Powell, in the matter of Arafura Pearls Holdings Limited (in liq) [2017] FCA 1159

The Directions and Orders sought by the Applicants 8 The directions and orders sought by the applicants are as follows: THE COURT ORDERS THAT: 1. Messrs Powell and Duncan, in distributing the assets available to them in their capacity as receivers of the property of the Australian South Sea Pearl Project 2006 (Retail) ARSN 11872465 (2006 Scheme) are justified and entitled to pay the following amounts out of the funds held for the 2006 Scheme: (a) first, the sum of $74,313.19 to APHL in respect of deferred management fees; (b) secondly, the sum of $21,436.50 to APHL in respect of sales and marketing fees; (c) thirdly, the sum of $17,859.99 to APHL in respect of payments made to the Northern Land Council; and (d) fourthly, the sum of $180,122.87 to APHL in respect of remuneration payable to Messrs Duncan and Powell and the costs and expenses incurred by Messrs Duncan and Powell in the winding up of the 2006 Scheme. 2. Messrs Powell and Duncan, in distributing the assets available to them in their capacity as receivers of the property of the Arafura Pearl Project 2007/2008 ARSN 124132850 (2007 Scheme) are justified and entitled to pay the following amounts out of the funds held for the 2007 Scheme: (a) first, the sum of $874,114.52 to APHL in respect of deferred management fees; (b) secondly, the sum of $291,371.51 to APHL in respect of sales and marketing fees; (c) thirdly, the sum of $689,749.54 to APHL in respect of fees payable to GP No 1 Pty Ltd; (d) fourthly, the sum of $171,544.29 to APHL in respect of payments made to the Northern Land Council and South Sea Pearling Pty Ltd; and (e) fifthly, the sum of $665,360.01 to APHL in respect of remuneration payable to Messrs Duncan and Powell and the costs and expenses incurred by Messrs Duncan and Powell in the winding up of the 2007 Scheme. 3. Messrs Powell and Duncan, in their capacity as liquidators of APPL, are justified and entitled to pay the proceeds received from the sale of pearls for an unregistered managed investment scheme in respect of which APPL is the responsible entity, known as the Arafura Pearl Farm 2005 Project (2005 Scheme) as follows: (a) first, the sum of $45,151.86 to APPL in respect of deferred management and access fees; (b) secondly, the sum of $64,019.73 to APHL in respect of fees payable to GP No 1 Pty Ltd; (c) thirdly, the sum of $17,859.99 to APHL in respect of payments made to the Northern Land Council; and (d) fourthly, the sum of $92,367.02 to APHL in respect of remuneration payable to Messrs Duncan and Powell and the costs and expenses incurred by Messrs Duncan and Powell in the administration and completion of the 2005 Scheme. 4. Subject to the relevant remuneration incurred by Messrs Powell and Duncan in the period from 1 July 2016 to 5 May 2017 being fixed pursuant to section 499(3) of the Corporations Act 2001 (as in force at the date of liquidation of APHL), the costs and expenses of this application not otherwise included within the amounts referred to in paragraphs 1(d), 2(e) and 3(d) above, including the remuneration incurred by Messrs Powell and Duncan, be paid from the funds of the 2005 Scheme, 2006 Scheme and 2007 Scheme and fixed in the following amounts: (a) in respect of the 2005 Scheme: (i) the sum of $4,310.51 in respect of remuneration and disbursements payable to Messrs Powell and Duncan; and (ii) the sum of $4,154.34 in respect of legal costs; (b) in respect of the 2006 Scheme: (i) the sum of $8,458.77 in respect of remuneration and disbursements payable to Messrs Powell and Duncan; and (ii) the sum of $8,152.29 in respect of legal costs. (c) in respect of the 2007 Scheme: (i) the sum of $86,230.71 in respect of remuneration and disbursements payable to Messrs Powell and Duncan; and (ii) the sum of $83,106.37 in respect of legal costs. 5. In the event that there are funds remaining for the 2007 Scheme after payment of the abovementioned amounts, such funds be paid as follows: (a) first, the sum of $7,708.31 to Messrs Powell and Duncan in respect of the costs to be incurred in processing and making a distribution to the investors of the 2007 Scheme; and (b) secondly, the balance of funds remaining for the 2007 Scheme be paid to the Growers of that Scheme in proportion to the number of Scheme interests held by each investor. 6. Messrs Powell and Duncan, in their capacity as receivers of the property of the 2006 Scheme are relieved and discharged of the obligation prescribed by paragraph 15 of the Order made on 24 April 2012 and clause 6.6 of the 2006 Scheme Constitution to engage a registered company auditor to audit the final accounts of the 2006 Scheme. 7. Messrs Powell and Duncan, in their capacity as receivers of the property of the 2007 Scheme are relieved and discharged of the obligation prescribed by paragraph 15 of the Order made on 24 April 2012 and clause 6.6 of the 2007 Scheme Constitution to engage a registered company auditor to audit the final accounts of the 2007 Scheme. 9 The orders made on 24 April 2012 (referred to in the orders sought) were as follows: THE COURT ORDERS THAT: 1. Arafura Pearls Holdings Limited (Subject to Deed of Company Arrangement) ACN 092 266 067 (the Company) be joined as a party to the within application. 2. Until further order, Stephen James Duncan and Christopher Robert Powell must preserve the funds standing to the credit of: 2.1. Australian South Sea Pearl Project 2006 (Retail) ARSN 11872465 (2006 Scheme), namely $120,805.87; 2.2. Arafura Pearl Project 2007/2008 ARSN 124132850 (referable to early growers) (2007 Scheme), namely $1,103,963.45. 3. Until further order, Stephen James Duncan and Christopher Robert Powell must: 3.1. pay the proceeds from the sale of any further pearls in the 2006 Scheme into the bank account maintained for the 2006 Scheme; 3.2. pay the proceeds from the sale of any further pearls in the 2007 Scheme into the bank account maintained for the 2007 Scheme; 3.3. preserve any such funds from the sale of pearls referable to the 2006 Scheme and the 2007 Scheme. 4. The directions sought by paragraphs 2, 2A and 3 of the Amended Interlocutory Process dated 21 February 2012 and filed herein be adjourned for further consideration. 5. Pursuant to section 601ND(1)(a) of the Corporations Act 2001 (Cth) (the Act), the Company be directed to wind up each of the following managed investment schemes registered pursuant to the Act: 5.1. Australian South Sea Pearl Project 2006 (Retail) ARSN 11872465; 5.2. Arafura Pearl Project 2007/2008 ARSN 124132850; 5.3. Arafura Pearl Project 2009 ARSN 136002938; 5.4. Arafura Pearl Project 2010/11 ARSN 139812301 (Schemes). 6. Christopher Robert Powell and Stephen James Duncan, official liquidators, of KordaMentha, Level 4, 70 Pirie Street, Adelaide SA 5000 be appointed jointly and severally pursuant to s 601NF(1) of the Act to take responsibility for ensuring that each of the Schemes is wound up in accordance with its respective constitution. 7. Pursuant to section 601NF(2) of the Act, Messrs Powell and Duncan be appointed as joint and several receivers of the property of each of the Schemes respectively. 8. Pursuant to section 601NF(2) of the Act, Messrs Powell and Duncan each have, in relation to the property for which they are appointed receiver pursuant to Order 7 above, the powers set out in s 420 of the Act. 9. Messrs Powell and Duncan, in their capacity as receivers of the property of the Schemes, must not commence legal proceedings for or on behalf of the Schemes against any other person without leave of the Court. 10. Pursuant to s 601NF(2) of the Act and subject to Orders 11 and 12 below, Messrs Powell and Duncan in respect of the appointments made in Order 7 above: 10.1. be paid by and indemnified out of the assets of the relevant Scheme and, in the event of any shortfall, out of the assets of the Company, in respect of any proper expenses or costs incurred in acting as receivers of the property of the Schemes; 10.2. be entitled to claim remuneration in respect of the time spent by them and by any servants or agents of KordaMentha who perform work in the receiverships of the property of the Schemes, such remuneration to be calculated at the rates of that firm from time to time for work of that nature, together with all reasonable out of pocket expenses. 11. Notwithstanding Order 10 above, at least 14 days prior to payment of remuneration out of the Schemes in accordance with Order 10 above, Messrs Powell and Duncan are to: 11.1. file an affidavit describing the remuneration sought, the tasks performed and the manner of calculation of that remuneration; and 11.2. notify growers of the proposed remuneration and to provide on request a copy of the said affidavit; 11.3. provide a copy of the said affidavit to MacGillivrays Solicitors. 12. Notwithstanding orders 10 and 11 above, Messrs Powell and Duncan, in their capacity as receivers of the property of the Schemes, must not pay any amount in respect of remuneration to themselves or any amount in respect of fees and costs payable to GP No 1 Pty Ltd out of the assets of the relevant Scheme unless they have first: 12.1. performed an accounting in respect of the moneys and other assets held and the revenue and expenses of the relevant Scheme since the date of such appointment; 12.2. provided a copy of such accounting to the growers in the relevant Scheme and to MacGillivrays Solicitors; and 12.3. made an application to Court on reasonable notice to growers and to MacGillivrays Solicitors seeking directions as to the payment of any such fees and costs; 12.4. obtained directions from the Court on such an application that such payments as the Court may direct be made. 13. Messrs Powell and Duncan, in their capacity as Deed Administrators of the Deed of Company Arrangement in respect of the Company must not make any allocation of the consideration paid to the Company from the purchaser pursuant to the Grower Rights Termination Agreement amongst the growers in the Schemes unless they have first made an application to Court on reasonable notice to growers and to MacGillivrays Solicitors seeking directions as to such allocation. 14. Messrs Powell and Duncan, in their capacity as joint and several Deed Administrators of the Deed of Company Arrangement in respect of the Company are authorised and justified not to pursue the investors of the Schemes for payment of any amount in respect of Deferred Management Fee Shortfall (as defined in the Affidavit sworn by Christopher Robert Powell on 27 March 2012 and filed in these proceedings). 15. Messrs Powell and Duncan, in their capacity as receivers of the property of the following Schemes only, must, on proper notice to MacGillivrays Solicitors, engage a registered company auditor once the winding up of those Schemes is complete to audit the final accounts of the relevant Scheme, and must provide a copy of any report made by the auditor to the relevant Scheme growers and to MacGillivrays Solicitors within 30 days after receiving such report from the auditor: 15.1. Australian South Sea Pearl Project 2006 (Retail) ARSN 11872465; and 15.2. Arafura Pearl Project 2007/2008 ARSN 124132850. 16. The costs of and incidental to the audit referred to in order 15 above are to be paid out of the funds held on behalf of those relevant Schemes. 17. That by 4 pm on Friday, 27 April 2012, the Plaintiffs publish on the website of the firm KordaMentha (www.kordamentha.com), in pdf form, by way of notice to members of the Schemes a copy of this Order, which publication shall be sufficient notice to members of the Schemes of this Order. 18. There be general liberty to apply to any person affected by these Orders, including liberty to apply for further directions in accordance with s 601NF(2) of the Act. 19. The Plaintiffs' costs of this application, including the costs of the contradictor Mr Hoffmann QC, be paid from the assets of the Company as costs properly incurred by its Deed Administrators. 10 A number of growers were represented by MacGillivrays Solicitors (Mr John McGaw) on the hearing of the application for the orders made on 24 April 2012. As matters developed, they did not oppose the orders. 11 The orders made on 24 April 2012 and this application reflect the fact that the applicants are liquidators of the responsible entity which conducted a similar business to that of the Schemes and the fact that there are different Schemes (of which the applicants are receivers) and they owed duties to these different interests (see, for example, s 601FC(1)(d) of the Act).

The Evidence on the Application 12 The applicants' application is supported by four affidavits. Mr Powell has sworn three affidavits. His main affidavit was sworn on 16 December 2016. The statement of facts which follows is largely based on this affidavit. Mr Powell's second affidavit was sworn on 21 February 2017. Mr Powell said in his first affidavit that he sent an accounting for each of the 2005 Scheme, 2006 Scheme and 2007 Scheme to the respective growers in those Schemes. Mr Powell's second affidavit deals with the responses received from the growers. He received a response from one grower in relation to the 2005 Scheme, a response from two growers (Mr Schache and Mr Dowding) in relation to the 2006 Scheme, and a response from two growers (Mr Walker and Mr Cerqui) in relation to the 2007 Scheme. Mr Powell's third affidavit sworn on 1 May 2017 deals with the following topics: the withdrawal from involvement in the proceeding of the growers who had been represented by Newtons Solicitors; the allocation of the costs involved in leasing the Elizabeth Bay pearl farm site; the remuneration of the applicants and how it has been calculated; a revised calculation of amounts received i.e., recoveries in the liquidation of APHL and expenses paid from APHL's funds; and the costs and expenses associated with a distribution to growers involved in the 2007 Scheme. Mr Powell said that he has not received any further correspondence from growers. Mr Steven Michael Hagivassilis, a solicitor employed by the firm of solicitors which represents the applicants, has sworn the fourth affidavit. Mr Hagivassilis' affidavit addresses the correspondence which has passed between the solicitors for the applicants and Newton Solicitors, the correspondence between solicitors for the applicants and Pearlautore International Pty Ltd (Pearlautore), and the correspondence between the solicitors for the applicants and Moisson Lawyers acting for GP 1.

Notice to Growers and Involvement of Other Parties 13 In accordance with the orders made on 24 April 2012, the applicants, on or about 6 December 2016, prepared and provided to growers by letter and, where email addresses were known to the applicants, by email, and to Gadens (Mr John McGaw), an accounting for each of the 2005 Scheme, 2006 Scheme and 2007 Scheme showing "the revenue received for each Scheme since the date of [the applicants'] appointment as administrators and the fees, remuneration, costs and expenses that [the applicants] propose to be paid from those funds" (Mr Powell's first affidavit, paragraph 411). 14 As I have said, on 21 December 2016, Mr John McGaw of Newton Solicitors filed a Notice of Acting on behalf of six growers. After correspondence with the applicants' solicitors in February and early March 2017, Newton Solicitors, on behalf of its clients, indicated to the applicants' solicitors that their clients would not contest the orders which the applicants sought. 15 Pearlautore corresponded with the applicants' solicitors concerning an Irrevocable Direction to Pay which is referred to below (at [45]). 16 I have already referred to the approach taken by GP 1.

The Facts 17 APHL was incorporated on 30 March 2000. The company operated a pearl farming business in two remote locations in the Northern Territory, being Elizabeth Bay in north-east Arnhem land and Croker Island. As at 21 April 2011, APHL was the second largest farmer of pearls in Australia. The significance of this date is that it was on this date that the applicants were appointed joint and several administrators of APHL. 18 From 14 March 2006, APHL held Australian Financial Services Licence No 296246. It was the responsible entity and project manager of several registered managed investment schemes which involved the cultivation, production and harvesting of pearls for investors in those schemes. Those schemes were as follows: (1) Australian South Sea Pearl Project (Retail) ARSN 11872465 (2006 Scheme); (2) Arafura Pearl Project 2007/2008 ARSN 124132850 (2007/2008 Scheme). This Scheme has: (a) "Early Growers", who applied for an interest in the Scheme and were accepted as a Grower on or before 5 April 2007 (2007 Scheme); and (b) "Late Growers", who applied for an interest in the Scheme and were accepted as a Grower after 5 April 2007, but before 4 April 2008 (2008 Scheme); (3) Arafura Pearl Project 2009 ARSN 136002938 (2009 Scheme); and (4) Arafura Pearl Project 2010/11 ARSN 139812301 (2010 Scheme). 19 In relation to each of these Schemes, there was a Constitution and Management Agreement. APHL, as the responsible entity, had the right to recover certain costs and expenses incurred by it, and, as project manager, certain management fees, including deferred management fees. Deferred management fees were fees for management services which were to be paid out of the proceeds of the sale of the pearls. 20 As at 21 April 2011, APHL owned or leased pearl farm assets or infrastructure which included: (1) land-based infrastructure, sea-based infrastructure and vessels for the conduct of its pearling operations; (2) 120 units of quota, being a right to seed virgin oyster shell issued under the Fisheries Act 1988 (NT), licences and permits necessary for the operation of the Arafura Pearls business, including the pearl fishery licence under the Fisheries Act; and (3) oyster shells and the pearls growing in these oysters and pearls harvested from earlier harvests. 21 As I have said, the applicants were appointed joint and several administrators of APHL on 21 April 2011. They became deed administrators under a deed of company arrangement executed in relation to APHL on 12 March 2012. On 25 September 2013, the creditors of APHL resolved to terminate the deed of company arrangement and wind up the company. The applicants were appointed joint and several liquidators of APHL. 22 The orders of the Court made on 24 April 2012 included an order that each of the registered managed investment schemes identified in the order be wound up (paragraph 5). Messrs Powell and Duncan were appointed jointly and severally to take responsibility to ensure that each of the Schemes is wound up in accordance with its respective Constitution (paragraph 6) and they were also appointed as joint and several receivers of the property of each of the Schemes respectively (paragraph 7). 23 APPL is a subsidiary of APHL. It was the responsible entity of a small unregistered management investment scheme which commenced in 2005 and operated from APHL's pearl farm at Elizabeth Bay (2005 Scheme). Mr Powell's understanding is that there was a subcontract arrangement between APHL and APPL for the use by APPL of the infrastructure necessary to conduct the 2005 Scheme. However, Mr Powell has not been able to locate a copy of such an agreement from within the books and records of APHL or APPL. The terms of the 2005 Scheme were broadly similar to those of the registered managed investment schemes. 24 On 5 October 2011, the applicants were appointed administrators of APPL and on 16 December 2011 they were appointed liquidators of APPL. 25 During the course of their administration of APHL, the applicants entered into a Management Agreement with GP 1 under which GP 1 performed the necessary management and maintenance work for the operation of the pearl farms, including undertaking the 2011 pearl harvest for the benefit of both APHL and the Schemes between August and October 2011. In addition, the applicants have also had to perform other tasks and undertake other works necessary for the care, maintenance, preservation and realisation of the assets of the Schemes and the winding up of the Schemes. 26 Mr Powell prepared a table in which he sets out the number of growers for each Scheme and the projected harvest dates for each Scheme. It is as follows: Scheme No. of Growers 1st harvest (year) August - October 2nd harvest (year) August - October 2005 Scheme 18 2009 2011 2006 Scheme 40 2010 2012* 2007/2008 Scheme 54 (2007 Scheme) 2011 (2007 Scheme) 2013* (2007 Scheme) 118 (2008 Scheme) 2012* (2008 Scheme) 2014* (2008 Scheme) 2009 Scheme 197 2013* 2015* 2010 Scheme 167 2014* 2016*

The "harvests" marked with an asterisk were projected harvests and, as it happened, they did not take place. The last harvest to occur was the harvest in 2011 and there were no further harvests after the Schemes were wound up pursuant to the orders of the Court made on 24 April 2012. 27 Mr Powell describes the steps which he and Mr Duncan took on and after their appointment as administrators of APHL. A summary of those steps is as follows: (1) Pearlautore is a pearl marketing company located in Sydney, New South Wales. It is a leading specialist pearl wholesaler and it had been retained by APHL for the grading, valuing and sale of pearls. The applicants ascertained on their appointment as administrators that both APHL and Pearlautore held pearls and that the pearls held by Pearlautore were held for APHL as well as the growers of the 2005 and 2006 Schemes. (2) Macasins Pty Ltd (Macasins) was a secured creditor of APHL. On 28 April 2011, it was appointed the receiver and manager of the assets of APHL. The appointment of the receiver and manager excluded the rights and obligations of APHL as responsible entity of the Schemes. Nevertheless, the appointment of the receiver and manager meant that the administrators were unable to conduct the pearl farming operations required to be undertaken by APHL as the responsible entity of the Schemes. (3) The applicants formed the opinion that it was in the interests of growers in the Schemes for the Schemes to continue, or for the assets be sold as a going concern. They also formed the opinion that the continuation of the receivership was contrary to the interests of growers for two reasons: first, the receiver took the view that it would undertake a limited role and secondly, the applicants did not have access to the pearl farm infrastructure. The arrangement which was put in place was that GP 1 replaced Macasins as the secured creditor of APHL and on 23 June 2011 it entered into a Management Agreement with APHL through the agency of the applicants to perform the necessary maintenance work and management of the pearl farm. The Management Agreement was challenged by a number of growers in the Supreme Court of Queensland, but the challenges were rejected (I S Schache and K Schache as t'ees for the Schache Superannuation Fund and as representative for investors in the Arafura Pearl Project for the financial year 2005/2006 & Ors v GP No 1 Pty Ltd & Ors [2011] QSC 413; (2011) 87 ACSR 214; Schache & Ors v GP No 1 Pty Ltd & Ors [2012] QCA 233). (4) In or about June or July 2011, the applicants formed the opinion that APHL, should if possible, retire as responsible entity of the Schemes. Their attempts to find a replacement were unsuccessful. (5) In late July 2011, the applicants undertook a marketing campaign calling for expressions of interest in the purchase of APHL's assets and the assets of the Schemes. The result was the execution of two agreements, a Business Asset Sale Agreement whereby GP 2 Pty Ltd (GP 2) agreed to purchase APHL's assets other than the rights of the growers under the Scheme Management Agreements and a Grower Rights Termination Agreement whereby APHL as responsible entity and manager of the Schemes agreed to terminate all of the growers' rights in respect of the Schemes in consideration of which GP 2 would issue options and shares to the growers. (6) The Court made orders on 3 February 2012, 24 April 2012 (set out above) and 28 May 2012. (7) The transactions effected by the Business Asset Sale Agreement and Grower Rights Termination Agreement settled on 17 July 2012. (8) GP 2 was later placed into administration and, as at 22 February 2013, it owed APHL the amount of $581,790. It went into liquidation on or about 30 May 2013. On 9 October 2013, the creditors of GP 1 placed that company into liquidation. (9) The applicants were required to ascertain and allocate the proceeds of the sale of pearls held by APHL at the time of their appointment as administrators as between the 2005 Scheme, the 2006 Scheme and APHL's own stock. They had a similar responsibility in relation to pearls held by APHL and Pearlautore on APHL's behalf and, in addition, they were required to make arrangements for the sale of the pearls. (10) GP 1 carried out the 2011 harvest under the Revised GP 1 Management Agreement which the parties had entered into on 15 August 2011. A Deed of Variation was entered into in December 2011. The process from harvest to sale proved to be a lengthy one and the sale of all of the harvested pearls was not finalised until May 2015. Mr Powell describes that process in his main affidavit, but it is not necessary for me to set out the details. (11) Mr Powell sets out in his affidavit a table showing the total proceeds (exclusive of GST) received from the sale of pearls from the 2011 harvest. 28 Since their appointment as administrators, the applicants have maintained separate accounts for each of the Schemes. The balances held in the accounts for each of the Schemes is as follows: (1) 2005 Scheme: $142,948.03 (held in two separate accounts comprising $69,176.29 and $73,771.74 respectively); (2) 2006 Scheme: $275,539.21; (3) 2007 Scheme: $2,924,542.13. 29 No pearl harvests were carried out in relation to the 2008, 2009 or 2010 Schemes before they were wound up and none of those Schemes have any funds. 30 Mr Powell describes the administration, deed administration and liquidation of APHL and the winding up of the Schemes as long and complex and he states that the process has involved the consideration and resolution of many complicated issues. On the basis of the applicants' time costing, the time devoted to the work equates to remuneration of approximately $2.3 million (including GST). The applicants' remuneration as incurred to 30 June 2016 has been approved by creditors and committee of inspection (relevantly as the case may be) of APHL. The applicants have drawn an amount of $425,000 (excluding GST) from the liquidation of APHL as remuneration, pending the determination of the present application. 31 The applicants have also incurred significant costs payable to external parties in relation to the administration, deed administration and liquidation of APHL and the winding up of the Schemes totalling approximately $3.1 million (including GST). 32 The applicants have not paid any amount in respect of their fees or costs from the proceeds standing to the credit of each of the Schemes. 33 Mr Powell states that the applicants have received advice from senior counsel as to the appropriate approach to the calculation of the amount payable out of the proceeds standing to the credit of each Scheme. The proposal for which they seek the Court's approval is as follows: (1) Except for the costs described in paragraph (2), APHL, as the responsible entity of the Schemes, will pay from its own assets, all fees and costs incurred prior to the winding up of the Schemes, including those fees and costs that wholly or partially relate to or were of benefit of the Schemes. In calculating the assets of APHL from which these fees and costs are to be paid, the applicants propose: (a) to pay from the funds standing to the credit of the relevant Schemes the applicable deferred management fees and sales and marketing fees to which APHL (or APPL in the case of the 2005 Scheme) is entitled to receive in accordance with the Constitutions and Management Agreements relating to the Schemes; (b) to include the pearl sale proceeds received by APHL in its own right; and (c) to include the net proceeds which they have recovered as liquidators of APHL in respect of a voidable transaction; (2) As GP 1 was retained to perform the work required to preserve, maintain and harvest the pearls in 2011, the applicants propose that the management fees payable to GP 1 and other costs directly related to the preservation, maintenance and harvest, be borne by the funds received from the sale of pearls in relation to each of the 2005 Scheme, 2006 Scheme, 2007 Scheme and APHL; (3) The fees and costs incurred from the date of the winding up of the Schemes are to be allocated amongst and be borne by each of the Schemes and APHL; and (4) At the time he swore his main affidavit, Mr Powell believed that this approach would result in a shortfall of at least $213,777.12 in APHL's funds, and the applicants proposed that that shortfall amount be paid from the remaining funds held by the Schemes. I will return to this topic later in these reasons. 34 Mr Powell sets out in his main affidavit his calculations for the deferred management and access fee in relation to the 2005 Scheme, the sales and marketing fee and deferred management fee in relation to the 2006 Scheme and the sales and marketing and deferred management fee in relation to the 2007 Scheme. He also sets out the amount to be paid to GP 1 under the Revised GP 1 Management Agreement and how it is that the first $530,000 is to be paid to Pearlautore. He also sets out the amounts he calculates should be paid by each of the Schemes for direct leasing and licensing costs. I do not propose to set out the details in relation to each Scheme because those details are set out in Mr Powell's affidavits and it is sufficient to take paragraph 1 of the orders sought in relation to the 2006 Scheme as an example. 35 The applicants seek an order authorising them to pay APHL the amount of $74,313.19 from the 2006 Scheme property in respect of deferred management fees, and $21,436.50 in respect of sales and marketing fees. Two agreements are relevant: the Constitution and the Management Agreement. 36 Clause 7.1 of the Constitution provides as follows: 7.1 Fees Payable to the Responsible Entity The Responsible Entity is entitled to be paid, in respect of the Project, from Project Property, those fees provided for in the Management Agreement by way of remuneration for carrying out its duties and obligations under this Constitution and the Management Agreement. 37 Clauses 17.1 and 17.4 of the Management Agreement provide as follows: 17.1 Deferred Management Fee At the conclusion of each Harvest, the Grower shall pay the Responsible Entity the Deferred Management Fee in consideration for the Responsible Entity performing the Ongoing Management Services. 17.4 Sales and Marketing Fee At the conclusion of each Harvest a Non-Electing Grower shall pay the Responsible Entity the Sales and Marketing Fee in consideration for the sales and marketing services performed by the Responsible Entity as part of the Ongoing Management Services. 38 GST is dealt with in clause 29. There are similar clauses in the case of the 2007 Scheme. As far as the 2005 Scheme is concerned, there are clauses dealing with a deferred management and access fee (clause 18.1) and GST (clause 30) in the 2005 Scheme Access and Management Agreement. 39 Returning to the 2006 Scheme, the deferred management fee is defined as 26% of the gross pearl sale proceeds less GST and the sales and marketing fee is defined as 7.5% of the gross pearl sale proceeds. 40 The applicants seek an order authorising them to pay APHL the amount of $17,859.99 in respect of payments made to the Northern Land Council from the 2006 Scheme property. APHL leased the area at Elizabeth Bay which was used as a pearl farm from the Northern Land Council on behalf of the Arnhem Land Aboriginal Land Trust. Mr Powell said, and I accept, that the lease was necessary for the preservation and 2011 harvest of the pearls. He proposes an equal division of that expense between the Schemes and APHL which had stock at Elizabeth Bay throughout the relevant period. 41 Before coming to paragraph 1(d) of the orders which are sought, I should record some differences between paragraphs 1(a), (b) and (c) on the one hand, and paragraphs 2(a), (b), (c) and (d), and 3(a), (b) and (c) on the other. Paragraph 3(a) which deals with deferred management and access fees in relation to the 2005 Scheme differs from the other equivalent orders because of the different provisions of the Access and Management Agreement for the 2005 Scheme. Paragraph 2(d) deals with a payment to be made in relation to an expense incurred to South Sea Pearling Pty Ltd as well as the Northern Land Council. This results from the fact that APHL leased the site at Crocker Island and pearls in relation to the 2007 Scheme (and APHL) were grown at Crocker Island. Paragraphs 2(c) and 3(b) seek authorisation to make payments to APHL out of Scheme proceeds in relation to fees payable to GP 1. 42 I have referred earlier to the GP 1 Management Agreement and the Revised GP 1 Management Agreement. GP 1 performed work under the agreements in relation to the 2005 Scheme (second harvest), the 2007 Scheme (first harvest) and APHL in its own right. Mr Powell explains the method whereby he calculates the amounts (including offsetting amounts) payable to GP 1 in relation to the 2005 Scheme and the 2007 Scheme. On 17 July 2012, GP 1, GP 2 and a Mr Rankothge Bandula Jayaweera gave APHL and the applicants an Irrevocable Direction to Pay $530,000 of the management fees to Pearlautore. 43 I turn to the remuneration payable to the applicants and the costs and expenses incurred by the applicants in winding up each of the relevant Schemes. 44 The applicants have charged on the basis of an hourly rate for hours or parts thereof. The time spent is recorded in six minute units. Many of the tasks carried out by the applicants have been for the benefit of the Schemes and of APHL. The applicants have characterised the tasks they have carried out by reference to the following 17 categories: (1) Tasks undertaken for the preservation of assets upon appointment (i.e., as administrators of APHL on 21 April 2011). (2) Negotiation of GP 1 Management Agreement. (3) Operation of pearl farm. (4) Sale of pearl farm assets, negotiation and approval of the BASA and GRTA. (5) Queensland actions in relation to the GP 1 Management Agreement. (6) Administrative tasks relating to the Schemes and queries from growers. (7) Extension of convening period for second meeting of creditors. (8) Sale of pearls and dealings with Pearlautore. (9) Dealings with the Northern Land Council. (10) Dealings with South Sea Pearling Pty Ltd. (11) Dealings with creditors. (12) Dealings with employees. (13) Proposed re-capitalisation of APHL. (14) Shareholder queries. (15) Dealings associated with the audit of the final scheme accounts. (16) Application for payment from Scheme funds. (17) General administration, investigations and liquidators' claims. 45 Mr Powell describes the tasks which the applicants have carried out in relation to each category and how he has allocated the applicants' remuneration and the costs to each Scheme and APHL. In all bar three categories, he has allocated the remuneration and costs on the basis that each Scheme and APHL bears an equal proportion of the remuneration and where he has not done that, he has explained his method of allocation. 46 As I have previously said, at the time he swore his first affidavit, Mr Powell believed that there would be a shortfall of $213,777.12 between APHL's total revenue and the fees, costs and disbursements that it is to pay. APHL would therefore have insufficient funds to pay all of the amounts incurred on behalf of the Schemes in the period prior to the winding up of the Schemes. In those circumstances, the applicants asked the Court to exercise its discretion to allow that shortfall amount to be paid from the remaining funds held by the 2007 Scheme. It was submitted that the Court has such a power to make an allowance of the type sought (Berkeley Applegate (Investment Consultants) Ltd (in liq) [1989] Ch 32 (Re Berkeley Applegate); Re Application of Sutherland [2004] NSWSC 798; (2004) 50 ACSR 297 (Application of Sutherland)). 47 In his third affidavit sworn on 1 May 2017, Mr Powell said that as part of a process he undertook to prepare an updated schedule so that the most recent figures could be taken into account, including further interest accrued on Scheme funds and costs accrued, he had undertaken a reconciliation of the amounts received and the expenses paid in the liquidation. He said that as a result of the reconciliation, he identified that his previous calculations did not include certain recoveries in the liquidation of APHL, including the realisation of certain assets, insurance recoveries and interest earned by APHL and omitted additional expenses that had been paid from APHL's funds. In his third affidavit, Mr Powell identifies the additional funds and the additional costs and expenses. It is not necessary for me to set out the details. The net effect of the reconciliation Mr Powell undertook is that there will not be a shortfall in APHL's own funds and the applicants no longer seek an order of the type previously identified (at [46]). 48 In his first affidavit, Mr Powell states that further costs will be incurred in this application and that the applicants seek an order (paragraph 4) that these costs be paid out of the funds of the 2005 Scheme, the 2006 Scheme and the 2007 Scheme respectively. 49 In his third affidavit, Mr Powell states that if the orders the applicants seek are made, there will remain an amount of $55,516.25 available for distribution to the growers in the 2007 Scheme. The applicants seek an order (paragraph 5) for the payment of the costs of distribution and the distribution of those funds to the growers in the 2007 Scheme in proportion to the number of scheme interests held by each investor. 50 The applicants seek an order dispensing with the requirement in paragraph 15 of the orders made on 24 April 2012 that a registered company auditor audit the final accounts of the 2006 Scheme and the 2007 Scheme. Furthermore, they seek a dispensation from clause 6.6 of the Constitution for each Scheme which provides as follows: 6.6 Auditor's Certificate Once the Responsible Entity believes that the winding up is complete, the Responsible Entity must engage a registered company auditor to audit the final accounts of the Project. The Responsible Entity must send a copy of any report made by the auditor to the relevant Growers within 30 days after the Responsible Entity receives the report from the auditor. 51 The applicants have put forward evidence to the effect that the costs of such audits would be between approximately $14,000 and $16,500. In addition, they estimate their costs in being involved in the process at approximately $11,000. The applicants apply for an order dispensing with the requirement on the basis that given the extensive review exercise undertaken in connection with the present application and the accounting that has been provided to growers, they believe the costs of the exercise will outweigh the benefits of the exercise.

Should the Orders be made? 52 The first category of orders are those orders relating to deferred management fees and sales and marketing fees and, in the case of the 2005 Scheme, deferred management and access fees (paragraphs 1(a) and (b), 2(a) and (b) and 3(a)). The applicants are justified and entitled to pay those fees in the manner proposed because they arise by reason of the obligations imposed by the constituent documents for each relevant Scheme as identified above (at [19]). In the alternative, the applicants are justified and entitled to pay those fees in the manner proposed by reason of the "salvage" principle discussed below. I am satisfied that the amounts referred to in the proposed orders have been calculated in the manner prescribed by the constituent document of each relevant Scheme. 53 The second category of orders are those orders relating to the lease payments to the Northern Land Council and South Sea Pearling Pty Ltd, the management fees payable to GP 1 and the remuneration of the applicants and the costs and expenses incurred by the applicants in the winding up of the 2006 Scheme and the 2007 Scheme and, in the case of the 2005 Scheme, the administration and completion of the Scheme (paragraphs 1(c), 2(c),(d) and (e) and 3(b), (c) and (d)). The applicants are justified and entitled to pay these fees and costs and expenses in the manner proposed by reason of the "salvage" principle. In addition or in the alternative, there is an entitlement to the applicants' remuneration and the costs and expenses incurred by them by reason of paragraph 10 of the orders made on 24 April 2012, subject to the terms of the order. 54 The Act provides that the responsible entity of a registered management investment scheme holds scheme property on trust for scheme members (s 601FC(2)) (see also Constitution clause 3.1(a) for each of the 2006 and 2007 Schemes). 55 In Re Universal Distributing Company Limited (In Liquidation) (1933) 48 CLR 171, Dixon J (as his Honour then was) said (at 174-175): If a creditor whose debt is secured over the assets of the company come in and have his rights decided in the winding up, he is entitled to be paid principal and interest out of the fund produced by the assets encumbered by his debt after the deduction of the costs, charges and expenses incidental to the realization of such assets (In re Marine Mansions Co.). The security is paramount to the general costs and expenses of the liquidation, but the expenses attendant upon the realization of the fund affected by the security must be borne by it (In re Oriental Hotels Co.; Perry v. Oriental Hotels Co.). The debenture-holders are creditors who have a specific right to the property for the purpose of paying their debts. But if it is realized in the winding up, a proceeding to which they are thus parties, the proceeds must bear the cost of the realization just as if they had begun a suit for its realization or had themselves realized it without suit (cf. In re Regent's Canal Ironworks Co.; Ex parte Grissell; and see Batten v. Wedgwood Coal and Iron Co.). 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 realization 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. (Citations omitted.) This principle has sometimes been referred to as the "salvage" principle (Re Berkeley Applegate at 37, 46-47 and 51-52). (See also Stewart and Another v Atco Controls Pty Ltd (in liquidation) (2014) 252 CLR 307 at [22]-[23].) There is a related or analogous principle (the relationship was not explored in argument) in the case of liquidator's costs in administering trust property on the winding up of a trustee company (Re Suco Gold Pty Ltd (in liquidation) (1983) 33 SASR 99; Trio Capital Limited (Admin App) v ACT Superannuation Management Pty Ltd & Ors [2010] NSWSC 941; (2010) 79 ACSR 425). 56 The principle is not restricted to liquidators and has been held to apply to receivers and receivers and managers, including receivers and managers appointed by the Court (Re Oriental Hotels Company; Perry v Oriental Hotels Company (1871) LR 12 Eq 126). The costs, charges and expenses may include the remuneration of the liquidator, receiver or receiver and manager as the case may be (Thackray & Ors v Gunns Plantations Ltd & Ors [2011] VSC 380; (2011) 85 ACSR 144 (Thackray v Gunns Plantations) at [40]-[51] per Davies J). 57 The care, preservation and realisation of property has been held to include a number of activities, including the expense involved in maintaining and carrying on a business so that it may be sold as a going concern (Coad v Wellness Pursuit Pty Ltd (in liq) (2009) WAR 53). 58 The costs, charges and expenses must have been incurred in relation to the property and it is not possible to claim general administration costs or the costs, expenses and remuneration referable for the care, preservation of the property and assets of any other scheme or schemes. Where there are mixed purposes as there are in this case with Scheme property on the one hand, and APHL property on the other, and more than one Scheme is involved, an apportionment is necessary (Thackray v Gunns Plantations at [40]-[51] per Davies J). 59 In 13 Coromandel Place Pty Ltd v C L Custodians Pty Ltd (in liq) [1999] FCA 144; (1999) 30 ACSR 377, Finkelstein J said (at [35], [37]): The position is a little more involved as regards work done and expenses incurred in what may be described as general liquidation matters. If that work is unrelated to the beneficiaries and their claims it is difficult to see how the cost could be charged against their assets. In the case of a company that has carried on the business of trustee it might be that much of the work involved in the liquidation is chargeable against trust assets if it can be shown that the liquidation is necessary for the proper administration of the trust. But it is unlikely that this will be so where the company did not act solely as trustee or at least did not act in that capacity to a significant extent. In that event, the liquidator will be required to estimate those of his costs that are attributable to the administration of trust property and only those costs will be charged against the trust assets. There are two further difficulties with regard to the liquidator's claim. The first is that the beneficiaries who are entitled to the debt due from the ATO (assuming that it is recoverable) are not the same as the beneficiaries who are entitled to the deposit with the NAB. The liquidator is not entitled to charge the beneficiaries of one trust with the costs and expenses incurred in relation to the other trust. Accordingly, it will be necessary for the liquidator to estimate the costs and expenses incurred insofar as they relate to each trust and only charge those costs to the trust on whose behalf the work was performed. If that estimate is not possible then a pari passu distribution of the costs and expenses will be in order as was envisaged by King CJ in Suco Gold, supra. The second difficulty is the possibility that the liquidator has performed work on behalf of investors for whom no property is held on trust. If that is the case the liquidator could not look to the existing trust assets for the costs and expenses of that work unless, in accordance with the foregoing principles, the liquidator is entitled to charge those assets with a proportionate share of the costs. That would be so if the costs and expenses are not divisible. The accounts that the liquidator prepares should deal with these issues. 60 An alternative basis for the recovery of at least some of the expenses is that identified in Berkeley Applegate where Edward Nugee QC sitting as a Deputy Judge of the High Court said at 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. (See Application of Sutherland.) 61 Early in their administration, the applicants formed the following view as expressed by Mr Powell in his main affidavit: 66. In our view, the only way to maximise the return to Growers and to creditors of APHL was to ensure that: (a) both APHL and Scheme-related oysters were maintained so as to ensure they were a viable asset which could potentially be realised; and (b) the pearls ready for harvest were harvested so as to enable those pearls to be sold and funds received for the benefit of the Growers and creditors (as appropriate). 62 Mr Powell sets out the circumstances surrounding the entry into the Management Agreement, the Revised Management Agreement and the Deed of Variation with GP 1. I am satisfied that that was an appropriate course to take in the interests of the growers in the relevant Schemes. The lease payments and obligations incurred were appropriate and I am satisfied that the apportionment of the costs over the various Schemes and APHL is appropriate. 63 I have carefully considered the 17 categories of fees and expenses. The following should be noted: (1) No remuneration, costs and expenses are sought from Scheme property in relation to categories 7, 13 and 14. Only legal and other costs and expenses are sought in relation to category 1. (2) Other than categories 8, 10 and 16, the remuneration, costs and expenses are to be divided equally between each Scheme and APHL. That seems to me to be appropriate. In relation to category 8, the remuneration, costs and expenses are to be allocated in proportion to the proceeds received from the sale of pearls by the 2005, 2006 and 2007 Schemes and APHL, in relation to category 10 the allocation is to be in proportion to actual pearl stock harvested, and in relation to category 16 the allocation is to be in proportion to the proceeds received from the sale of pearls by the 2005, 2006 and 2007 Schemes. (3) In relation to each category, a description of the tasks performed is provided and the hours spent by named parties and employees and hourly rates are identified. There is also a description of other fees and legal costs and disbursements. 64 Paragraphs 10, 11 and 12 of the orders made on 24 April 2012 prescribed a procedure for giving notice to growers of proposed payments out of the Scheme proceeds, including an affidavit describing the remuneration sought, the tasks performed and the manner of calculation. That procedure has been followed and none of the growers have appeared in opposition to the application. In those circumstances, there is no need to provide a further mechanism for objection. I think it appropriate to make the orders sought in relation to the applicants' remuneration and costs and expenses incurred by them. 65 The third category of orders consists of the order sought in paragraph 4. The order is subject to the relevant remuneration of the applicants in the period from 1 July 2016 to 5 May 2017 being fixed pursuant to s 499(3) of the Act (as in force at the date of liquidation of APHL). I am satisfied that it is appropriate to make that order. 66 The fourth category of orders consists of the order sought in paragraph 5. I am satisfied that it is appropriate to make that order. Plainly, subject to the payment of costs necessarily incurred, the monies should be distributed to those entitled to it and the manner of the proposed distribution is appropriate. 67 Finally, there are the orders sought in paragraphs 6 and 7. I am satisfied that I have the power to make these orders. Clearly I can vary the orders made on 24 April 2012. I am satisfied that, by reason of the provisions of the Act, I can dispense with the obligations in the relevant Scheme Constitutions. I am satisfied that it is appropriate to do so because the applicants have prepared a detailed accounting in relation to each of the relevant Schemes and provided that accounting to the growers. No objection to the orders has been raised or maintained by any grower. The costs of engaging a company auditor to perform the required task are not insubstantial and, in the circumstances, I am of the opinion that it is appropriate that they not be incurred.

Conclusion 68 The orders sought by the applicants should be made. However, before doing so, I will give counsel for the applicants an opportunity to indicate whether there are any additional matters which should be addressed. I certify that the preceding sixty-eight (68) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Besanko.