Many of the cases to which reference has been made have also relied upon the somewhat parallel equitable principle which was applied by Mr Edward Nugee QC sitting as a Deputy High Court Judge in Re Berkeley Applegate (Investment Consultants) Ltd (in liq) [1989] Ch 32. In that matter the liquidator of an insolvent trustee company, before incurring substantial expenses, took the precautionary step of seeking advice from the Court as to his entitlement to an indemnity out of the assets held on trust for his costs, expenses and remuneration. In his reasons, at pp 49 - 50, His Honour considered a number of authorities concerning the application of the maxim that "he who seeks equity must do equity". He regarded that maxim as meaning that "a person who comes to seek the aid of a court of equity to enforce a claim must be prepared to submit in such proceedings to any directions which the known principles of a court of equity may make it proper to give" (Halsbury's Laws of England, "Equitable Jurisdiction" Vol 47(2), paragraph [110]). He identified that, in the case before him, the debenture holders required the assistance of a court of equity to secure their rights and, on that basis, he said (at p 50):
"As a condition of giving effect to their equitable rights, the court has in my judgment a discretion to ensure that a proper allowance is made to the liquidator. His skill and labour may not have added directly to the value of the underlying assets in which the investors have equitable interests; but he has added to the to the estate in the sense of carrying out the work which was necessary before the estate could be realised for the benefit of the investors. As was the case in Scott v Nesbitt (1808) 14 Ves 438, [1803-13] All ER Rep 216, if the liquidator had not done this work it is inevitable that the work, or at all events a great deal of it, would have had to be done by someone else, and on an application to the court a receiver would have been appointed whose expenses and fees would necessarily have had to be borne by the trust assets. On the evidence before me, the beneficial interests of the investors could not have been established without some such investigation as has been carried out by the liquidator.
His Honour then stated that the allowing of a fair compensation to the liquidator was a proper application of the rule that, "he who seeks equity must do equity". His Honour continued (at pp 50 - 51):
The authorities establish, in my judgment, a general principle that where a person seeks to enforce a claim to an equitable interest in property, the court has a discretion to require as a condition of giving effect to that equitable interest that an allowance be made for costs incurred and for skill and labour expended in connection with the administration of the property. It is a discretion which will be sparingly exercised; but factors which will operate in favour of its being exercised include the fact that if the work had not been done by the person to whom the allowance is sought to be made, it would have had to be done either by the person entitled to the equitable interest (as in Re Marine Mansions Co (1867) LR 4 Eq 601 and similar cases) or by a receiver appointed by the court whose fees would have been borne by the trust property (as in Scott v Nesbitt (1808) 14 Ves 438, [1803-13] All ER Rep 216), and the fact that the work has been of substantial benefit to the trust property and to the persons interested in it in equity (as in Boardman v Phipps [1966] 3 All ER 721, [1967] 2 AC 46). In my judgment this is a case in which the jurisdiction can properly be exercised.
184 His Honour observed that this principle had a variety of applications and was akin to the salvage doctrine. In this respect the underlying rationale was similar to that relied upon by Dixon J in Re Universal Distributing. His Honour also noted that the principle applied so as to afford to the person actually undertaking the work in question the benefit of the entitlement to reimbursement and remuneration. That overcame the difficulty that, if the amount of the costs and remuneration was paid to the insolvent corporate trustee, they would have to be applied in accordance with the requirements of the insolvency provisions. In the result, his Honour allowed the liquidator his proper expenses and remuneration out of the fund which had been created.
185 Many of the authorities on which Mr Nugee QC relied concerned the rights of debenture holders in the context of a corporate liquidation, and the competing claims of liquidators who had undertaken work in the realisation of the company's property including that covered by securities. (See In re Marine Mansions Co (1867) LR 4 Eq 601; In re Oriental Hotels Co (1871) LR 12 Eq 126; In Re Regent's Canal Ironworks Co (1875) 3 CH D 411 amongst others). Needless to say, in such situations the secured creditors are interested to be paid their debts out of the realisations obtained by the liquidator and, to that extent, it is undeniable that the actions of the liquidators enure for their benefit. However, the same clarity in respect of the receipt of a benefit by the trust creditors does not always translate to the tripartite situation of a trust (trustee, beneficiary and creditor) where a corporate trustee is being wound up or an individual trustee's affairs are being administered in bankruptcy. In Berkeley Applegate the trustee, along with the trust, was being wound up for the benefit of the investor / beneficiaries in the mortgage scheme. The expenses incurred in the winding up of the trust were necessarily incurred as part of its administration and it was appropriate that the liquidators received their costs, expenses and remuneration out of the trust assets such that the burden appropriately fell upon the beneficiaries. The position is quite different when the trustee is being wound up or their estate is being administered, yet the trust, itself, remains solvent and is intended to continue in existence. In that scenario, the identification of assets, their realisation for the purposes of creating a fund from which the right of exoneration might be used, and the payment of creditors is primarily for the benefit of the trust creditors rather than the beneficiaries. It would follow from the general principles identified by Mr Nugee QC that the liquidators' costs, expenses and remuneration should be borne by the trust creditors who will benefit from being paid from the right of exoneration, rather than permitting the liquidators to take additional funds from the trust assets. That said, it is foreseeable that arguments might be made in a converse scenario that the payment of trust creditors might advance the interests of the both beneficiaries and the trust creditors, depending upon the circumstances of the case.
186 In 13 Coromandel Place Pty Ltd v CL Custodians Pty Ltd (in liq) (1999) 30 ACSR 377, Finkelstein J considered the scenario where a trustee and its trusts were being wound up for the benefit of the beneficiaries as well as the creditors. His Honour noted that the principles in Berkeley Applegate and Re Universal Distributing required that attention be directed to identifying the entities for whose benefit the work by the liquidator was conducted. In that case, it was held that to the extent to which the work was done by the liquidator in what was, effectively, the administration of the trust, the costs, expenses and remuneration were to be paid out of the trust assets (at p 385). To the extent to which the work done was in the ordinary winding up of the company, referred to by his Honour as "general liquidation matters", it was to be paid for out of the assets beneficially owned by the company. Where the company in liquidation only acted as a trustee of the relevant trust, and the trust itself is insolvent, it might be that much of the work involved in "general liquidation matters" was necessary in the proper administration of the trust and, therefore, chargeable against the trust assets. On the other hand, where the insolvent trustee has only non-trust creditors but insufficient assets of its own to meet the costs, expenses and remuneration of a liquidator or bankruptcy trustee, it is difficult to identify any basis on which an order might be made permitting recourse to the trust assets or the right of exoneration to satisfy the shortfall.
187 The parallel principles found in Berkeley Applegate and Re Universal Distributing provide a much surer foundation to support an order that an insolvency administrator have recourse to trust assets or to the right of exoneration to meet the costs, expenses and remuneration of their administration. Generally, there will be no need to distinguish between the two principles as they each cover the relevant expenses under consideration. It should, however, be kept in mind that much will depend upon the circumstances of the case. In most cases where the trust, itself, is insolvent in the sense that the right of exoneration overwhelms the beneficiaries' interests in the assets held on trust, no great difficulty arises. The insolvency regimes require that the trust creditors be paid in the course of the liquidation or administration and, for that to occur, the trust itself needs to be wound up. Consequently, the insolvency administrators are entitled to be paid from the fund they create for the purposes of applying the right of exoneration. Where, in such a case, the only business of the trustee was to operate the trust, there are good arguments in favour of the view that all the costs of the administration can be paid out of the fund created to meet the right of exoneration (Combis in the matter of Reehal Holdings Pty Ltd (in liq) [2017] FCA 793 at [29]). Where, however, the insolvent trustee has other non-trust creditors, only those amounts referable to the creation of a fund and the payment of trust creditors might be met from the fund so created. Further, where a right of exoneration does not exist at all, there are likely to be strong arguments to the effect that the liquidators will not be entitled to access any trust funds to meet their costs, expenses and remuneration of the administration.