Re Australian Property Custodian Holdings Ltd (in liq) [2021] VSC 51 (15 February 2021)

1 The plaintiffs, Mr Stirling Horne and Mr Petr Vrsecky, are the joint and several liquidators (liquidators) of Australian Property Custodian Holdings Limited (APCHL), having been the external administrators of APCHL since 2010.[1] By application brought pursuant to ss 90-15 and 90-20 of the Insolvency Practice Schedule (Corporations) (Insolvency Practice Schedule) set out in Schedule 2 to the Corporations Act 2001 (Cth), the liquidators seek directions from the Court in relation to the liquidation of APCHL.

2 APCHL is, and all material times has been, the Responsible Entity (RE) of the Prime Retirement and Aged Care Property Trust (Prime Trust). APCHL as RE for the Prime Trust:

(a) was the parent of 18 wholly owned subsidiaries;[2]

(b) floated and listed the Prime Trust on the Australian Stock Exchange as a registered managed investment scheme in August 2007; and

(c) by 2008 owned and operated approximately 47 retirement villages and one rental village.

3 APCHL's predominant operational capacity was as the RE of the Prime Trust, however, it also conducted some 'minor and incidental operations'[3] in its own capacity and APCHL (in its personal capacity) 'held all of the issued share capital in APCH Administrators Pty Ltd'.[4]

4 The external administration of APCHL has had a long and storied history, APCHL having been involved in protracted litigation both in this Court and in the Federal Court of Australia, arising from the collapse of APCHL and the Prime Trust. After more than nine years, the position has now been reached whereby the external administration is nearing completion − all of the assets of the Prime Trust (and its subsidiaries) have been realised, save for a potential claim by a subsidiary, APCH Investments Pty Ltd, against Orchard Australia Pty Ltd (in liquidation).

5 Currently, APCHL holds total assets of approximately $4.7 million, comprising:[5]

(a) approximately $2.96 million of cash at bank held in its personal capacity; and

(b) approximately $1.79 million of cash at bank held in its capacity as RE for the Prime Trust.

6 However, the liquidators have informed the Court that APCHL's assets are dwarfed by its liabilities, in that the total liabilities of APCHL (both in its personal capacity and as RE for the Prime Trust) exceed $948 million. And while approximately $570 million is comprised of inter-company loans within the Prime Group, the balance of approximately $378 million is owed to parties outside the Prime Group as follows:[6]

(a) approximately $35.4 million is owed by APCHL (in its personal capacity); and

(b) approximately $342.6 million is owed by APCHL (as RE for the Prime Trust).

7 In addition to the above liabilities, the liquidators recognise that there are additional potential claims that may be available to unitholders of the Prime Trust and these potential claims (which are the subject of the directions sought in paragraphs 1(a), (b), (c) and 2(a) of the further amended originating process dated 22 July 2020[7] (FAOP)) would increase the total creditors of APCHL.

8 As a consequence of APCHL holding assets and having liabilities both in its capacity as trustee and in its personal capacity, questions have arisen as to the proper and reasonable approach to be adopted by the liquidators in the application of the modest assets remaining to make a final distribution (or at least a final distribution of any material amount) to the creditors (and potential creditors) of APCHL.

Joinder of interested parties and position adopted by each of them

9 At the first return of the proceeding on 2 August 2019, Efthim AsJ granted the following entities leave to intervene and make submissions as 'interested parties' pursuant to rule 2.13 of the Supreme Court (Corporations) Rules 2013 (Vic):

(a) Kidder Communities Pty Ltd (ACN 130 631 891) (recs and mgrs appt) (Kidder Communities) (the first interested party);

(b) Daytree Pty Ltd (ACN 054 304 755) (Daytree) (the second interested party);

(c) Australian Property Administrators Pty Ltd (ACN 067 857 425) (APA) (the third interested party); and

(d) Prime Trust Action Group (Prime Action Support Group IARN A1015519W) (PTAG) (the fourth interested party).

10 In these reasons, I will refer to the first to third interested parties (who were jointly represented) as the 'KCDA parties', the fourth interested party as 'PTAG', and to the KCDA parties and PTAG collectively, as the 'interested parties'.

11 The group known as 'PTAG' is an incorporated association, having been incorporated in Western Australian under the name 'Prime Action Support Group Inc' on 21 September 2011.[8]

12 Currently, there are five members of PTAG[9] being:

(a) John O'Brien, President and an investor in Prime Trust;

(b) Don Steel, Vice-President and an investor in Prime Trust;

(c) Roger Pratt, Treasurer, whose father invested in Prime Trust;

(d) Keith Wenban, independent member and an investor in Prime Trust;

(e) Stephen O'Reilly, the Secretary and an investor in Prime Trust.

13 Mr O'Reilly, who was a founding member of PTAG, filed an affidavit in this proceeding to provide evidence in support of PTAG's intervention.[10] Mr O'Reilly deposes that since its incorporation, PTAG has been an advocate on behalf of unitholders in Prime Trust and keeps abreast of developments in the liquidation of APCHL.[11] In particular, he says PTAG has:[12]

(a) advocated for unitholders in various fora including with the liquidators and the Australian Securities and Investments Commission (ASIC);

(b) distributed information and notices to investors in the Prime Trust;

(d) participated on the creditors' committee established by the liquidators;

(f) investigated potential claims and avenues of recovery for unitholders;

(g) maintained the website www.primetrustactiongroup.com (PTAG website) with regular updates to unitholders; and

14 Mr O'Reilly also deposes that to the best of his knowledge, PTAG is the only association established to represent unitholders' interests in the external administration of Prime Trust.[13] PTAG has kept a register of unitholders which includes information about the dates on which they placed investments in Prime Trust.[14] He says that as at 14 August 2019, PTAG has received statements of support from 6,402 unitholders in Prime Trust[15] and that the unitholders who have given these statements of support represent approximately:[16]

(a) $409.9 million of the $576 million in funds subscribed for units in Prime Trust; or

15 In addition, Mr O'Reilly deposes that PTAG has advocated more widely and has sought to ensure, wherever possible, that information about its activities is publicly available on its website and is distributed as widely as possible among all unitholders.[17]

16 In July 2019, the liquidators wrote to PTAG and provided information about this application, following which PTAG informed the Court that it wished to be heard. In mid-August 2019, PTAG updated members about the liquidators' application for directions and PTAG's support for the proposal contained therein. Mr O'Reilly deposes that PTAG has not received correspondence from any unitholders stating that they object to PTAG's support for the liquidators' proposal.[18]

17 PTAG has informed the Court that the O'Reilly affidavit was filed to give the Court some 'comfort'[19] that PTAG is the appropriate entity to:

(b) file a global proof of debt if so ordered by the Court; and

(c) provide evidence to support the proposition that unitholders have potentially viable claims against APCHL in its own capacity and in its capacity as the RE for the Prime Trust.

18 PTAG submits that s 90-21 of the Insolvency Practice Schedule allows the Court to receive this affidavit as evidence of the wishes of unitholders.[20]

19 In essence, PTAG supports the making of the directions sought in the liquidators' FAOP.

20 Each of the KCDA parties is included within the list of persons the liquidators have identified in the Annexure to the FAOP as 'Excluded Unitholders' (see below). Relevantly, each of Kidder Communities, Daytree and APA has submitted a proof of debt (other than in their capacity as unitholders) and received confirmation from the liquidators that it would be admitted, as follows:

(a) On 4 May 2018 Kidder Communities submitted a proof of debt with the liquidators. On 29 June 2018 the liquidators wrote to the receiver and manager of Kidder Communities and confirmed that they would admit the Kidder Communities' proof of debt in the sum of $7,773,311.50. [21]

(b) On 27 July 2018 each of Daytree and APA submitted proofs of debt to the liquidators. On 24 August 2018, the liquidators wrote to the solicitor for the KCDA parties and notified that they would admit the proofs of debt submitted by Daytree and APA to the following extent: [22]

(i) Daytree − in the sum of $21,914,416.28;[23] and

(ii) APA - in the sum of $5,699,922.82.[24]

21 On 16 August 2019, the solicitor for the KCDA parties received a letter from the liquidators' solicitors noting that the liquidators had not yet formally called for proofs of debt.[25] On 15 November 2019, the solicitor for the KCDA parties wrote to the liquidators' solicitors informing them that the KCDA parties 'will take an active role in advocating their position in the proceeding to the effect that the proposed directions should not be made and the proceeding should be dismissed.'[26]

The central issue in the case and summary of conclusions

22 As will be discussed in greater detail below, the central issue raised by the liquidators' application concerns the proof of debt procedure to be adopted in relation to claims (or potential claims) by unitholders of Prime Trust.

23 In essence, the liquidators are of the view that if the traditional proof of debt procedure provided for by the Corporations Regulations is followed, it is likely the assets of APCHL that are available for distribution will be significantly diminished by the associated costs and expenses. Accordingly, in the FAOP the liquidators seek advice as to whether they would be justified and acting reasonably in the interests of creditors if they were to adopt an alternative regime whereby those costs and expenses would not be incurred.[27]

24 The proposal embodied in the FAOP is something of a 'pragmatic expedient' - in that it seeks to provide a mechanism or process by which 'Eligible Unitholders' in Prime Trust who assert a claim under s 1041H for misleading and deceptive conduct arising in relation to the relevant product disclosure statements can bring forward their claims under a global proof of debt, and have them assessed and dealt with by the liquidators in an efficient and cost-effective way - such that the costs and expenses involved in the proof of debt process do not deplete APCHL/Prime Trust's assets with the real possibility that no dividend is paid to creditors. The proposal also entails that any claims of the 'Excluded Unitholders', under s 1041H for misleading and deceptive conduct arising in relation to the relevant product disclosure statements, be assessed as nil.

25 Counsel for the liquidators submit that the Court clearly has the power to make each of the directions sought in the FAOP, and they contend that there is nothing in the 'pragmatic' proposal embodied in the FAOP that, if adopted, would be contrary to any provision of the Corporations Regulations or the Insolvency Practice Schedule.[28] They acknowledge, however, that ultimately it is a matter for the Court to determine whether to exercise its discretion to make the orders sought.

26 For the reasons which follow I have determined that it is not appropriate for the Court, in the exercise of its discretion, to make the directions sought in paragraphs 1(a), (b) and (c) or 2(a) of the FAOP concerning the claims of unitholders in the Prime Trust. In summary, the views I have reached are as follows.

27 First, in my view, the application suffers from a lack of articulation of precisely what the liquidators' global proof of debt proposal involves and how the process is to be conducted and administered by the liquidators.

28 Secondly, while I am satisfied there is some justification for the view advanced by PTAG and the liquidators that unitholders who purchased or subscribed for units in Prime Trust relying upon misleading or deceptive information from APCHL or were misled as to the entity's worth by its failure to make disclosures required by law, and thus may have a claim available to them for damages against the company under s 1041H that would be within s 553 of the Corporations Act, the liquidators' global proof of debt proposal fails to require unitholders to adduce the information necessary to support such a claim. The liquidators acknowledge that reliance by unitholders on the alleged misleading product disclosure statements is the foundational basis for the economic loss suffered by them yet their global proof of debt proposal seemingly does not require unitholders to provide details capable of supporting such a claim. In my view, each unitholder must demonstrate reliance and it is not appropriate for the Court to accede to (asserted) 'pragmatic' considerations and 'infer' reliance simply because it would not be cost-effective to obtain statements from individual claimants.

29 Thirdly, I am not satisfied that a 'global proof of debt' mechanism of the kind contended for is available to a collective of claimants with severally held rights, such as the 'Eligible Unitholders' in the present case, enabling them to submit a global proof of debt.

30 Fourthly, even if the global proof of debt mechanism were available, in my view the proposal set out in the suite of directions sought in paragraphs 1(a) to 1(c) is unsatisfactory - it does not provide for any real assessment of the unitholders' claims on their merits and falls short of demonstrating the rigour required to be exercised by the liquidators in discharging their duty to adjudicate upon claims and distribute the assets in their hands or under their control to the persons truly entitled.

31 Fifthly, in the case of the 'Excluded Unitholders' the subject of the direction sought in paragraph 2(a), the liquidators are effectively leaving it to the Court to undertake the task of assessing the (potential) claims of each of the Excluded Unitholders and their value (if any) on an individual basis, separately from and in advance of the liquidators having embarked upon the proof of debt process. In my view, it is unsatisfactory position for the Court to be placed in that position. Furthermore, notwithstanding the apparent breadth of the power conferred by s 90-15, I share the cautionary note expressed by McLelland J in Re Magic Aust Pty Ltd (in liq)[29] that an application for directions is not an appropriate vehicle for a direction to be given to the effect that a liquidator admit or reject a particular proof of debt, which would not determine the validity or otherwise of the claim or prevent a subsequent appeal from a decision made by the liquidator in accordance with that direction.

32 Turning to the remaining directions sought in paragraph 2 of the FAOP, concerning payment of dividends to creditors of APCHL and from what asset pools, both the liquidators and the interested parties are agreed that it is appropriate that the directions sought in paragraphs 2(b) and 2(c) be made. No submission to the contrary has been filed by any of the relevant financiers listed in subparagraphs 2(b)(i)-(iii). In those circumstances, in my view it is appropriate for the Court to make:

(a) a direction in the form set out in paragraph 2(b) of the FAOP thereby confirming that the liquidators may treat the creditors of the Prime Trust as being entitled to dividends from the assets of APCHL in its personal capacity and in the assets of the Prime Trust, other than the named creditors (being the relevant financiers[30]); and

(b) a direction in the form set out in paragraph 2(c) of the FAOP in the negative, thereby confirming that creditors of APCHL in its personal capacity are confined to the assets of APCHL in its personal capacity and are not entitled to any dividend from the assets of the Prime Trust.

33 The liquidators' application for directions and orders in relation to the treatment of claims of unitholders of the Prime Trust is made under ss 90-15 and 90-20 of the Insolvency Practice Schedule.

34 Relevantly, s 90-15(1) of the Insolvency Practice Schedule confers power on the Court to make 'such orders as it thinks fit in relation to the external administration of a company.' Section 90-15(3) sets out '[e]xamples of orders that may be made', and includes 'an order determining any question arising in the external administration of the company'.[31]

35 Following the introduction of the new provisions contained in the Insolvency Practice Schedule, courts have generally accepted that on applications for judicial advice, s 90‑15 now permits the courts to take a broader view of their power to determine substantive rights and is probably more extensive than the powers formerly available to the court under ss 479(3) and 511 of the Corporations Act. In Re Hawden Property Group Pty Ltd (in liq), Gleeson JA described the position stating:[32]

[7] The ambit of s 90-15 has not yet been fully considered in the authorities. In Reidy, In the Matter of eChoice Limited (Admin Apptd) [2017] FCA 1582, Yates J at [27] accepted that an application by an administrator for directions, that formerly would have been made under s 447D(1) of the Corporations Act (now repealed), would fall within the purview of the statutory power in s 90-15 to make an order that determines a question arising in the external administration of a company.

[8] In Walley, In the Matter of Poles & Underground Pty Ltd (Admin Apptd) [2017] FCA 486 at [41], Gleeson J remarked that the question of whether to exercise the power in s 90-15 was "to be answered by reference to the principles applied to the exercise of the discretions previously contained in s 479(3) and s 511 of the Act". That may be accepted insofar as the external administrator seeks the directions of the Court, but the power under s 90-15 to "make such orders as it thinks fit in relation to the external administration of a company" (s 90-15(1)) including "an order determining any question arising in the external administration of a company" (s 90-15(3)(a)), is wider and accommodates the determination of substantive rights. Of course, the Court would not do so without affording potentially affected parties an opportunity to be heard: Meadow Springs Fairway Resort Ltd (in liq) v Balance Securities Ltd [2007] FCA 1443, at [49]-[51] (French J, referring to Australian Securities Commission v Melbourne Asset Management Nominees Pty Ltd [1994] FCA 1031; (1994) 49 FCR 334 at 352 (Northrop J)); Re Willmott Forests Ltd (No 2) [2012] VSC 125; (2012) 88 ACSR 18 at [45]- [46] (Davies J); In the Matter of ICS Real Estate Pty Ltd (in liq) [2014] NSWSC 479 at [25] (Brereton J).

36 The liquidators' application was initiated by an originating process filed on 4 July 2019 in which they sought directions and orders in relation to the treatment of claims of the unitholders of the Prime Trust, as follows:

1. A direction pursuant to section 90-15 of the Insolvency Practice Schedule that the Liquidators are justified and otherwise acting properly and reasonably in:

(a) treating the claims by unitholders of the Prime Trust, save for those unitholders that are set out in the Annexure, (Eligible Unitholder) as unsecured claims in the liquidation of APCHL in its own capacity and in its capacity as Responsible Entity for the Prime Trust; and

(b) valuing the claim of each Eligible Unitholder on the basis that each unit is worth $1; and

(c) calling for and adjudicating on a global proof of debt in respect of all Eligible Unitholder claims, to be lodged by the Prime Trust Action Group.

1. Such further or other order or direction as the Court sees fit to make.

37 The 'Eligible Unitholder' claims referred to above are essentially claims (or potential claims) by unitholders of the Prime Trust (other than the 'Excluded Unitholders') for compensation under s 1041H of the Corporations Act in respect of alleged non-disclosures made in Product Disclosure Statement documents for the Prime Trust. As described by the liquidators,[33] the foundational basis for the Eligible Unitholder claims are findings made by the Financial Ombudsman Service[34] (FOS) to the effect that APCHL, in issuing the various 'financial products' from at least 2003 to 2007 (inclusive), engaged in conduct that was misleading or deceptive.

38 Generally speaking, the unitholders set out in the Annexure to the originating process (whom the liquidators refer to as 'Excluded Unitholders') are persons or entities whom the liquidators consider are ineligible to pursue claims in their capacity as unitholders either because they are individuals who were directors of APCHL prior to it being placed in administration, or because they have some link or association with the directors of APCHL. It is by reason of that link or association that the liquidators contend the Excluded Unitholders were aware or ought to have been aware of the true position concerning APCHL, such that it can reasonably be concluded that their investments were not affected by the alleged contravening conduct of APCHL when they subscribed for units in the Prime Trust. (The list of 'Excluded Unitholders' set out in the annexure to the FAOP has been reproduced as Annexure B to these reasons.)

39 When the proceeding commenced, the liquidators' application was supported by the evidence set out in the affidavit of Mr Horne sworn on 28 June 2019 (Horne 28.06.19 affidavit).

40 Subsequently, in August 2019, the liquidators provided a supplementary affidavit of Mr Horne sworn on 15 August 2019 (Horne 15.08.19 affidavit), and an amended originating process, articulating further directions sought in relation to the assessment of claims and the payment of dividends, as follows:[35]

1. A direction pursuant to section 90-15 of the Insolvency Practice Schedule that the Liquidators are justified and otherwise acting properly and reasonably in:

(a) treating the claims by unitholders of the Prime Trust, save for those unitholders that are set out in the Annexure, (Eligible Unitholder) as unsecured claims in the liquidation of APCHL in its own capacity and in its capacity as Responsible Entity for the Prime Trust (Eligible Unitholder Claims); and

(b) valuing the claim of each Eligible Unitholder Claim on the basis that each unit is worth $1; and

(c) calling for and adjudicating on a global proof of debt in respect of all Eligible Unitholder cClaims, to be lodged by the Prime Trust Action Group.

1. Directions pursuant to section 90-15 of the Insolvency Practice Schedule as to whether or not the Liquidators are justified and otherwise acting properly and reasonably in:

(a) assessing the claims of those unitholders that are set out in the Annexure (and referred to as Excluded Unitholders) as nil;

(b) paying a dividend to those persons accepted by the Liquidators as creditors of APCHL, where their rights as creditors arose in respect of dealings with APCHL in its capacity as Responsible Entity of the Prime Trust, from the net proceeds available for distribution derived from the assets of APCHL not held by it as Responsible Entity of the Prime Trust; and

(c) paying a dividend to those persons accepted by the Liquidators as creditors of APCHL, where their rights as creditors arose in respect of dealings with APCHL in its own right, from the net proceeds available for distribution derived from the assets of APCHL held by it as Responsible Entity of the Prime Trust.

1. Such further or other order or direction as the Court sees fit to make.

41 Thereafter, the liquidators filed two further affidavits of Mr Horne in support of their application, being his:

(a) second supplementary affidavit sworn on 26 September 2019 (Horne 26.09.19 affidavit); and

(b) third supplementary affidavit sworn on 17 July 2020 (Horne 17.07.20 affidavit).[36]

42 In the course of the hearing on 22 July 2020, the liquidators sought leave to further amend their amended originating process. There being no opposition by the interested parties, the Court granted leave to do so, but subject to the creditors identified in subparagraphs 2(b)(i) to (iii) of the FAOP being notified of the amendments (as mentioned below).

43 Accordingly, by way of their FAOP (filed on 23 July 2020 following the hearing), the liquidators applied under s 90-20 of the Insolvency Practice Schedule for the following specific directions pursuant to s 90‑15 of the Insolvency Practice Schedule:[37]

1. ...that the Liquidators are justified and otherwise acting properly and reasonably in:

(a) treating the claims by unitholders of the Prime Trust, save for those unitholders that are set out in the Annexure, as unsecured claims in the liquidation of APCHL in its own capacity and in its capacity as Responsible Entity for the Prime Trust (Eligible Unitholder Claims); and

(b) valuing each Eligible Unitholder Claim on the basis that each unit is worth $1, or such other amount as the Court determines; and

(c) calling for and adjudicating on a global proof of debt in respect of all Eligible Unitholder Claims, to be lodged by the Prime Trust Action Group.

1. ...that the Liquidators are justified and otherwise acting properly and reasonably in:

(a) assessing the claims of those unitholders that are set out in the Annexure (and referred to as Excluded Unitholders), in their capacity as unitholders as nil;

(b) paying a dividend to those persons accepted by the Liquidators as creditors of APCHL, where their rights as creditors arose only in respect of dealings with APCHL in its capacity as Responsible Entity of the Prime Trust, from the net proceeds available for distribution derived from the assets of APCHL not held by it as Responsible Entity of the Prime Trust other than the following creditors:

(i) Capital Finance Australia Limited (and any entity to which Capital Finance Australia Limited has assigned its debt, including but not limited to AET SPV Management Pty Ltd as trustee for the Lawson Trust);

(ii) Suncorp Metway Limited; and

(iii) Industry Funds Management (Nominees 2) Pty Ltd (a subsidiary of Members Equity Bank); and

(c) not paying a dividend to those persons accepted by the Liquidators as creditors of APCHL, where their rights as creditors arose in respect of dealings with APCHL in its own right, from the net proceeds available for distribution derived from the assets of APCHL held by it as Responsible Entity of the Prime Trust.

44 The recent amendments made to paragraph 2(a) of the FAOP reflect the confirmation given by senior counsel for the liquidators at the hearing to the effect that the direction sought in that paragraph was not intended to disturb the position of Excluded Unitholders whose proof(s) of debt had already been admitted (or rejected) in a capacity other than as a unitholder of the Prime Trust.[38] This amendment was not opposed by the KCDA parties.[39]

45 Further, the direction sought in paragraph 2(b) of the FAOP, the effect of which is to entitle 'trust creditors' to share in the 'personal assets' of APCHL (which arises due to the dual capacities in which APCHL operated), was also amended to include a carve‑out for creditors of APCHL in its capacity as RE of the Prime Trust that had limited 'their recourse to Prime Trust assets only (and therefore are not entitled to share in the assets of APCHL in its personal capacity).'[40] There was no opposition to the proposed amendments and at the hearing the direction sought in paragraph 2(b) was not opposed by the interested parties.[41]

46 At the hearing, senior counsel for the liquidators, Mr Evans QC, informed the Court that although the (proposed amended) direction sought in paragraph 2(b) was expressed such that it did not apply to the creditor entities identified in subparagraphs (i) to (iii), those entities had not been served with the originating process (as amended) or the totality of the affidavit material relied on by the plaintiffs.[42] In those circumstances, the Court ordered that the FAOP and the Horne 17.07.20 affidavit be served on those entities together with a letter setting out the statements made by the liquidators' senior counsel at the hearing as to the proposed effect of the direction sought in paragraph 2(b) of the FAOP.[43] (The Court has not been informed of any response or correspondence received from any of those entities).

The material relied on by the parties at the hearing

47 In support of their application, the liquidators (formally) read and relied on four affidavits sworn by Mr Horne,[44] being the Horne 28.06.19 affidavit, the Horne 15.08.19 affidavit, the Horne 26.09.19 affidavit and the Horne 17.07.20 affidavit, together with certain of the exhibits thereto as identified in the tender list provided to the Court by the liquidators' solicitor via email on 23 July 2020.[45]

48 The liquidators also relied on their outline of submissions filed on 24 December 2019 (liquidators' submissions) and their reply submissions dated 31 March 2020 (filed on 21 July 2020) (liquidators' reply submissions) responding to the submissions filed by the respective interested parties.

49 The KCDA parties relied on the affidavit of Ms Kelly Ann Powers, a solicitor employed by SBA Law, the solicitor for the KCDA parties, sworn on 2 March 2020 and the exhibits thereto (Powers affidavit).[46]

50 The KCDA parties also relied on their outline of submissions filed on 3 March 2020 (KCDA submissions) and their submissions filed on 31 March 2020 (KCDA reply submissions) in reply to the submissions by PTAG.

51 PTAG relied on the affidavit of Mr Stephen Richard O'Reilly sworn on 14 November 2019 and certain exhibits thereto (O'Reilly affidavit). (PTAG's submissions also state that PTAG relied on the first three of Mr Horne's affidavits.[47])

52 PTAG also relied on its submissions filed on 3 March 2020 (PTAG's submissions) and its submissions in reply filed on 31 March 2020 (PTAG reply submissions) in reply to the submissions filed by KCDA.

53 At the outset of the hearing, senior counsel for the KCDA parties, Mr Glick QC, indicated that he objected to certain passages of the evidence relied on by the liquidators and PTAG. However, as these objections had not been notified to the liquidators or PTAG in advance,[48] the matter was stood down briefly to allow the parties an opportunity to resolve any objections.[49]

54 When the hearing resumed, the parties indicated that they had resolved the objections as follows:

(i) paragraph 34 be subject to a limitation to be imposed by an order made pursuant to s 136 of the Evidence Act 2008 (Vic)[50] that it is 'inadmissible to prove the existence of a fact about which the existence of which any opinion [in that paragraph] was expressed'[51] and 'admissible only to prove, as to any opinion contained within it, the state of mind of the author of the opinion'; and[52]

(ii) paragraph 38 be deleted in its entirety and not admitted into evidence,

with the balance admitted into evidence (together with the eight exhibits thereto) as exhibit P-1.[53]

(ii) the first sentence of paragraph 52 be deleted,

with the balance admitted into evidence as exhibit PTAG-1.[54]

55 Save for the objections identified above, the balance of the affidavits and exhibits thereto were admitted into evidence as follows:[55]

(a) the Horne 15.08.19 affidavit - as exhibit P-2;

(b) the Horne 26.09.19 affidavit - as exhibit P-3;

(c) the Horne 17.07.20 affidavit - as exhibit P-4; and

(d) the Powers affidavit - as exhibit KCDA-1.

56 Certain other documents relied on by PTAG were admitted as business records of the liquidators and/or of the FOS, without objection by the KCDA parties or the liquidators, as follows:

(a) email from Mr O'Reilly to Mr John Fish dated 7 December 2012 - as exhibit PTAG-2;[56]

(b) acceptance of determination executed by Mr and Mrs O'Reilly to FOS dated 6 December 2012 - as exhibit PTAG-3;[57]

(c) letter from FOS to Mr and Mrs O'Reilly dated 11 December 2012 - as exhibit PTAG-4;[58] and

(d) letter from Lawler Draper Dillon dated 12 October 2011 'to the creditor/unit holder as addressed' - as exhibit PTAG-5.[59]

57 At the hearing, none of the deponents was cross-examined and counsel for the liquidators and counsel for each of the interested parties informed the Court that they relied on their respective written submissions and proposed making only brief oral submissions.

Paragraph 1of the FAOP: treating 'Eligible Unitholder Claims' as unsecured claims and valuing them on the basis each unit held is worth $1

The liquidators adopted a 'neutral position' save in respect of direction 1(c)

58 At the outset of the hearing, senior counsel for the liquidators informed the Court that the directions sought in paragraphs 1(a) and 1(b) of the FAOP, concerning the claims of Eligible Unitholders and their valuation, would not be the subject of submissions by the liquidators as to whether or not those directions should be made. Rather, he said, the contest is essentially between the PTAG on the one hand, which seeks to support the making of the directions sought in paragraphs 1(a) and 1(b), and the KCDA parties on the other, who contend those directions should not be made.[60]

59 The direction sought in paragraph 1(c), concerning the lodgment of and adjudication upon a global proof of debt, also arises in the context of the Eligible Unitholder claims. In circumstances where there are more than 9,000 individual unitholders of the Prime Trust, the liquidators are seeking to identify an efficient means of dealing with all claims that all Eligible Unitholders have against APCHL. In essence, by direction 1(c) the liquidators propose that all such claims be captured in a 'global proof of debt' (being a single proof of debt document which identifies severally the eligible unitholders and contains the relevant details of each individual unitholder's claim),[61] with a view to reducing the liquidators' costs that would otherwise be incurred if the traditional procedure were followed, and thereby preserving the maximum value of assets available for distribution to creditors.

60 Senior counsel for the liquidators submitted that if the Court makes the direction in paragraph 1(a), then the liquidators contend the Court should proceed to make the direction sought in paragraph 1(c) with respect to a global proof of debt being lodged by PTAG identifying severally the identity of each of the eligible unitholders.[62] He confirmed that the liquidators do seek to be heard on the direction sought in paragraph 1(c), which self-evidently is contingent on the determination made in respect of paragraph 1(a).[63] He added that if the directions sought in paragraphs 1(a) and 1(b) are not made, then it would still be open to the unitholders of the Prime Trust to lodge proofs of debt in the liquidation of APCHL.[64]

61 As direction 1(c) is only enlivened if the Court makes direction 1(a), I shall deal with this aspect separately below. For present purposes it is sufficient to note that both the liquidators and PTAG contend that the Court should make direction 1(c) and the KCDA parties contend against the making of direction 1(c).

62 Notwithstanding that the liquidators now adopt a neutral stance, and are leaving it to PTAG and the KCDA parties to advocate for the rival positions in respect of the directions sought in paragraphs 1(a) and 1(b) of the FAOP, they have filed a substantial body of evidence in advance of the hearing addressing the contextual background and describing the claims that were brought and successfully prosecuted by unitholders of the Prime Trust against APCHL, together with an outline of submissions which encapsulates the views formed by the liquidators. As PTAG effectively relies upon the evidence filed by the liquidators and has expressly adopted Section A (Introduction) and Section B.1 (concerning directions 1(a) and (b) and direction 2(a)) of the liquidators' submissions, the substance of that evidence and those submissions is set out below.

Directions 1(a) and 1(b) concerning Eligible Unitholder Claims

63 The directions sought in paragraphs 1(a) and 1(b) of the FAOP concern what the liquidators describe as 'potential claims that may be available to unitholders of the Prime Trust'.[65] Subject to the exclusion of certain unitholders (being the 'Excluded Unitholders' discussed further below), these (potential) claims are the 'Eligible Unitholder Claims' referred to in paragraph 1(a) of the FAOP.[66]

64 In essence, the Eligible Unitholder Claims arise for consideration because some years ago three unitholders of the Prime Trust[67] (the FOS claimants) successfully prosecuted claims against APCHL with the FOS, FOS being a dispute resolution service for determining disputes between consumers and financial service providers.

65 In 2011 and 2012, three proceedings were brought against APCHL,[68] with the relevant unitholders alleging in each case that APCHL engaged in conduct, in relation to a financial product or a financial service, that is misleading or deceptive (or is likely to mislead or deceive) in contravention of s 1041H of the Corporations Act. [69]

66 The FOS issued determinations in each of the matters in late November 2012 and late May 2013 respectively.[70] Relevantly, FOS concluded in each case that APCHL, in issuing the various 'financial products' from at least 2003 to 2007 (inclusive), being Product Disclosure Statements (PDS) (and Supplementary Product Disclosure Statements (SPDS), engaged in conduct that was misleading or deceptive. The FOS determined that disclosures made and omissions from the financial products issued by APCHL were in breach of s 1041H of the Corporations Act, that the unitholders in question relied on these financial products to subscribe for units in the Prime Trust, and as a consequence the unitholders suffered loss and damage. The unitholders were awarded damages for economic loss.[71] However, the FOS determinations did not specify whether the compensation awarded was liable to be paid by APCHL in its own right or in its capacity as RE of the Prime Trust, or both.

67 The liquidators have informed the Court that, having read the FOS determinations and sought legal advice, they:[72]

have formed the view that all the unit holders are likely to have a claim for misleading and deceptive non-disclosure in respect of the Prime Trust where they were not advised of:

(a) adverse action by ASIC;

(b) conflicts of interest;

(c) the value of the management rights; and/or

(d) the transfer of the management rights without sufficient consideration.

68 However, as noted above, at the hearing, the KCDA parties took objection to the liquidators' evidence quoted above (being paragraph 34 of the Horne 28.06.19 affidavit) being admitted. Relevantly, the objection was resolved between the parties on the basis of the Court ruling[73] that the evidence of the liquidators' view quoted above be admitted into evidence subject to a limitation pursuant to s 136 of the Evidence Act 2008 (Vic) that it is:

(a) inadmissible to prove the existence of a fact about the existence of which any opinion contained within paragraph 34 was expressed; and

(b) admissible only to prove, as to any opinion contained within it, the state of mind of the author of the opinion.

69 While the claims brought before FOS concerned only the financial products issued by APCHL between 2003 and 2007 (inclusive), the liquidators also informed the Court that they have had regard to all of the financial products issued by APCHL between 2002 and 2007 (inclusive) and have formed the view that the contravening conduct identified by FOS was common to all of the documents issued by APCHL during this period of time.[74]

70 In those circumstances, the liquidators have formed the view that:[75]

(a) all (or almost all) unitholders of the Prime Trust have a claim against APCHL for contraventions of s 1041H of the Corporations Act;

(b) provided a unitholder established causation of loss arising from the contraventions of s 1041H, the unitholders' claims (save for and except for the Excluded Unitholders) would sound in damages against APCHL for the amount of their investments less dividends actually received, as identified in the determinations by FOS (Eligible Unitholder Claims);

(c) they consider the Excluded Unitholders (named in the Annexure to the originating process) are ineligible because they are:

(i) individuals who were directors of APCHL prior to APCHL being put into administration, i.e. were directors during the period from 2003 to early 2010 - namely, Philip Powell, Kim Jaques and Michael Woolridge; or

(ii) associates of directors of APCHL (during the period from 2003 to early 2010) - namely, Julie Jaques (spouse of Kim Jaques); Daytree Pty Ltd, Kidder Williams Ltd, Moggs Creek Pty Ltd, Kidder Peabody Pty Ltd and Kalosu Pty Ltd;

(iii) a 99.9% shareholder in APCHL, namely Daytree Pty Ltd,

and therefore were aware or at least ought to have been aware of the true position with respect to APCHL (contrary to the disclosures and omissions referred to in the FOS Determinations) and so it can reasonably be concluded that their investments were not affected by the contravening conduct of APCHL when they subscribed for units in the Prime Trust; and

(d) while it is acknowledged the economic loss of each unitholder may vary, because the FOS determinations had regard to what each unitholder would have done with its funds if it had not invested them with APCHL, in recognition of the modest assets remaining and the relatively small distribution which may follow:

(i) it is not worthwhile or efficient for the unitholders to issue proceedings against APCHL, or lodge individual proofs of debt in the winding up of APCHL in order to establish the precise quantum of their economic loss; and

(ii) it is proper and reasonable for the liquidators to:

(A) treat the Eligible Unitholder Claims as unsecured claims in the liquidation of APCHL in its own capacity and in its capacity as RE for the Prime Trust; and

(B) value each Eligible Unitholder Claim on the basis that each unit is worth $1, and admit the claim for a dollar amount equivalent to the number of units held by the unitholder; and

(C) assess the claims of the Excluded Unitholders as nil.

71 Counsel for PTAG relied for the most part upon the O'Reilly affidavit and PTAG's outline of submissions, which in turn relies upon the affidavits filed by the liquidators[76] and expressly adopts relevant paragraphs of the liquidators' submissions[77] summarised above.

72 Counsel for PTAG identified the first issue for the Court to consider in respect of the directions proposed in paragraph 1 of the FAOP, as being whether it is appropriate for the liquidators to admit the Eligible Unitholder Claims as unsecured claims.

73 PTAG refers to the views expressed by the liquidators in the Horne 28.06.19 affidavit, as outlined above, and submits that the liquidators, having formed the view that most, if not all, of the unitholders may lodge a proof of debt in the winding up of APCHL, 'it is probable that, if called upon to adjudicate on a proof of debt lodged by a unitholder, the liquidators will admit the claim, save for the proposed excluded unitholders'.[78]

74 In those circumstances, counsel for PTAG submits that 'taking a pragmatic and cost-effective approach, the Court should order that the liquidators are justified in admitting the Eligible Unitholder Claims as unsecured claims without having to adjudicate on each individual claim made by a unitholder',[79] noting that such an approach 'will also relieve unitholders of the need to, and time and trouble of completing, a detailed proof of debt in circumstances where they are likely to receive only a fraction of any amount claimed and admitted.'[80]

75 In oral submissions, counsel for PTAG emphasised the need for the Court to take a pragmatic approach when considering the directions sought by the liquidators, submitting that:[81]

the court has both the power and, in my submission, the purpose to take a pragmatic approach so that the rights of the unit holders or the potential rights of the unit holders are assessed in a pragmatic and practical way that does not place a burden on the liquidator that is disproportionate with the likely returns for each of those unit holders if those claims are accepted.

And, in essence, that falls to the assessment of whether or not the eligible unit holders have claims that are based on the decisions made by the Financial Ombudsman Service in respect of three of those unit holders and whether it is appropriate in the circumstances to extrapolate that to the remaining unit holders on the basis that there is commonality with the underlying claims that (indistinct) loss found in favour of the unit holders.

76 Further, counsel said, the Court can do that because the role of the liquidators in assessing the proofs of debt is essentially a 'quasi-judicial' one which requires them to act independently and to assess them properly, but 'it does not require them to assess at the level that a court would have to assess if these were claims that were being run in a trial.'[82]

77 Counsel for PTAG confirmed that what PTAG relies on in the present case are 'the determinations that FOS made as being a basis for the liquidator being able to form a view that the eligible unitholder [claims] should be admitted as unsecured claims, and by extension in this proceeding, for the court to be satisfied that there is a basis for those unitholders to be admitted as unsecured claims by extrapolation from what FOS determined.'[83]

78 Counsel for PTAG acknowledged that there is no 'direct evidence' about what any other unitholders (i.e., unitholders other than the three FOS claimants) would have done vis-à-vis making complaints to FOS, but he submitted that there is 'indirect evidence' from which the Court could infer that when APCHL went into administration 'unitholders then took the view that there was limited utility in pursuing a claim at that point in time' given the 'significant improbability that they would get returns.'[84]

79 When responding to questions from the Court about whether it is appropriate for, and if so the means by which, the FOS claims made in respect of three of the unitholders are to be 'extrapolate[d] ... to the remaining unit holders'[85], counsel for PTAG adverted to (what he submitted was) 'the tension' between the relevant principle that applies when courts are asked by liquidators and administrators to give directions, as summarised by Goldberg J in Re Ansett Australia Ltd (No 3),[86] and the more recent 'broader' approach endorsed by Gordon J in ASIC v Letten (No 7)[87] in the specific context of an unregistered managed investment scheme.

80 In Re Ansett Australia Ltd (No 3), in dealing with a liquidator's application under the former s 479 of the Corporations Act, Goldberg J summarised the relevant principle by stating:[88]

... the prevailing principle adopted by the courts, when asked by liquidators and administrators to give directions, is to refrain from doing so where the direction sought relates to the making and implementation of a business or commercial decision, either committed specifically to the liquidator or administrator or well within his or her discretion, in circumstances where there is no particular legal issue raised for consideration or attack on the propriety or reasonableness of the decision in respect of which the directions are sought. There must be something more than the making of a business or commercial decision before a court will give directions in relation to, or approving of, the decision. It may be a legal issue of substance or procedure, it may be an issue of power, propriety or reasonableness, but some issue of this nature is required to be raised. It is insufficient to attract an order giving directions that the liquidator or administrator has a feeling of apprehension or unease about the business decision made and wants reassurance. ...

81 PTAG acknowledges[89] that there is a substantial body of case law supporting the proposition that an application for directions under the predecessor sections to Div 90 of Subdiv B of the Insolvency Practice Schedule is not an appropriate procedure to determine substantive rights and liabilities arising from transactions prior to the liquidation, or if factual matters are in dispute.[90] However, counsel for PTAG submits that, in more recent times, the courts have taken a broader view of their power to determine substantive rights in applications under the predecessor sections.[91] Reference was made, by way of example, to:

(a) Re Willmott Forests Ltd (recs and mgrs apptd) (in liq),[92] where Davies J expressed the view that the question is not one of a limitation on the court's power but on the appropriateness of the use of the procedure under s 479(3) for such a determination;

(b) Meadow Springs Fairway Resort Ltd (in liq) v Balanced Securities,[93] where French J held that it was 'a matter of discretion' whether the court should determine competing claims in an application brought by a liquidator under s 511(1); and

(c) ASIC v Melbourne Asset Management Nominees Pty Ltd (receiver and manager appointed),[94] where Northrop J held, in relation to s 479(3) that:[95]

It has been accepted that Courts have power to make final orders in preference claims on an application by a liquidator under sections similar to subsection 479(3) of the Corporations Law. There is no logical reason why final orders binding on other persons cannot be made on applications under subsection 479(3) with respect to other subject matters... In proceedings brought by a liquidator under subsection 479(3), I can see no reason why binding orders cannot be made where the parties affected have been given the opportunity to be heard.

82 More recently, in ASIC v Letten (No 7),[96] in the specific context of an unregistered managed investment scheme, Gordon J held that:

(a) the court's power to make directions in relation to the winding-up of an unregistered managed investment scheme includes the power to make directions in relation to persons whose property includes scheme property;[97]

(b) the power (both statutory and inherent) does not generally permit it to make orders that depart from the proprietary rights of the scheme participants.[98]

83 However, counsel submitted,[99] Gordon J held that this general principle will be set aside in 'exceptional cases' where it is not pragmatic to ascertain the proprietary rights of the scheme participants[100] and that in cases where it is practically impossible to distribute scheme property in a particular scheme according to the proprietary rights of the scheme participants, the appropriate method of distribution is to pool the surplus from all of the schemes and distribute the surplus rateably - proportionally to the claims assessed.[101]

84 Against that background, PTAG contends that the approach taken by Gordon J in ASIC v Letten (No 7) can be extrapolated to the winding up of registered as well as unregistered managed investment schemes, such that the general principle as described by Goldberg J in Re Ansett Australia Ltd (No 3) 'must yield in exceptional cases where it is not pragmatic to ascertain the proprietary rights of those persons'.[102]

85 Counsel for PTAG submitted that the present case is relevantly 'an exceptional case', in essence because:[103]

. . . there is a very large number of unitholders who are not making a claim in contract or a claim just for the return of the - their investment because there's a surplus of funds, but are making a claim that, I think, as my learned friend points out, is based on the misleading or deceptive conduct provisions.

And so that is what lifts it to the extraordinary or exceptional case - not extraordinary, the exceptional case, and that also then explains why the procedure for it is not found in the Act, that the Act has dealt with what is common. Employee claims are common in winding ups, and winding ups of large companies, there would be often thousands of employees.

And so it's logical and consistent that those - that Parliament turned its mind to how to deal with that sort of claim which is presented on a regular basis. But, in my submission, this sort of claim is not presented on a regular basis.

86 Counsel for PTAG pointed out that if APCHL were not insolvent, unitholders could bring their claims by way of a class action. But, he submitted, in circumstances where that is not an available option, and particularly where there is only a limited pool of money available to the liquidator, another mechanism needs to be fashioned to allow those unitholders to assert their right to claim compensation because they were misled.[104] He explained that the claims would all be made on the basis 'that there were statements that were made that were false or misleading and that those statements [were] relied on by the unitholders and that caused them loss.'[105]

87 When addressing reliance, counsel for PTAG acknowledged that while ordinarily what a liquidator assessing a claim might look for is a statement of reliance, he submitted that here the Court could 'infer reliance' because the three FOS determinations were all based on the same non-disclosure and 'it would be a hugely costly exercise' to obtain those sort of statements 'from between six and 9,000 people' and 'that has to yield to the pragmatic, in this situation.'[106]

88 He contended the present case is 'exceptional' primarily because the cost of assessing the potential misleading and deceptive conduct claims of unitholders on an individual basis would be disproportionate both to the funds available to the liquidator for distribution to all creditors and to the likely return to unitholders.[107] And in referring to 'potential claims' of unitholders, counsel for PTAG emphasised that the Court does not need to make a finding that each of the unitholders would have made a claim to FOS; rather, he submitted, it is enough for the Court to find that they have a claim available to them, and that would enliven the proof provisions of the Corporations Act.[108]

89 Turning to direction 1(b), the valuation of Eligible Unitholders' claims, counsel for PTAG identified the relevant question as being whether it is appropriate for the liquidators to value each Eligible Unitholder claim on the basis that each unit is worth $1 even though unitholders may have purchased their units in Prime Trust at different prices.

90 As PTAG observes,[109] the difficulty presented by the valuation task is that the liquidators have no information or records by which they can accurately determine how many unitholders purchased their units for less than $1. Through Mr Horne, the liquidators depose to a belief, based on investigations, that most unitholders purchased their units for $1 per unit, but they acknowledge that a limited number of unitholders may have purchased units for less than $1 per unit via the stock exchange after the listing of the Prime Trust in 2007.[110] And while individual unitholders may have information or records that show the actual purchase price of their units, PTAG submits that 'obtaining and collating such information would further deplete the funds available and not provide any guarantee of, or means of assessing, what units were purchased for what price.'[111]

91 Accordingly, in those circumstances, PTAG submits the Court 'should not hesitate to order that the liquidators are justified in adopting a practical and pragmatic approach.'[112]

92 The KCDA parties contend that the directions sought in paragraphs 1(a) to (c) of the FAOP should not be made. A number of grounds were advanced.

93 First, they take issue with the formulation of the suite of directions sought in paragraph 1. They observe that none of the directions set out in paragraphs 1(a), (b) or (c) seek judicial direction or approval to 'admit' certain claims. The KCDA parties submit that it is axiomatic that in order for a claim to be considered in the admission of proofs under s 553(1) of the Corporations Act, there must be an actual claim, made by an actual claimant, not a merely hypothetical one. They point out that here, there is no evidence that the purported 'Eligible Unitholder Claims' identified by the liquidators, concerning claims for compensation under s 1041H of the Corporations Act, are anything more than 'mere hypothetical possibilities'.[113] They contend that the Court's power, and exercise of its discretion, is 'to make directions concerning actual claims and claimants, not hypothetical ones'[114], and in circumstances where 'the gravamen of the liquidators' application is to gain approval for a pre-emptive "admitting" of hypothetical claims, the application is inappropriate and lacks utility.'[115]

94 Secondly, the KCDA parties take issue with the liquidators having founded the purported 'Eligible Unitholder Claims' on the FOS Determinations made in 2012 and 2013.[116] They observe that other than the PDS and SPDS exhibited to the Horne 15.08.19 affidavit, there is no evidence to support the alleged facts underlying the three FOS Determinations relied on by the liquidators as defining the 'Eligible Unitholder Claims', and the KCDA parties submit that the liquidators' application 'contends for conclusions, based on FOS Determinations, which do not identify the essential elements of the unitholders' individual causes of action and do not put up any claim capable of sensibly being challenged.'[117] And insofar as the FOS complaints concern allegations now relied upon by the liquidators as being relevant to the application (being the Non-Disclosure matters described in paragraph 54 of the liquidators' submission[118]), the KCDA parties contend that 'controversy exists'.[119]

95 Further, the KCDA parties note that the FOS allegations made by the unitholder complainants were undefended and, contrary to s 500(2) of the Corporations Act, they were prosecuted after the winding-up had commenced. They submit that none of the material before the Court suggests that the liquidators gave notice of the FOS allegations to, or requested information from, any of the persons who were directors of APCHL at the relevant times, some or all of whom would likely have taken the opportunity to dispute the allegations had they been apprised of them.

96 Thirdly, the KCDA parties contend that the liquidators appear to have identified or intuited the 'Eligible Unitholder Claims' on the basis of complaints made to FOS by only three of` some 9,670 unitholders. The KCDA parties submit that, apart from the claims made by Messrs O'Reilly, Steel and Desler in 2011 and 2012, there is no evidence that any other unitholders have actually communicated an expressed interest in pursuing s 1041H claims against APCHL.[120]

97 Fourthly, the KCDA parties submit[121] that the FOS Determinations are not akin to judicial determinations made following due process and are not, in the case of the three FOS complainants, binding on APCHL, nor the unitholders who lodged the complaints (much less the hypothetical claimants who did not do so). Reference to the applicable Terms of Reference makes clear that a FOS Determination is final and binding upon the Financial Services Provider 'if the Applicant accepts the Determination within 30 days of receiving the Determination.'[122] But if the Applicant does not accept the FOS Determination, the Applicant 'is not bound by the ... Determination and may bring an action in the courts or take any other available action against the Financial Services Provider.'[123] In the present case, it is clear that one of the three complainants (Steel/Salignus) did not accept the FOS Determination in relation to his claim.[124] The KCDA parties contended 'there is no evidence to establish whether the other applicants (O'Reilly and Dessler) accepted the FOS Determinations made in respect of their complaints.'[125] However, PTAG disputed this, and tendered relevant correspondence in reply, with a view to demonstrating that both Mr and Mrs O'Reilly and Mr and Mrs Desler accepted the FOS Determinations,[126] such that APCHL is bound by them.[127]

98 Fifthly, the KCDA parties contend that a proportion of the hypothetical claims, if structured in the same way as the claims giving rise to the FOS Determinations, will have been statute barred as at the date of the winding up and should not now be considered 'eligible claims' at all.[128] That is because each of FOS Determinations records that, but for the three unitholders' reliance on the alleged misleading representations, they would have invested elsewhere.[129] Accordingly, the KCDA parties submit that as the FOS Determinations are the foundation of all other hypothetical unitholder claims, the individual causes of action will have accrued at different times, being the time when the individual unitholders purchased interests in the Prime Trust following each of the various disclosures made in PDSs from May 2002 to June 2007,[130] and thereby losing the opportunity to have invested elsewhere.

99 The statutory limitation period in s1041I(2) of the Corporations Act requires claims under s1041H to be brought within 6 years of the accrual of the cause of action.[131] The KCDA parties observe that but for the winding up, all unitholders who might have wished to claim compensation under s1041H would have been time barred from doing so six years after their relevant investment in the Prime Trust.

100 The KCDA parties refer to In Re Tomker Pty Ltd (In Liquidation),[132] where Randall AsJ considered the effect of a winding up on limitation periods and distilled the relevant proposition, as follows:[133]

a debt which is statute barred prior to the commencement of the winding up is not provable in the liquidation. A debt which was not barred at the commencement of the winding up may still be proved in the liquidation, even if it is proved after the debt would ordinarily be statute barred (that is, irrecoverable by action).

101 Thus, the KCDA parties submit that any unitholder who bought interests in the Prime Trust (and thereby suffered loss) prior to 18 October 2004,[134] is time barred from claiming under s1041H of the Corporations Act. Further, they say that where unitholders have made additional purchases of units after making their first purchases in October 2004, issues may arise as to whether the subsequent purchases are to be regarded as a 'continuation of the first loss' and therefore not such as to extend time.[135] (Relevantly, PTAG contends that 'the Trust accounts show that around 90% of units were purchased after that date'.[136])

102 The KCDA parties contend that it is 'implicit' in the liquidators' application that the 'Eligible Unitholder Claims' are 'sufficiently certain to warrant, in effect, a pre-emptive acceptance of what are no more than merely hypothetical claims, which would see the Liquidators then admitting over $530 million as unsecured debts in the liquidation,[137] significantly reducing the likely dividend of all unsecured creditors.'[138] In those circumstances, the KCDA parties submit that the Court should not be satisfied that the liquidators would be 'acting reasonably' in acting in the manner proposed by the directions sought in paragraph 1.

103 During oral submissions, senior counsel for the KCDA parties took issue with the alleged 'pragmatic' problems in the liquidation of APCHL asserted by counsel for PTAG, pointing out that there are a number of assumptions underlying PTAG's asserted need for a pragmatic solution to be adopted, none of which have been verified on affidavit.[139] Mr Glick QC said the first assumption is that 'the liquidator will be swamped and will have to spend an absolute fortune' if the process set out in the regulations in the ordinary course is adopted in this case.[140] But, he observed, '[t]here is a telling lack of evidence ... to that effect'[141] and the reality is that no evidence has been adduced of any interest shown by any unitholders, other that the three FOS claimants, that is capable of verifying the assumption.

104 As to the alleged disproportionate expense that would be incurred in dealing with the claims in the ordinary course, compared with the funds available in the administration, counsel contended that 'is not an uncommon feature' in both small and large liquidations.[142]

105 Counsel for KCDA parties' strongest criticism was reserved for the notion that the unitholders should be treated as having a claim that could then be deemed appropriate for admission to proof. Senior counsel observed that notwithstanding that there is 'a dearth of evidence'[143] before the Court as to why any particular unitholder may have bought units - and no evidence as to what they read or relied upon - the liquidators nevertheless wish such a unitholder 'to be deemed to have a claim and for the court to deem that claim appropriate for admission to proof without determining that there is a claim and without any evidence that anyone's interested to do that.'[144] He submitted, that even if it be assumed that the PDS and SPDS were misleading by what was said and not said, 'that doesn't give a person a claim. The integers of a claim require some reliance upon that document.'[145]

106 Further, counsel submitted there is a lack of evidence before the Court as to precisely what procedure is proposed to overcome the alleged 'pragmatic' problems that were asserted by counsel for PTAG. He noted that '[t]hat detail is not forthcoming in any admissible evidence or in any evidence at all, admissible or otherwise.'[146]

107 Counsel for the KCDA parties submitted it is unclear whether PTAG, which has a list of unitholders, will fill in the relevant information on behalf of each unitholder, and whether it will do so on behalf of all of them or only those unitholders who actively make contact with PTAG and confirm they wish to make a claim. Senior counsel observed that 'the concept of [unitholders] being represented by PTAG is not in the evidence' and submitted that in circumstances where PTAG does not represent all unitholders, it is a 'dangerous course of action' to effectively permit 'PTAG to take upon itself the role of filling in a claim for a unitholder' by asserting a claim of misleading conduct under the provisions of the Corporations Law, 'whether or not the unitholder agrees.'[147] Further, he said, there was no evidence as to how, and through whom, PTAG is going to administer the global proof of debt procedure, and for what, if any, fee.

Paragraph 1(c) of the FAOP: direction sought concerning the 'global proof of debt' to be lodged by PTAG on behalf of 'Eligible Unitholders'

108 On the material before the Court, there is a lack of articulation of precisely what the global proof of debt proposal involves and how the process is to be conducted and administered. So far as can be ascertained from the liquidators' submissions, the following picture emerges.

109 By direction 1(c) the liquidators propose: [148]

(a) calling for a global proof of debt in relation to the Unitholders claims;

(b) directing the unitholders, in particular those unitholders not currently represented by PTAG,[149] to contact PTAG in relation to the preparation of a proof of debt;

(c) that PTAG lodge a global proof of debt (including for those unitholders not currently represented by PTAG); and

(d) adjudicating on the global proof of debt (again, assuming that the Court makes direction 1(b)).

110 In their reply submissions, the liquidators clarified that:[150]

. . .

(c) Direction 1(c) is intended to be no more than an efficient and relatively inexpensive procedure by which thousands of unitholder claims can be included in a global proof of debt (i.e. a document which contains multiple, possibly thousands of, individual claims).

(d) The "global proof of debt" that will be lodged is not intended to be a single proof of debt with a single claim amount, rather it will contain the relevant details of each unitholder's claims in a single document.

(e) By adopting Direction 1(c), the significantly more expensive and traditional procedure which involves the lodgement (and separate adjudication) of individual proofs of debt by the unitholders can be avoided.

111 Further, the liquidators accept that 'if the Court makes directions 1(a) and (b), then they will admit the Eligible Unitholder claims.'[151]

112 The liquidators have identified that they would have to undertake the following work to give effect to direction 1(c):[152]

(a) value each unitholder's units on the basis that each unit is worth $1;

(b) accept a global proof of debt in respect of all unitholder claims (to be lodged on their behalf by PTAG);

(c) adjudicate on that single proof of debt; and

(d) distribute any unitholder cheques directly to each unitholder in accordance with that adjudication.

113 To facilitate adoption of their global proof of debt proposal, the liquidators call in aid s 90-15 of the Insolvency Practice Schedule. Senior counsel for the liquidators submitted that the power under s 90-15 is of broad application and one that 'is more than just a re-enactment of the directions powers that used to exist under s 479 and 511',[153] enabling a liquidator to seek guidance as to matters of law, and 'the justification by the liquidator of the adoption of flexible procedures, not contrary to the terms of the legislation itself,[154] in the performance of the liquidator's statutory obligations.'[155]

114 The global proof of debt process the liquidators seek to adopt for dealing with the unitholders' claims is fashioned on the global proof of debt which is expressly permitted by regulation 5.6.45 in respect of employees' wages or salaries or retrenchment payments. The liquidators contend that there is no legal impediment to the making of such a direction in the present case. Relying upon s 23(b) of the Acts Interpretation Act 1901 (Cth), they submit that 'the wording of the Regulations is flexible enough to permit the lodging of a single proof of debt on behalf of multiple creditors, even if in the absence of a direction of the Court, the procedure is usually only available to employees of a company.'[156]

The reasons advanced by the liquidators in support of a 'global proof of debt'

115 The liquidators have informed the Court that they are of the view that if they call for proofs of debt in the ordinary way, they expect that they would receive (and need to adjudicate upon) more than 9,000 individual proofs of debt submitted by the unitholders. Further, the liquidators say that if they were required to deal with those proofs of debt in the ordinary way, by taking the usual steps including:

(a) fielding and responding to requests for assistance from individual unitholders in relation to the preparation of proofs of debt;

(c) making any requests for further information and liaising with unitholders to obtain information required to assess the proofs of debt (pursuant to reg 5.6.53(1)(e) of the Regulations);

(d) assessing in excess of 9,000 proofs of debt and determining whether to admit or reject all or part of the proof of debt or claim submitted by each unitholder/creditor (pursuant to reg 5.6.53(1)(c) and (d) of the Regulations);

(e) communicating their decision to each unitholder/creditor;

(f) determining and declaring a dividend and distributing it proportionately between creditors (including the unitholders),

then the liquidators estimate the cost of doing so will be in the order of $1,358,000.

116 Through Mr Horne, the liquidators depose that:[157]

In light of the likelihood of having to adjudicate more than 9,000 individual proofs of debt submitted by the unitholders, the cost of adjudicating the proofs of individual unitholders is likely to be prohibitively expensive, relative to the funds available to us, and would significantly diminish the funds available for distribution to the creditors of APCHL, including the unitholders if included.

117 Based on the liquidators' estimates as set out in Table 2 of their submissions, if they are required to call for individual proofs, the cost of doing so will be in the order of $1,358,000, and it will reduce the total funds available for distribution by more than 30 per cent and reduce the total funds available for distribution from approximately $4.3 million to $2.95 million.[158] Whereas if their global proof of debt proposal is adopted, the liquidators estimate the cost of undertaking the work required to give effect to it would be approximately $175,889,[159] and thus the costs involved in respect of the unitholder claims would be reduced by more than $1.1 million.[160] The global proof costs are summarised in Table 3 of their submissions.[161]

118 In these circumstances, the liquidators contend that their global proof of debt proposal is in the best interests of the creditors of APCHL, and is proper and reasonable because:

(a) it preserves a greater value of assets of APCHL which are to become available for distribution while ensuring that unitholders are capable of participating in the process and being given full recognition for their claims against APCHL;

(b) it substantially reduces the liquidators' costs and work required to make a final distribution to creditors, thereby resulting in a more timely distribution; and

(c) it results in a larger (albeit only marginally) dividend to the creditors.

The liquidators revised their Table 2 (individual proof cost) and Table 3 (group proof of debt cost) following consensus reached between the parties concerning the payment of dividends to creditors of APCHL and from what asset pools (directions 2(b) and 2(c))

119 Towards the conclusion of the hearing, counsel for the liquidators informed the Court that because of the apparent consensus reached between the parties 'regarding the ability of those persons who are trust creditors to prove in the general liquidation − and that would include unitholders to the extent that they were admitted to proof',[162] the tables set out in the liquidators' submissions would require some adjustment to the individual proof costs amount in respect of the separated 'own right' and 'trust' pools. Mr Evans QC then proceeded to revise the figures set out in Table 2 of the liquidators' submissions,[163] by (effectively) halving the liquidators' estimate of 'Individual Proof Costs' because it is likely 'the costs of assessing unitholder proofs would be thrown equally against the two pools',[164] as follows:

Table 2 (revised[165]****)

Balance of Assets Available for Distribution (Table 1)

120 With those adjustments, counsel for the liquidators confirmed that it remains the case that the individual proof costs will reduce the total funds available for distribution by more than 30% and reduce the total funds available for distribution from approximately $4.3 million to $2.95 million.[167]

121 Mr Evans QC said a similar adjustment should be made to Table 3 of the liquidators' submissions,[168] (which deals with the global proof of debt cost) for the same reasons, as follows:

Table 3 (revised[169]****)

Balance of Assets Available for Distribution (Table 1)

122 With those adjustments, counsel for the liquidators confirmed that it remains the case that the global proof cost will only marginally reduce the total funds available for distribution by them (i.e., by about 4%) while preserving in excess of $4.1 million of total funds available for distribution.[170]

123 Counsel for the liquidators confirmed that it remains the case that when regard is had to the cost of undertaking the individual proof of debt process, as compared with the proposed global proof of debt process, it is clear that the global proof cost will be significantly less and in the liquidators' view, undertaking the global proof process is in the best interests of the creditors of APCHL.[171] However, the liquidators reiterated that while they consider direction 1(c) to be the most efficient (and least costly) means of addressing the Eligible Unitholder Claims (assuming direction 1(a) is made) and therefore is in the best interests of all creditors of APCHL, 'if the Court considers that the interests of creditors is better served by the individual lodgement of proofs of debt by the unitholders, then the liquidators will of course carry out their duties in relation to those individually lodged proofs of debt.'[172]

PTAG did not file written submissions concerning a 'global proof of debt'

124 While PTAG did not file any written submissions addressing the direction sought in relation to the global proof of debt, it is clear that PTAG supports the liquidators' proposal in that regard.

125 Counsel for PTAG referred to Mr O'Reilly's evidence about the role performed by PTAG over a number of years and submitted that if the direction for the global proof of debt is viewed by the Court as appropriate, then PTAG is the 'best vehicle to lodge the global proof of debt' on behalf of Eligible Unitholders.[173] Counsel confirmed that beyond the essentially administrative task identified in the material, it was not proposed that PTAG would, for example, administer the payment of moneys, if any moneys were to be paid - '[t]hat is a function that would remain with the liquidator and for the liquidator to perform.'[174]

The KCDA parties oppose the making of directions for the lodgment of a global proof of debt by PTAG on behalf of 'Eligible Unitholders'

126 Turning to the proposal for the global proof of debt process, counsel for the KCDA parties submitted that under the 'adjudication' process, because the claims of the Eligible Unit Holders are required to be assessed and automatically accepted at a value of $1 per unit, the liquidators are effectively relieved of their obligation to adjudicate and bring their mind to bear on each individual unitholder's claim.[175]

127 The KCDA parties oppose the making of the direction sought in paragraph 1(c) of the FAOP on grounds of 'power' and 'discretion'.

128 First, in dealing with 'power', the KCDA parties contend[176] that while s 90-15 is to be interpreted broadly, it is nevertheless limited to the giving of advice concerning extant powers, and cannot be used to grant the liquidators powers that they do not otherwise have.[177] They submit that there is no power or authority to be found in the Corporations Act that would enable a liquidator, in the proper exercise of their functions, either to 'ignore or re-write the existing Corporations Regulations', or to 'apply a meaning of "claim" in s 553 in a manner that is contrary to principle.'[178]

129 Commencing with the notion of a 'claim' for the purposes of s 553, the KCDA parties submit that the meaning of 'claim' is to be understood from the purpose of s 553, as was explained by Campbell JA in BE Australia WD Pty Ltd v Sutton,[179] where his Honour stated:[180]

...that all the legal obligations to which a company is subject should be ascertained, and each of them valued as at a common date, so that those obligations can be taken into account in a winding up or other administration that is under way. Someone has a "claim" within the meaning of s 553 if he or she has a basis, founded on an existing legal right, for asserting a right to participate in the division of the assets of the company.

130 They contend[181] that it is unclear how '[a] collective of claimants with severally held rights' - here, a collection of individual 'Eligible Unitholder Claims' where questions of individual reliance will be determinative of liability - can qualify as "someone [who] has a basis, founded on an existing legal right" (to adopt Campbell JA's expression).

131 Further, they submit that when making directions under s 90-15, the Court is required by s 90-15(4) to have regard to whether the action proposed by the liquidator is 'in compliance with' the Corporations Act. Relevantly, the KCDA parties observe, the Regulations provide for the individual submission of proofs of debt, requiring that a proof of debt can only be submitted 'by the creditor personally' or, if the creditor has authorised another to do so, 'a proof prepared by an authorised person must state his or her authority and means of knowledge'.[182] Regulation 5.6.50 requires a formal proof to include the 'detailed particulars of the debt or claim_'_ sought to be proved and Regulation 5.6.51 mandates that, 'A creditor must bear the cost ...of proving his or her claim_..._'.

132 Further, insofar as the Regulations make provision for the lodgment and adjudication of collective claims, the KCDA parties contend they are limited to the case of employees, making demands in respect of wages, salaries and retrenchment payments, which nevertheless are required to be particularized in each case.[183] They observe that, as Emmett J noted in JC International Investments Pty Ltd v ZYX Learning Centres Ltd (Formerly ABC Learning Centres Ltd) (Receivers and Managers Appointed) (in liq),[184] '[t]here is no procedure under the Corporations Regulations for multiple members of a class to submit a single proof of debt, save in respect of a group of employees seeking wages or retrenchment packages.'

133 The KCDA parties submit that in circumstances where the 'Eligible Unitholder Claims' are hypothetical individual claims, where questions of individual reliance will be determinative of any liability, it is relevant to note that '[t]here is nothing in the evidence filed to suggest that the Court can assume that all unitholders had invested at the same time or for the same reasons as the three complainants to the FOS.'[185] Accordingly, they submit '[t]here is no universal claim' and thus 'no power for the Court to make directions for the submitting of a global proof of debt in respect of such claims by PTAG.'[186]

The Court's discretion to make direction 1(c)

134 As to 'discretionary' matters, the KCDA parties submit that even if (contrary to their submissions) the Court has power to make the direction sought in paragraph 1(c) of the FAOP, the following additional matters would weigh against the Court exercising its discretion to do so:[187]

(a) there is no reasonable justification for assuming that "PTAG" can or should stand as "representative" or agent for all unitholders;

(b) no evidence has been advanced to suggest "PTAG" has authority to act for unitholders, and if so, for which unitholders and in what way, much less that it is appropriate or justified that PTAG be permitted to exercise the rights of individual unitholders under the [Corporations Act] in respect to submitting proofs of debt, and, presumably, receiving dividends;

(c) PTAG's role is said to be to "advocate on unitholders' behalf."[188] Mr O'Reilly deposes that he has established and maintained a PTAG website, and has regularly liaised with unitholders since October 2010.[189] Mr O'Reilly states that unitholders are able to submit "statements of support," however none of the approximate 6,402 "statements of support" received by PTAG[190] have been exhibited to the O'Reilly Affidavit or referred to by the Liquidators; and

(d) it is unclear whether by signing a "PTAG Registration Form" or a "statement of support" a unitholder did anything more than simply "express support for PTAG"[191] (whatever that might mean), nor is there evidence of whether and by what process "PTAG" vets such signatories to confirm actual unitholdings. On the evidence filed, the Court should not assume that any unitholder has given "PTAG" any authority, power of attorney, or agency over the affairs of any individual unitholder.

135 Accordingly, the KCDA parties submit[192] that in the absence of evidence setting out precisely what PTAG's purported authority is, or who has given it such authority and what is PTAG's 'means of knowledge' of each of the individual (actual) 'Eligible Unitholder Claims', there is no reasonable justification for the Court to make direction 1(c), especially given that direction 1(c) is contrary to prescribed Regulations.

136 Furthermore, senior counsel observed that under the proposal there is no obvious mechanism for oversight of the work to be performed by PTAG in preparing and filling in the forms and bringing forward the global claim on behalf of all unitholders, rendering it unclear how the liquidators will satisfy themselves that the claims brought forward are legitimate claims.[193]

137 The liquidators reject each of the matters raised by the KCDA parties.

138 The liquidators reiterated that they contend direction 1(c) is not contrary to the provisions of the Corporations Act or the Corporations Regulations, and that the real question is whether the Court should exercise its discretion to make direction 1(c). They submit it is 'uncontroversial that the Liquidators are empowered to accept proofs of debt from creditors'[194] and that '[w]hile the content of a proof of debt may be relevant to the way in which a liquidator exercises his/her power, the content of the proof of debt does not deprive the liquidator of its statutory power to accept the proof of debt.'[195] In this context they also note that Regulation 5.6.47 permits a liquidator to admit a claim of a creditor without formal proof, which includes not requiring a proof of debt to be submitted at all.[196]

139 Further the liquidators submit that the KCDA parties submissions overstate PTAG's role in the global proof process, emphasising that PTAG's role under the liquidators' proposal is a limited one and it is the liquidators that will be performing the substantive role, as follows:[197]

(a) The Liquidators will call for a global proof of debt in relation to the Unitholders Claims.

(b) The Liquidators will cause a direction to be given to unitholders, in particular those unitholders not currently represented by PTAG, to contact PTAG in relation to the preparation of a proof of debt.

(c) PTAG will field any communications from unitholders and then prepare and lodge a global proof of debt (including for those unitholders not currently represented by PTAG).

(d) The Liquidators will adjudicate on the global proof of debt (assuming that this Honourable Court makes Direction 1(a)).

(e) The Liquidators will value each unitholder's units on the basis that each unit is worth $1 (assuming that this Honourable Court makes Direction 1(b)).

(f) The Liquidators will distribute any unitholder cheques directly to each unitholder in accordance with that adjudication.

Consideration and disposition in respect of the directions sought in paragraphs 1(a), 1(b) and 1(c) of the FAOP

140 As senior counsel for the liquidators acknowledged, the direction which is sought in paragraph 1(a) 'is intended to achieve essentially a recognition that claims by unitholders as unitholders in respect of the acquisition of their unitholding, being claims of the type that were determined in three FOS determinations, are admissible to proof as ... creditor's claims in the winding up',[198] and the direction which is sought under paragraph 1(b) is a direction which 'would have the effect of essentially adjudicating upon the claims of unitholders as creditors in the liquidation of APCH[L].'[199] In those circumstances, the Court must first be satisfied that the unitholders' claims for misleading and deceptive conduct under s 1041H of the Corporations Act are provable debts under s 553.

Are the unitholders' claims for misleading and deceptive conduct under s 1041H of the Corporations Act provable debts under s 553?

141 Section 553 of the Corporations Act provides that the debts or claims that are provable in the winding up include 'all claims against the company (present or future, certain or contingent, ascertained or sounding only in damages), being . . . claims the circumstances giving rise to which incurred before the relevant date'.

142 In the ordinary course, a claim is made by lodging a proof of debt with the liquidator, who will then assess the claim and admit it or reject it, in whole or in part, or require further evidence in support of the claim.[200] If the liquidator rejects the proof, the claimant can seek review by the court by application made under the Insolvency Practice Schedule.[201]

143 In the present case, aside from the three claims that were heard and determined by FOS in 2012 - 13, no claims under s 1041H for misleading and deceptive conduct have been brought by the wider body of unitholders. However, PTAG submits that no inferences can be drawn from the failure of most unitholders to make claims to FOS because once APCHL entered administration and following the insolvency of the Trust and APCHL there was limited, if any prospect, for unitholders to receive compensation through FOS.

144 PTAG submits that there is evidence of the unitholders claims having been acknowledged from early times in the external administration and of them having the status of contingent creditors,[202] relying on statements made by the (then) Administrators' in their first report to creditors dated 12 October 2011, where under the heading of 'Investigations' they reported on the position of unitholders, as follows:[203]

Unitholders

. . .

Unitholders have formed a group known as the Prime Trust Action Group ("PTAG"). The PTAG has a website and is endeavouring to keep unitholders informed about its actions and the process of the administration. We have been liaising on an ongoing basis with PTAG and Clarendon Lawyers acting for the PTAG.

We have taken legal advice in relation to the manner in which unitholders may be admitted to vote at the forthcoming second meeting of creditors. The issue is complex because generally unitholders cannot be admitted to vote unless they have a claim capable of being admitted. We have determined that unitholders lodging a claim based on the claim articulated by the PTAG will be admitted as a contingent creditor and thus entitled to vote, albeit for a nominal amount.

If however unitholders are able to prove their claim to the full extent and the claims are admitted, then they will be able to vote for their full admitted claim at the meeting. Should funds later become available for distribution, this process is formalised and all proofs would require proper assessment.

The claim articulated by the PTAG is for losses suffered by Prime Trust as a consequence of breaches of both the provisions of the Corporations Act 2001 and the Constitution of the Prime Trust by the directors and APCHL. . . .

145 Counsel for PTAG emphasised that the Court does not need to make a finding that each of the unitholders would have made a claim to FOS; rather, he submitted, it is enough for the Court to find that they have a claim available to them, and that would enliven the proof provisions of the Corporations Act.[204]

146 Here, the evidence is to the effect that the unitholders in Prime Trust are likely to assert claims for misleading and deceptive conduct under the investor protection provisions contained in s 1041H of the Corporations Act on the basis that they were misled or deceived by the non-disclosure of certain matters as recorded in the FOS determinations, thereby entitling them to compensation under s 1041I. Those claims are claims of the kind that were acknowledged in Sons of Gwalia Ltd (subject to a deed of company arrangement) v Margaretic, where Hayne J (with whose reasons each of Justices Gummow, Heydon and Crennan generally agreed) observed:[205]

A person who buys, or subscribes for, shares in a company, relying upon misleading or deceptive information from the company, or misled as to the company's worth by its failure to make disclosures required by law, may have a claim for damages against the company. That claim may be framed in the tort of deceit but, more probably than not, will now be framed as a claim under consumer protection provisions of the Trade Practices Act 1974 (Cth) (ss 52, 82) or investor protection provisions of the Corporations Act 2001 (Cth) (eg, ss 1041H, 1041I and 1325) (the 2001 Act) or the Australian Securities and Investments Commission Act 2001 (Cth) (eg, ss 12DA, 12GF and 12GM) (the ASIC Act).

147 Against that background, the liquidators have informed the Court that, having read the FOS determinations and sought legal advice, they:[206]

have formed the view that all the unit holders are likely to have a claim for misleading and deceptive non-disclosure in respect of the Prime Trust where they were not advised of:

(a) adverse action by ASIC;

(b) conflicts of interest;

(c) the value of the management rights; and/or

(d) the transfer of the management rights without sufficient consideration.

148 However, the s 136 ruling made by the Court operates to qualify the liquidators' view and render it subject to the limitation that it is admissible only to prove the state of mind of the liquidators and is inadmissible to prove the existence of a fact about the existence of which any opinion contained within paragraph 34 of the Horne 28.09.19 affidavit was expressed.

149 The question arises whether the claims to be asserted by the unitholders are provable debts in the relevant sense and in particular whether they are, in each case, claims the circumstances giving rise to which occurred before 'the relevant date'. In the present case, the relevant date is the day on which the directors of APCHL appointed administrators to the company under Pt 5.3A,[207] being late in 2010.[208]

150 In Sons of Gwalia, Hayne J focussed attention on what is meant in s 553 by the expression 'debts or claims the circumstances giving rise to which occurred before the relevant date'. His Honour explained that even though that matter was not put directly in issue in the courts below, the administrators' claims for declaratory orders, concerning the admissibility of Mr Margaretic's claim to proof, necessarily required consideration of whether the circumstances giving rise to that claim occurred before 'the relevant date'.

151 Relevantly, his Honour noted, it was the fact administrators were appointed to Sons of Gwalia which was agreed to have rendered worthless the shares Mr Margaretic had recently purchased. Accordingly, he said, at least some of the circumstances giving rise to Mr Margaretic's claim, 'in particular, the events and circumstances alleged to constitute [Sons of Gwalia's] failure to comply with the disclosure requirements of s 674 or alleged to constitute the misleading or deceptive conduct relied on' occurred before the administrators were appointed, and thus occurred before 'the relevant date'.[209] But, his Honour continued, 'the loss or damage of which Mr Margaretic complains', being the loss of value of the shares by reason of the appointment of the administrators, 'was not apparent to him before the appointment of administrators' and the 'extinction of value could be said to have arisen because of the administrators' appointment.'[210]

152 Turning then to the question of what is meant in s 553 by the expression 'debts or claims the circumstances giving rise to which occurred before the relevant date', Hayne J reviewed the legislative materials, and found that s 553 was to be widely construed in accordance with the language and purpose of the provision. His Honour stated:[211]

In construing the temporal limit that is imposed by s 553, it is important to recognise the generality of other expressions used in s 553 in defining what debts and claims are to be admissible to proof. The section speaks of "all debts payable by, and all claims against, the company". It amplifies those expressions by the parenthetical reference: "present or future, certain or contingent, ascertained or sounding only in damages". If the words of the section were not wholly sufficient (as they are) to indicate an intention to define provable claims very widely, the Report of the Australian Law Reform Commission on the General Insolvency Inquiry ("the Harmer Report"), read with the Explanatory Memorandum for the Bill that became the 1992 Act, puts the point beyond any doubt. The Harmer Report**[212]** identified a basic aim of insolvency laws as being "to deal comprehensively with all of the debts and liabilities of the insolvent" and said that, "[i]n the case of a company, the aim is to deal with all the claims against a company so that its affairs can be fully wound up or so that it can resume trading" (emphasis added). The Harmer Report concluded**[213]** that "[t]he categories of claims which are admissible should be as wide as possible so that the financial affairs of the insolvent are dealt with comprehensively". Otherwise, as the Harmer Report pointed out**[214], "if the creditors are unable to make their claims in the insolvency, they are unable to recover at all (unless they have a basis for action against either directors of the company or a guarantor of the company's debts or unless the winding up is stayed)". The Explanatory Memorandum[215]** for the Bill that became the 1992 Act said that the reforms embodied in the new provisions of ss 553 to 553E "reflect[ed] the recommendations of the Harmer Report".

153 In Sons of Gwalia, the claims for damages made by Mr Margaretic were founded on a breach of the continuous disclosure requirements, and upon allegations of misleading and deceptive conduct. His Honour observed that '[t]he appointment of administrators so soon after Mr Margaretic bought his shares reveals that the shares he bought would have been judged by a properly informed market to be worthless when he bought them and accordingly, he suffered loss when he bought the shares[216].'[217] Thus, in finding that Mr Margaretic's claim was of a kind that is within s 553, his Honour said:[218]

It follows that, although the agreed facts demonstrate that the appointment of administrators reduced the value of Mr Margaretic's shares to zero, his claim is one the circumstances giving rise to which occurred before the administrators' appointment. Had the facts upon which Mr Margaretic now relies been known then, they would have been known to the whole market, not just him, and he would have had the same claim he now makes.[219] His knowledge of the relevant facts bears only upon whether he makes a claim; his knowledge of those facts does not bear upon whether he has a claim. His claim is of a kind that is within s 553 of the 2001 Act.

154 In the later case of BE Australia WD Pty Ltd (subject to a deed of company arrangement) v Sutton,[220] in the context of an unfair contract claim brought against a company where the claim was 'undetermined' at the time when the company was placed in voluntary administration, the Court of Appeal distinguished the claim made there from that of Mr Margaretic in Sons of Gwalia. In that case_,_ a taxation consultant, Ms Sutton, had her services terminated by the company for whom she worked, without prior notice or payment in lieu of notice. Ms Sutton commenced proceedings in the Industrial Relations Commission alleging that the arrangements with the company were unfair within the meaning of s 106 of the Industrial Relations Act 1996 in various respects, and sought to have the relevant contract or arrangement varied so as to prevent her services being dispensed with except on reasonable notice. However, shortly before the proceedings were due to be heard in the Commission, the company was placed in voluntary administration. Subsequently, a deed of company arrangement was approved by the company's creditors, whereupon s 444E operated so as to prevent all persons bound from proceeding with an action against the company except with leave of the court.

155 Ms Sutton then lodged a proof of debt in respect of her s 106 claim, but ultimately it was rejected by the deed administrators. She then began proceedings in the court seeking an order reversing the decision of the deed administrators or an order under s 477A of the Corporations Act, the effect of which would justify the deed administrators in admitting her proof under the deed. At first instance, the primary judge held that the deed administrators had correctly rejected the proof of debt. However, the judge also held that an order under s 477A should be made, the effect of which was that Ms Sutton was treated as if she were a creditor for the purposes of the deed, and that the deed administrators should adjudicate her proof of debt.[221]

156 On appeal, however, the Court of Appeal, when dealing with an appeal and cross-appeal against orders made by the primary judge, held that an 'undetermined' application to the Commission made under s 106 of the Industrial Relations Act 1996 was not a 'claim' under s 553 of the Corporations Act, and that a person who did not have a s 553 claim did not come within the meaning of creditor under Pt 5.3A of that Act. In dealing with a submission made by counsel on behalf of Ms Sutton, that in bringing her application for a statutory remedy under s 106 her position is no different to that of Mr Margaretic (in Sons of Gwalia) in relying on the various statutory remedies that he invoked, the Court did not agree. In the leading judgment, Campbell JA (McColl and Young JJA agreeing) rejected the comparison, stating:[222]

[102] In my view there is a very significant difference. Section 82 of the Trade Practices Act (Cth) provided:

"A person who suffers loss or damage by conduct of another person that was done in contravention of a provision of Part ... V ... may recover the amount of loss or damage by action against that other person...".

Once the misleading or deceptive conduct has occurred, s 82 imposes on the person who engaged in that conduct a legal obligation to pay the consequent loss or damage. The company involved in Sons of Gwalia was under such an obligation by reason of the operation of the Trade Practices Act (Cth) at the time the DOCA was adopted. By contrast, in the present case at the time the DOCA was adopted BEA was under no legal obligation to Ms Sutton by reason of the operation of the IR Act.

[103] Mr Margaretic also relied on statutory remedies other than under the Trade Practices Act (Cth). Section 1041I of the Corporations Act (Cth) gives a remedy for breach of s 1041H of that Act, and s 12GF of the ASIC Act gives a remedy for breach of s 12DA of that Act, each of which is cast in analogous terms to the remedy s 82 of the Trade Practices Act (Cth) gives for breach of s 52 of that Act. If, as the High Court presupposed for the purposes of the litigation, the company in Sons of Gwalia had breached s 1041H and s 12DA before the adoption of the DOCA the company would likewise have been under a statutory liability to Mr Margaretic for the loss or damage he suffered in consequence of those breaches.

157 As a separate matter, his Honour went on to note that while '[t]here is one sense in which Ms Sutton had a claim at the time that the administrators were appointed' namely because she had litigation on foot in the Commission 'in which she was claiming an order from the IRC,'[223] that does not necessarily entail that she has a 'claim' within the meaning of s 553. His Honour explained:[224]

[105] . . . just because something is a " claim" in one sense of the word does not mean necessarily that it is a "claim" within the meaning of s 553. The particular shade of meaning that "claim" has in s 553 can be ascertained from the purpose of the section. That purpose is that all the legal obligations to which a company is subject should be ascertained, and each of them valued as at a common date, so that those obligations can be taken into account in a winding up or other administration that is under way. Someone has a "claim" within the meaning of s 553 if he or she has a basis, founded on an existing legal right, for asserting a right to participate in the division of the assets of the company. Ms Sutton did not have one of those.

158 As Perry J observed in Australian Competition and Consumer Commission v Phoenix Institute of Australia Ltd (subject to deed of company arrangement):[225]

[77] The reason why Campbell JA held that Ms Sutton's "claim" was not founded on an existing legal right was because "an applicant for an order under s 106 has nothing more than a right to take proceedings" which did not result in there being any legal obligation of the defendant in such proceedings until such time as the IRC had made an order (BE Australia at [106]).

159 Against that background, there is some justification for the view advanced by PTAG and the liquidators that unitholders who purchased or subscribed for units in Prime Trust relying upon misleading or deceptive information from APCHL, or were misled as to the company's worth by its failure to make disclosures required by law, may have a claim for damages against the company under s 1041H of the Corporations Act, and that such claims are of a kind that are within s 553 of the Corporations Act.

160 But, as Sons of Gwalia makes clear, in order for a claim to be a claim of a kind that is within s 553 of the Corporations Act, it must be demonstrated that the circumstances giving rise to the claim occurred before the appointment of administrators. Accordingly, the particulars to be provided by (or on behalf of) each claimant must outline the circumstances giving rise to the claim and address the temporal element. In the case of 'formal claims', reg 5.6.50 requires a claimant to provide 'detailed particulars of the debt or claim' sought to be proved as a necessary precursor to adjudication by the liquidators.

161 In the ordinary course, if proofs of debt were called for, each unitholder in Prime Trust who wishes to lodge a proof of debt claiming damages against APCHL under ss 1041H would be required to articulate their claim, stating when and how they purchased or subscribed for units in Prime Trust relying upon misleading or deceptive information from APCHL, or how they were misled as to the company's worth by its failure to make disclosures required by law, and to provide details capable of supporting such a claim.

162 In the present case, the liquidators acknowledge that because 'reliance by the unitholders on the misleading PDSs and SPDSs (due to the Non-Disclosure Matters) is the foundational basis for the economic loss suffered by them',[226] particulars of reliance would also be required to be provided by them. But the 'pragmatic' considerations advanced by PTAG were to the effect that the Court can 'infer reliance' because it would not be cost-effective to obtain the usual kind of statements from individual claimants and in this situation the usual position has to 'yield to the pragmatic'.[227] I do not agree.

Is the 'global proof of debt' mechanism available?

163 In my view, there is a real issue as to whether a collective of claimants with severally held rights, such as the 'Eligible Unitholders' in this case, can submit a global proof of debt.

164 The liquidators (supported by PTAG) call in aid s 23(b) of the Acts Interpretation Act 1901 (Cth) contending that the use of the word 'creditor' is readily able to encompass the concept of 'creditors', including creditors whose claims are not joint. They submit it is clear that the wording of the regulations 'is flexible enough to permit the lodging of a single proof of debt on behalf of multiple creditors, even if in the absence of a direction of the Court, the procedure is usually only available to employees of a company',[228] citing reg 5.6.45.

165 The KCDA parties on the other hand dispute that 'group' proofs of the kind contended for can be submitted. They refer to the 'personal' nature of the requirements set out in reg 5.6.40,[229] concerning the preparation of a proof of debt or claim, and Emmett J's observation in JC International Investments Pty Ltd, that '[t]here is no procedure under the Corporations Regulations for multiple members of a class to submit a single proof of debt, save in respect of a group of employees seeking wages or retrenchment packages.'[230] However, the liquidators respond by contending that in this passage, his Honour 'makes it clear that the lodging of global or collective proofs of debt is a procedural matter and is not a matter in respect of which liquidators lack "power".'[231]

166 Relevantly, reg 5.6.45 expressly permits a global proof of debt to be prepared and submitted in respect of employees' wages or salaries or retrenchment payments, as follows:

Employees' wages

(1) If the employees of a company make demands:

(a) for wages or salaries (whether or not earned wholly or in part by way of commission), whether or not payable to the employees for annual leave or long service leave; or

(b) for retrenchment payments;

one proof of debt or claim may be prepared and submitted on behalf of those employees.

(2) A proof of debt or claim prepared and submitted under subregulation (1):

(a) must have annexed to it a schedule setting out the names of the employees and the amounts due to each of them; and

(b) has the same effect as if separate proofs had been prepared and submitted by each of the employees named in the schedule.

167 The presence of a provision of the kind set out in reg 5.6.45, expressly authorising the preparation and submission of a 'global proof of debt' in specified circumstances, and stating its 'effect' (in para 2(b)), tends to militate against the suggestion that s 23(b) of the Acts Interpretation Act 1901 (Cth) would operate to enable global proofs of debt to be submitted on behalf of creditors generally, or groups of creditors with severally held rights. Were s 23(b) effective to do so, reg 5.6.45 would likely be unnecessary.

168 Furthermore, I note that s 23(b) is itself subject to s 2(2) of the Acts Interpretation Act which relevantly provides that the application of a provision of that Act to another Act or a provision of another Act 'is subject to a contrary intention.'[232] While no party addressed any submissions on this point, in my view it is arguable that a contrary intention arises from the structure of the Corporations Act and the Corporations Regulations, such that the wording of the regulations does not permit the lodging of a single proof of debt on behalf of multiple creditors save in the case of employees' wages under reg 5.6.45.

169 When the regulations concerning the calling for, and submission of, proofs of debt are examined and considered as a whole, the clear impression conveyed is that in the ordinary course it is for each creditor 'to submit particulars of his or her debt or claim',[233] which 'may be prepared by the creditor personally or by a person authorised by the creditor'.[234] While a liquidator may admit a debt or claim without formal proof (under reg 5.6.47), which includes not requiring a proof of debt to be submitted at all, any formal proof of debt or claim must contain detailed particulars of the debt or claim' sought to be proved'[235] and must be in accordance with either Form 536 (for debts or claims under reg 5.6.45 in respect of employees' wages or salaries or retrenchment payments) or Form 535 (in any other case).[236]

170 Where employees' wages are claimed, reg 5.6.45 expressly permits one proof of debt to be prepared and submitted on behalf of those employees, but their respective names and the amounts due to each of them must be set out in a schedule. Importantly, however, reg 5.6.45 provides that when the (several) employees' wages demands are set out in one proof of debt or claim, that is prepared and submitted in the manner specified, the proof of debt or claim 'has the same effect as if separate proofs had been prepared and submitted by each of the employees named in the schedule'. Were it not for that express provision, the global proof of debt or claim would remain for adjudication as a single claim.

171 In my view, it follows that any interpretation of the regulations of the kind contended for by the liquidators of APCHL which relies on s 23(b) of the Acts Interpretation Act 1901 (Cth) and the notion that the singular includes the plural, does not entail the consequence that one global proof submitted on behalf of several creditors, or groups of creditors with severally held rights will 'have the same effect as if separate proofs had been prepared and submitted by each of the[m]' (as provided for in reg 5.6.45). In that event, it is unlikely that the liquidators could proceed in the manner they propose concerning the global proof of debt, including by making separate distributions to each unitholder.

Even if the global proof of debt mechanism were available, the proposal set out in the suite of directions sought in paragraphs 1(a) to (c) is unsatisfactory and falls short of discharging the liquidator's adjudicatory function

172 Even if, contrary to the view I have formed, the global proof of debt mechanism were available in the present case, I am not satisfied that the suite of directions sought in paragraphs 1(a) to (c) of the FAOP would facilitate or entail the proper discharge of the liquidators' adjudicatory function.

The role of a liquidator in deciding upon proofs of debt

173 The role of a liquidator in deciding upon proofs of debt was explained by the High Court in Tanning Research Laboratories Inc v O'Brien,[237] where Brennan and Dawson JJ stated:[238]

In determining whether to admit or reject a proof of debt, a liquidator has been said to act in a quasi-judicial capacity (Re Britton & Millard Ltd. (1957) 107 LJ 601) according to standards no less than the standards of a court or judge: Commissioner for Corporate Affairs v. P.W. Harvey [1980] VicRp 64; (1980) VR 669, at p 696. This description of the liquidator's function reflects his duty to distribute the assets in his hands or under his control among the persons truly entitled. That duty was stated by Viscount Simonds in _Government of India v Taylo_r[239]. . .

. . .

If the liquidator, in performing his function of considering the admissibility of proofs of debt, decides to reject a proof of debt, the ordinary remedy of the person claiming to be admitted as a creditor is to apply to the court to reverse or modify the decision: Companies Act 1961 (NSW), s.279; r.160 of the Supreme Court Rules 1968 (NSW) promulgated under the Companies Act; see now Companies (New South Wales) Regulations, reg.126(2). The proceedings thus instituted, though often referred to as an 'appeal' from the liquidator's decision to reject, are originating proceedings which the court hears de novo: . . . In such a proceeding, a liquidator who defends his decision to reject a proof of debt is no longer acting in a quasi-judicial capacity; he is cast in the role of an adversary, defending the assets available for distribution against a liability which, according to the view he formed when acting quasi-judicially, is not legally enforceable. The liquidator may defend those assets against the creditor's claim on any ground on which the company might have defended the claim had it been sued by the creditor. If the liquidator relies on those special defences which allow him to go behind a judgment, an account stated, a covenant or an estoppel in order to ascertain the true liability of the company, he is none the less in the role of an adversary. The issue in the proceeding is whether the liability referred to in the proof of debt is a true liability of the company enforceable against it. The issue is contested between the putative creditor on the one hand and the liquidator on the other; the liquidator is a party litigant. And none the less so though the liquidator is required to act fairly in conducting the litigation.

174 Several years later, in Westpac Banking Corporation v Totterdell,[240] the Full Court of the Supreme Court of Western Australia reinforced the notion that the liquidator, when determining whether to admit or reject a proof of debt, acts in a quasi-judicial capacity. Justice Ipp (with whom Pidgeon and White JJ agreed) emphasised that the task performed by a liquidator when determining whether or not a debt or claim should be admitted to proof 'is entirely different in character from a discretionary management decision'.[241] His Honour referred to Brennan and Dawson JJ's clear statement of the position in Tanning Research Laboratories and continued, stating:[242]

Thus, the decision of a liquidator to admit or reject a proof of claim is not a discretionary management decision; it is a decision taken by the liquidator acting in a quasi-judicial capacity while discharging an adjudicatory function. The liquidator's duty is to admit and pay out of the assets of the company in liquidation those claims which are legally enforceable, and to hand over any surplus to contributories. The liquidator has no discretion to admit claims which are not legally enforceable; and has no discretion to reject claims which are legally enforceable: see _Government of India v Taylo_r. ...

. . .

In my view, the fact that the Corporations Regulations govern certain procedural aspects of appeals against decisions by liquidators rejecting proofs of debt (in particular the time by which a person may appeal), but not decisions admitting proofs of debt, does not mean that there is any distinction to be made between the principles applicable to the determination of the merits of the two categories of appeals. The prospects of success in regard to both an appeal against a decision by a liquidator rejecting a proof of debt and an appeal against a decision admitting a proof of debt, are dependent solely on whether the debt in question is a liability in law owing by the company. No element of discretion is involved.

175 In Re Galaxy Media Pty Ltd (recs and mgrs apptd) (in liq),[243] Santow J explained that the description of this aspect of the liquidator's role as being 'quasi-judicial' in character does not that mean that when determining whether to admit or reject a proof of debt the liquidator 'is required actually to exercise a judicial function'.[244] Rather, his Honour said:[245]

[30] ...it draws on the judicial analogy, calling for an equivalent impartiality in the application of legal criteria as determine whether a proof of debt should be admitted or not.

[31] Moreover, the quasi-judicial character of the role and the varying financial circumstances of each liquidation means that a liquidator is not required to replicate the judicial process in its full extent and rigour. But it must still be done with that impartiality one would expect of a judge, and by reference to legal principle rather than arbitrarily.

[32] Thus I conclude the expression "quasi judicial" is to be understood not as imposing the full panoply of judicial function. Rather it operates by analogy in requiring the liquidator to do more than merely acting prudently or in good faith. That is why Ipp J correctly rejected the notion that the liquidator's task in admitting or rejecting a proof claim was merely a discretionary management decision. ...

The pragmatic expedient proposed to be adopted

176 In the present case, the suite of directions sought in paragraphs 1(a) to (c) of the FAOP are proposed in circumstances where the liquidators:

(a) are satisfied that the claims of the Eligible Unitholder Claims are materially similar to the claims made by the FOS Claimants because the claims arise from the acquisition of or subscription for units in the Prime Trust after having regard to PDSs and SPDSs issued by APCHL which suffered from the Non-Disclosure Matters; and

(b) consider that due to the material similarities between claims, it would be more efficient and in the interests of creditors to avoid the cost and expense of adjudicating on the merits of individual unitholder claims because the cost to do so is likely to result in a significant depletion of APCHL's/Prime Trust's assets with the real possibility that no dividend is paid to creditors.

177 Under the proposal, all unitholders other than Excluded Unitholders are effectively designated from the outset as 'Eligible Unitholders' with claims available to be treated by the liquidators as unsecured claims in the liquidation of APCHL. The procedure proposed to be adopted by the liquidators (as outlined above) seemingly does not envisage that individual unitholders will be required to provide relevant particulars of their claim other than perhaps their address and the number of units held.

178 With assistance from PTAG, the claims of 'Eligible Unitholders' will then be collated and submitted as a global proof of debt, following which the liquidators will adjudicate on the global proof of debt. In the case of the Excluded Unitholders, however, they are effectively excluded from being enrolled as claimants in the global proof of debt. In the event that any of them seek to advance any claim they may have in their capacity as unitholders, the liquidators propose to assess their claims as nil.

179 Direction 1(c) is framed in terms of the liquidators 'calling for and adjudicating on a global proof of debt' to be lodged by PTAG. But it is difficult to discern precisely what it is that constitutes the relevant 'adjudication' performed by the liquidators other than the 'treating' of the Eligible Unitholders 'as unsecured claims in the liquidation of APCHL in its own capacity and in its capacity as [RE] for the Prime Trust' (as per direction 1(a)) and the 'valuing' of each such claim 'on the basis that each unit is worth $1, or such other amount as the Court determines' (under direction 1(b)).

180 When all of the available evidence is collated and considered, it becomes apparent that the 'pragmatic expedient' advanced by the liquidators and PTAG as a cost-effective solution is one where the separate steps required to be undertaken by the liquidators in the ordinary course, of calling for proofs, adjudicating upon the proofs and admitting or rejecting them are synthesised such that, as counsel for the KCDA parties observed, 'the liquidators are effectively relieved of their obligation to adjudicate and bring their mind to bear on each individual unitholder's claim.'[246]

181 In my view, the directions sought in paragraphs 1(a) to (c) of the FAOP and the attendant modus operandi or procedure outlined by the liquidators for dealing with the global proof of debt falls short of meeting or satisfying the High Court's description of liquidators acting in a 'quasi-judicial capacity according to standards no less than the standards of a court or judge'. Insofar as the proposal concerning the Eligible Unitholders appears to treat the general body of unitholders (other than the Excluded Unitholders) as uniformly having a claim for the purposes of s 553, irrespective of when and how their units were acquired, and seemingly without requiring the unitholder to adduce any evidence of reliance, it falls short of demonstrating the rigour required to be exercised by the liquidators in discharging their duty to adjudicate upon claims and distribute the assets in their hands or under their control among the persons truly entitled.

182 It follows that I am not satisfied that the Court should exercise its discretion, and thereby effectively sanction or give its imprimatur to the course proposed by the liquidators, by making the directions sought in paragraphs 1(a) to (c) of the FAOP.

Direction 2(a): assessing the claims of the Excluded Unitholders in their capacity as unitholders as nil

183 By direction 2(a), the liquidators seek a direction that it is proper and reasonable to assess the claims of the Excluded Unitholders (which comprise the nine unitholders listed in Annexure B to these reasons), in their capacity as unitholders, as nil.

184 The claims of the Excluded Unitholders are based on the same essential foundation as that which underpins the directions sought in paragraph 1 of the FAOP in respect of the Eligible Unitholder claims, arising from 'the dissemination of various "financial products" issued by APCH[L] between at least 2002 and 2007 (inclusive), such as Product Disclosure Statements (and Supplementary Product Disclosure Statements), which have been determined by FOS to be misleading due to their disclosures and omissions.'[247] However, by direction 2(a), the liquidators propose that the claims of the 'Excluded Unitholders', being either individuals who formerly were directors of APCHL, or associates of such former directors (either in their own capacity or as trustees of a trust) and Daytree (which held 99.99% of the ordinary shares in APCHL), be treated differently from those of the Eligible Unitholders because they had actual or constructive knowledge of the 'Non-Disclosure Matters' on which the claims under s 1041H are based (whereas the Eligible Unitholders did not).

185 Relevantly, the 'Non-Disclosure Matters' is a reference to the findings made in the FOS determinations to the effect that the PDSs and SPDSs issued between 2003 and 2007 (inclusive) were misleading or deceptive because:[248]

(a) They failed to disclose that the management rights to Prime Trust properties (Management Rights) had value: see the 2004 PDS,[249] 2005 PDS,[250] and 2007 PDS[251];

(b) The Management Rights were granted to a company controlled by the Prime Trust's managing director, William Lionel Lewski (Bill Lewski), for no consideration: see the 2004 PDS,[252] 2005 PDS[253] and 2007 PDS[254];

(c) The Prime Trust's divesting of valuable Trust rights without accounting to the Prime Trust and its unitholders was a matter that a reasonable investor would consider relevant to the decision whether or not to invest: see the 2004 PDS[255] and 2005 PDS[256];

(d) Each PDS created the impression that the Prime Trust's Managing Director, Bill Lewski, was a "government sanctioned leader in the industry". However, they failed to include information about injunctions that ASIC obtained in July 2005 against companies of which Bill Lewski was a director and which were operating unregistered managed investments schemes and that ASIC had filed proceedings in September 2004 seeking to wind up unregistered managed investment schemes controlled by or associated with Bill Lewski: see the 2005 PDS[257] and 2007 PDS[258];

(e) The above matters raise conflicts of interest and a reasonable person would believe that the conflicts of interest would be properly managed so that there was no detriment to a prospective unitholder (and it can be inferred that Prime Trust failed to properly manage this conflict of interest): 2007 PDS,[259]

(individually and together the Non-Disclosure Matters).

186 It will be recalled that the FOS Determinations concluded that unitholders were led into error by the Non-Disclosure Matters, the non-disclosure of which were misleading,[260] and that 'reliance by the unitholders on the misleading PDSs and SPDSs (due to the Non-Disclosure Matters) is the foundational basis for the economic loss suffered by them.'[261]

187 In the case of the claims of the Excluded Unitholders, however, the liquidators contend that the directors of APCHL (and their associates) were aware or at least ought to have been aware, through their day to day conduct of the affairs of APCHL, of the Non-Disclosure Matters, such that it can readily be inferred that they did not rely on the content of the (misleading) PDSs and SPDSs and therefore would not have been misled by it when they subscribed for or acquired their units in the Prime Trust.[262]

188 The liquidators filed evidence and brief submissions addressing the alleged connection and association between each Excluded Unitholder with a director of APCHL.[263]

189 It will be recalled that the Excluded Unitholders comprise:

(a) individuals who were directors of APCHL prior to APCHL being put into administration, i.e. were directors during the period from 2003 to early 2010 - namely, Philip Powell,[264] Kim Jaques[265] and Michael Woolridge[266]; or

(b) associates of directors of APCHL (during the period from 2003 to early 2010) - namely, Julie Jaques (spouse of Kim Jaques); Daytree Pty Ltd, Kidder Williams Ltd[267], Moggs Creek Pty Ltd,[268] Kidder Peabody Pty Ltd[269] and Kalosu Pty Ltd[270];

(c) a 99.9% shareholder in APCHL, namely Daytree Pty Ltd.[271]

190 Counsel for the liquidators contend that because those persons or entities were associated with the publisher of the PDS, being APCHL, they knew the true position with respect to for e.g., management rights and Mr Lewski, as follows:[272]

...they knew the true position with respect to management rights. They knew the true position so that there was no omission that affected them, because they actually knew about the management rights, which was the relevant omission.

They knew about Mr Lewski, which is a relevant omission, and that's the reason why we say that their claim should be assessed at nil, because they aren't misled by an omission, because they know it through a different source, which is their involvement in the management of APCH[L]...

191 While direction 2(a) is framed in terms requiring that the claims of all of the Excluded Unitholders in their capacity as unitholders be assessed as nil, during oral submissions senior counsel for the liquidators acknowledged that the position of each of the Excluded Unitholders needs to be assessed individually and that the liquidators are not seeking to say 'it's an all or nothing bundle.'[273] Mr Evans QC then proceeded, by way of example, to contrast the relative positions of two of the Excluded Unitholders, being Julie Jacques and her husband Kim Jacques, stating:[274]

...the mere fact that Julie Jaques is married to Kim Jaques, who is the managing director, of APCH may not be a sufficient basis for saying that she should be seen as not having been misled without more.

But, for example, where the person is Kim Jaques or where the person is an actual director, then there is a stronger basis, and I said we weren't seeking to say it's an all or nothing bundle. We've put forward the evidence we've put in our submissions, the basis for the individual exclusions.

192 During oral submissions, senior counsel for the liquidators also adverted to, and explained, the linkage between the directions sought in paragraph 2(a) of the FAOP and those sought in paragraph 1, as follows:[275]

. . . it is the intention of the directions sought under 2(a) from the perspective of the liquidators that if a direction was made under 1(b), the direction under 2(a) would have the effect of being binding upon the excluded unitholders, all of whom were served with the amended originating process, Your Honour. They would be bound by that result.

And, Your Honour, it is important to understand the basis upon which they would be intended to be excluded. We've put it in our written submission, so I don't propose to address it in any detail orally, but what we have said is it's intended because, as others have said, if - that for the reasons identified in our submissions, Your Honour, and we did - if I may say, we tried very fairly to set out the association between each 'excluded unitholder' and APCH[L] and its directors at all times.

We did so at paragraph 64 through to 78 of our submissions. We don't seek to say that it's a one-size-fits-all approach. Your Honour may say, well, some unitholders should be excluded and others should not. And excluded unitholders would - if there was no direction made, then they would still have a right to lodge a proof of debt and it would be assessed in the ordinary course.

But there are only a small category of those persons, although some of them have very large unitholdings, in particular, Daytree, Your Honour.

193 Counsel for the liquidators accepted that if no direction of the kind sought in paragraph 2(a) were made, the Excluded Unitholders would continue to have the ability to file a proof of debt and have their claims determined by the liquidators in the usual fashion, which he acknowledged may give rise to an inconsistency of outcome in the assessment of unitholders claims. In response to a question from the Court about the potential for unitholders' units (and thereby, claims) to be accorded different values Mr Evans QC submitted:[276]

It is, as you say, possible that if the excluded unitholders - or if the direction under 2(a) was not made but the direction under 1(a) and a direction under 1(b) were made, that it would still then be open for an excluded unitholder to lodge a proof of debt. That proof of debt would then need to be adjudicated upon in the usual fashion, and it may be adjudicated upon in a number of ways.

It could be admitted for part of a claim that was founded without an assessment, because the liquidator does have the power not to conduct a trial, as it were, or a quasi-trial of the claims, and might say, 'Well, I'll admit it for 20 cents in the dollar per unit', and the liquidator would have the power to do that, and that power would then be subject to review.

It is, in fact, because of the rights available to creditors and the number of potential creditors here that week [sic.] the directions in paragraph 1(a), 1(b), 1(c) because of the costs associated. There's a potential - perhaps what Your Honour is saying - and I say this with respect - is that there's a potential, ultimately, for an inconsistency of outcome in terms of an assessment of claims.

That is undoubtedly true, but that is what we are saying - the costs of that individual outcome assessment is what - and the proportionality of that versus what's left for distribution is what justifies the making of an order under 1(a) or 1(b). That probably doesn't exist as strongly in the case of the excluded unitholders who are a limited category anyway.

194 Later in his submissions Mr Evans QC returned to this aspect and submitted that if the Court were not minded to make the order sought under direction 2(a), with respect to the claims of Excluded Unitholders being valued at nil, 'you might say that as a matter of comity and fairness, they should be subject to the same orders with respect to 1(b) as every other unit holder.'[277]

PTAG supports the exclusion of the Excluded Unitholders

195 In their written submissions, PTAG briefly addressed the issue of the exclusion of the KCDA parties from the pool of Eligible Unitholder Claims. In essence, PTAG submits that the KCDA parties, given their association with the directors of APCHL, are unitholders who would benefit from the alleged wrongdoing of APCHL.[278]

196 Further PTAG contends that because the KCDA parties 'are unitholders with (at least deemed) knowledge of the true state of affairs (that is the facts which were known to the directors but not stated in product disclosure statements), it is prima facie likely that any claim by those unit-holders for non-disclosure would be defeated by reason of a failure to show reliance on the non-disclosure.'[279] In oral submissions, counsel for PTAG explained that it is because the claims are made on the basis of the misleading statements in the PDS that the KCDA parties are proposed to be excluded from the unitholder claims, essentially because they were active in the entity at the time and it is to be presumed that they had knowledge of the statements.[280]

197 Here again, PTAG encourages the Court to 'take a pragmatic and cost-effective approach'[281] and order that the liquidators are justified in excluding the KCDA parties from the Eligible Unitholder claims. They caution that if the Court does not do so, there is 'the risk that further costs and possibly further litigation will be required to determine the issue of considering proofs of debt (if lodged) by the [KCDA] parties and a consequential further depleting of the remaining funds available to creditors.'[282]

198 During oral submissions, counsel for PTAG also acknowledged that if direction 2(a) was not made, it would continue to be open to each of the Excluded Unitholders to lodge an individual proof of debt that 'can be dealt with [by the liquidators] in the ordinary way if they have a claim'[283], thereby giving rise to the prospect of a regime where the claims of unitholders in their capacity as unitholders are not treated pari passu.

The KCDA parties oppose the directions sought in paragraph 2(a) concerning the proposed exclusion of certain unitholders

199 The KCDA parties oppose the proposed exclusion of the Excluded Unitholders as sought in direction 2(a) and as related to direction 1(a), contending that there is no basis for doing so.

200 They submit that the only basis advanced by the liquidators to justify the proposed exclusion is that:[284]

those unitholders had directors, or were 'associated' with directors, who "were aware or at least ought to have been aware, through their day to day conduct of the affairs of APCH[L], of the Non-Disclosure Matters, and therefore would not have been misled by the content of the PDSs and SPDSs when they subscribed for units in the Prime Trust"[Liquidators' submissions, [57]].

201 The KCDA parties contend that no basis is 'made out on the evidence' that the 'Excluded Unitholders' were making decisions to subscribe for units solely on the basis of having an 'association' with various of the directors.[285] Further, they say, if (contrary to their position) the unitholder claims are truly open, as the liquidators contend, there is no justification to exclude any unitholder from making them.

202 In their reply submissions, the liquidators contend that the KCDA parties have mischaracterised the liquidators' submissions and appear to have misconceived the relevance of the Non-Disclosure matters to the conduct of the Excluded Unitholders when acquiring units in the Prime Trust.[286]

203 The liquidators submit that 'the relevant question is whether the Excluded Unitholders can be said to have relied on the Non-Disclosure Matters contained in the PDSs and SPDSs when subscribing for units, irrespective of what in fact motivated them to subscribe for units in the Prime Trust.'[287]

204 They observe that the KCDA parties (and the Excluded Unitholders) 'have failed to put on any evidence that:

(a) denies that they had actual or constructive knowledge of the Non-Disclosure Matters (as the case may be); or

(b) they were moved to acquire units in the Prime Trust having regard to the contents of the PDSs and SPDSs (and the Non-Disclosure Matters).'[288]

205 The liquidators submit that in circumstances where only the Excluded Unitholders can give evidence of what they knew (or did not know) and understood at the time they subscribed for units in the Prime Trust and what motivated them to subscribe for units in the Prime Trust, their failure to call such evidence 'may support an inference that the uncalled evidence would not have helped the party's case.'[289] They submit it is open to the Court to draw an inference that the evidence of the Excluded Unitholders would not have helped their case.[290]

Consideration and disposition in respect of the direction sought in paragraph 2(a)

206 In the case of the Excluded Unitholders, the position is that the liquidators, in advance of calling for proofs from unitholders, have effectively made a pre-estimate of the position of each of the Excluded Unitholders, based on the material before the Court on this application, and have assessed their claims as unitholders as nil. In so doing, in advance of the proof of debt process being enlivened, the liquidators, by direction 2(a), effectively conflate the process to be undertaken by them for the assessment of proofs of debt with their application for judicial advice or directions, and seek to have the Court determine the substantive rights of the Excluded Unitholders on that application for directions (by directing that any claims they may have in their capacity as unitholders be assessed as nil).

207 In their outline, the liquidators have set out the reasons why they believe the Excluded Unitholders do not have any claims for damages against APCHL under ss 1041H, noting that the Excluded Unitholders 'have failed to put on any evidence to rebut the liquidators' evidence'. They contend that in circumstances where orders were made by Efthim AsJ on 2 August 2019[291] requiring the interested parties to file the material to be relied on, the failure of the Excluded Unitholders to put on any evidence of what they knew (or did not know) and understood at the time they subscribed for units and what motivated them to subscribe for units, renders it open to the Court to draw an inference that 'the uncalled evidence'[292] of the Excluded Unitholders would not have helped their case. I do not agree.

208 Until such time as the liquidators call for proofs from unitholders of Prime Trust, it is unclear that the Excluded Unitholders are under an obligation to provide particulars of their claim(s), including any relevant knowledge, such that a failure to do so would give rise to a Jones v Dunkel[293] type of inference against them. If (as the liquidators' proposal envisages) proofs will be called for in relation to the Unitholders claims via a global proof of debt, then Excluded Unitholders will not be foreclosed from lodging claims. In the event that they do so, and the claims lodged by Excluded Unitholders are rejected by the liquidators (or assessed as nil), the Excluded Unitholders may lodge appeals by seeking orders under a (separate) s 90-15 application. As McLelland J observed in Re Magic Aust Pty Ltd (in liq):[294]

A determination by the court on any such appeal would be binding as between the parties to the appeal on the issue of the validity or otherwise of the claim the subject of the proof of debt in question. However no such binding determination can arise from a direction given in a liquidator's application for directions, and such an application is not an appropriate vehicle for the determination of substantive issues: see generally Re G B Nathan & Co Pty Ltd (in liq) [citation omitted] as to the nature, scope and incidents of an application for directions.

209 As framed in the FAOP, if the direction sought in paragraph 2(a) were made, it would operate such that the claims of each of the Excluded Unitholders would be assessed as nil. Yet the liquidators have acknowledged that the position of each of the Excluded Unitholders needs to be assessed individually and they are not seeking to say 'it's an all or nothing bundle.' In effect, it seems the liquidators are now leaving it to the Court to undertake the task of assessing the (potential) claims of each of the Excluded Unitholders and their value (if any) separately from and in advance of the liquidators having embarked upon the process to be conducted by them when calling for and adjudicating upon proofs of debt. In my view it is unsatisfactory for the Court to be placed in that position.

210 In the circumstances, notwithstanding the apparent breadth of the power conferred by s 90-15, I share the cautionary note expressed by McLelland J in Re Magic Aust Pty Ltd (in liq)[295] that an application for directions is not an appropriate vehicle for a direction to be given that a liquidator admit or reject a particular proof of debt, which would not determine the validity or otherwise of the claim or prevent a subsequent appeal from the liquidator's decision made in accordance with that direction.

211 Even if s 90-15 does permit the Court to take a broader view of the powers available to the Court when making orders in relation to the external administration of a company, and does accommodate the determination of substantive rights, I am not satisfied that it is appropriate to do so in the present case.

212 Accordingly, in the exercise of the Court's discretion, I do not propose to make the direction sought in paragraph 2(a) of the FAOP.

Paragraphs 2(b) and 2(c) of the FAOP: Whether the General Creditors are entitled to share in the assets of the Prime Trust or are they confined to the assets of APCHL (in its own right)? and Whether the Trust Creditors are entitled to share in the Personal Assets of APCHL or are they confined to the Trust Assets only?

213 In broad terms, in paragraphs 2(b) and 2(c) of the FAOP the liquidators seek directions about the assets available for distribution to, or non‑payment of dividends to, certain classes of creditors of APCHL, referable to where their status as creditors arose in respect of dealings with APCHL either in its capacity as RE of the Prime Trust or in its own right.

214 As the liquidators observe, the directions sought in paragraphs 2(b) and 2(c) of the FAOP arise because APCHL:

(a) has Trust Creditors (and depending on direction 1(a), may include the Unitholder Claims); and

(b) has General Creditors (and depending on direction 1(a), may include the Unitholder Claims);

215 The liquidators' Table 4 (reproduced below) identifies the value of:

(c) APCHL's Total Assets (i.e. an aggregate of the Personal Assets and Trust Assets);

(d) APCHL's General Creditors (excluding the value of the Unitholder Claims);

(e) APCHL's Trust Creditors (excluding the value of the Unitholder Claims and inter- company loans); and

(f) APCHL's Total Creditors (i.e. an aggregate of the General Creditors and the Trust Creditors),

216 The liquidators observe that, as is evident from the table:[297]

(a) the Personal Assets of APCHL are insufficient to meet in full the General Creditors of APCHL;

(b) the Trust Assets of APCHL are insufficient to meet in full the Trust Creditors of APCHL; and

(c) the Total Assets of APCHL are insufficient to meet the Total Creditors of APCHL.

217 In those circumstances, due to the patent insufficiency of APCHL's assets to meet its creditors in full, the liquidators are obliged, pursuant to s 555 of the Corporations Act, to pay creditors of APCHL proportionately. Accordingly, the liquidators seek directions from the Court regarding the payment of its 'final' distribution to APCHL's creditors.

218 The directions sought in paragraphs 2(b) and 2(c) call for an answer to the following questions:

(a) Question 1: Are the General Creditors entitled to share in the Trust Assets or are they confined to APCHL's Personal Assets only?

(b) Question 2: Are the Trust Creditors entitled to share in the Personal Assets of APCHL or are they confined to the Trust Assets only?

219 The recent decision of the High Court in Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth (but generally referred to as Re Amerind),[298] which considered similar questions in the context of a receiver exercising its powers under s 433 of the Corporations Act, laid down principles that apply equally to liquidations and s 555 of the Corporations Act. Relevantly for present purposes, the High Court in Re Amerind confirmed the following principles:[299]

(a) A trustee who enters into business transactions as trustee is personally liable for debts incurred in the course of those transactions: Re Amerind per Bell, Gageler and Nettle JJ at [80] and Gordon J at [129] citing the plurality in Octavo Investments Pty Ltd v Knight [1979] HCA 61; (1979) 144 CLR 360 at 367 (per Stephen, Mason, Aickin and Wilson JJ); see also Vacuum Oil Co Pty Ltd v Wiltshire [1945] HCA 37; (1945) 72 CLR 319 at 324.

(b) Where a trustee acting within its powers incurs a liability in the course of the administration of the trust, although the trustee is ordinarily personally liable in relation to the debt, the trustee is entitled to indemnity out of the trust estate: Re Amerind per Gordon J at [130] citing Chief Commissioner of Stamp Duties (NSW) v Buckle [1998] HCA 4; (1998) 192 CLR 226 at 245 [47]; [1998] HCA 4, quoting Scott on Trusts, 4th ed (1988), vol 3A, s246.

(c) If the trustee discharges the trust liabilities from the trustee's personal assets, the trustee is entitled to recoup out of the trust property. This is referred to as the (right of reimbursement or right of recoupment): Re Amerind per Bell, Gageler and Nettle JJ at [92] citing Re Suco Gold; Gordon J at [155].

(d) If the trust liabilities have not been discharged, the trustee may, by reason of the right of indemnity which vests in him, apply the trust property to the payment of the trust liabilities, thereby exonerating the bankrupt estate to the extent of the value of the available trust assets (right of exoneration): Re Amerind per Bell, Gageler and Nettle JJ at [92] citing Re Suco Gold.

(e) By the right of exoneration and the right of reimbursement (collectively known as the right of indemnity) the trustee obtains a beneficial interest in the trust property: Re Amerind per Bell, Gageler and Nettle JJ at [80] citing the plurality in Octavo Investments Pty Ltd v Knight [1979] HCA 61; (1979) 144 CLR 360 at 367 (per Stephen, Mason, Aickin and Wilson JJ); Gordon J at [132-133].

(f) The right of indemnity becomes part of the property of the trustee (and forms part of its personal assets). These assets fall into the trustee's general estate and are divisible among the creditors of the trustee generally: Re Amerind per Bell, Gageler and Nettle JJ at [92] citing Re Suco Gold; Gordon J at [155].

(g) However, the proceeds from an exercise of a corporate trustee's right of exoneration in respect of trust liabilities may be applied only in satisfaction of the trust liabilities to which that right relates: Re Amerind per Bell, Gageler and Nettle JJ at [92]; at [153] per Gordon J, citing Re Suco Gold at 105, 107-110 and Allsop CJ in Jones (Liquidator) v Matrix Partners Pty Ltd, in the matter of Killarnee Civil & Concrete Contractors Pty Ltd (in liq) [2018] FCAFC 40; (2018) 260 FCR 310 at 336-337 [101].

(h) While the right of indemnity permits the proceeds of the trust assets to be applied to creditors of the trustee generally, the right of exoneration is not available for distribution among the creditors of the trustee generally: Re Amerind per Bell, Gageler and Nettle JJ at [92] citing Re Suco Gold; Gordon J at [156] (where her Honour emphasised that assets of the trust "which are the subject of the right of exoneration can only be applied to satisfy trust debts and are not available for distribution to creditors generally").

(i) Finally, in Re Amerind Gordon J at [159-166] discussed the application of the principles in circumstances of multiple trusts and noted the following:

(i) a liquidator of an insolvent corporate trustee of multiple trusts should be viewed as holding multiple funds, each directed to different groups of creditors;

(ii) there is an inherent limitation on the proprietary rights of the trustee in a trust fund. The funds can only be applied to satisfy debts incurred to creditors of the relevant trust; and

(iii) this approach may lead to practical difficulties and expense. In such a case, equity may need to fill the vacuum left by the failure of the statute to deal expressly with multiple trust funds. An available mechanism is for the liquidator to apply under s 90-15 of the Insolvency Practice Schedule for directions from the court to seek to resolve any issues in relation to allocation between multiple trusts. What will be appropriate will vary from case to case. Hotchpot (like marshalling) is one possibility; an illustration of the maxim that equity is equality.

However, as the liquidators note,[300] the mechanisms raised by her Honour above, such as hotchpot or the application of equitable maxims, are not relevant in the context of the present case.

220 The liquidators submit that the relevant principles in Re Amerind apply to the facts and circumstances of APCHL, as follows:

(a) APCHL is personally liable for the debts it incurred in the course of operating the Prime Trust, i.e. APCHL is personally liable for the Trust Creditors.

(b) If APCHL discharges liabilities of the Prime Trust from its Personal Assets, then it would be entitled to recoup this amount out of the Trust Assets - APCHL would have a right of recoupment in respect of (and to the extent of) the trust liabilities which it has discharged.

(c) However, to date, APCHL has not discharged Prime Trust liabilities using its Personal Assets and so, to date, the right of recoupment has no application to the circumstances of APCHL.

(d) If, as is the case here, the Prime Trust liabilities have not been discharged, the liquidators may apply the Trust Assets to the payment of the Trust Creditors, thereby exonerating the trust estate to the extent of the value of the available Trust Assets.

(e) This right of exoneration grants the liquidators a beneficial interest and proprietary right in the Trust Assets.

(f) However, the proceeds from an exercise of the right of exoneration in respect of the Trust Creditors may be applied only in satisfaction of the Trust Creditors to which that right relates.

221 Accordingly, the liquidators contend that the answer to the two questions posed above are as follows:

(a) Answer to Question 1: The General Creditors are confined to the assets of APCHL (in its own right).[301]

(b) Answer to Question 2: The Trust Creditors are entitled to share in the Personal Assets of APCHL and in the Trust Assets.[302]

222 As was noted earlier, at the hearing the direction sought in paragraph 2(b) of the amended originating process, the effect of which is to entitle 'trust creditors' to share in the 'personal assets' of APCHL (which arises due to the dual capacities in which APCHL operated), was amended so as to include a carve‑out in the case of creditors of APCHL in its capacity as RE of the Prime Trust that had limited 'their recourse to Prime Trust assets only (and therefore are not entitled to share in the assets of APCHL in its personal capacity).'[303]

223 It follows that the liquidators seek:[304]

(a) the making of a direction in the form set out in paragraph 2(b) of the FAOP thereby confirming that the liquidators may treat the creditors of the Prime Trust as being entitled to dividends from the assets of APCHL in its personal capacity and in the assets of the Prime Trust, other than the named creditors (being the relevant financiers[305]);

(b) the making of a direction in the form set out in paragraph 2(c) of the FAOP in the negative, thereby confirming that creditors of APCHL in its personal capacity are confined to the assets of APCHL in its personal capacity and are not entitled to any dividend from the assets of the Prime Trust.

PTAG agrees with the approach taken by the liquidators

224 When addressing the issue of the capacity in which APCHL is liable for any loss caused to unitholders, PTAG submitted that '[t]he only viable or pragmatic way of dealing with the issue is to admit the unitholders claims in the liquidation of APCHL in its own capacity and in its capacity as Responsible Entity for the Prime Trust', adding that '[t]o do otherwise will result in the significant depletion of the assets remaining for distribution.'[306]

The KCDA parties agree generally with the approach taken by the liquidators

225 The KCDA parties agree[307] that the questions the subject of directions 2(b) and 2(c), being questions 1 and 2 in the liquidators' submissions above, should be answered generally in the manner set out in the liquidators' submissions,[308] relying upon the conclusions reached by the High Court in Re Amerind.

226 Earlier, in their written submissions, the KCDA parties had drawn attention to the fact that in the present case, certain of the trust creditors have expressly limited their entitlement to be repaid to seeking recourse only to trust assets. Relevantly, the KCDA parties observed, 'nothing in Re Amerind would entitle a trust creditor to share in the personal assets of APCHL where such a creditor had expressly limited (by their contractual arrangements with APCHL) their entitlement to be repaid to seeking recourse only to trust assets.'[309] Accordingly, they submitted, because certain of the trust creditors in the present case (being the financiers described in the Horne 15.8.19 affidavit at paras [9(h)] - [9(j)]) had agreements where APCHL limited its indebtedness 'only in its capacity as trustee of the Trust', those financiers are prevented from getting to the personal fund of the company.[310]

227 Save for that important caveat, the KCDA parties submitted that:[311]

(a) unless a particular creditor has agreed to restrict its ability to recover to a specific fund (i.e., a trust fund or personal fund) then the personal assets of APCHL can be used rateably to pay out the creditors under the Corporations Act, irrespective of whether the liability was incurred as a trustee or personally; and

(b) the situation is different regarding funds held by APCHL on trust, which may only be used to satisfy trust liabilities (including in support of providing a trustee a right of exoneration).[312] The trustee's right of indemnity cannot be used to satisfy debts other than those incurred with authority for the conduct of the trust business.[313]

The liquidators' response - consensus reached in relation to the directions sought in paragraphs 2(b) and 2(c)

228 Against that background, following consultation between counsel for the respective parties, and with the modifications the liquidators proposed be made to the directions sought in paragraphs 2(b) of the FAOP to address the position of the financiers who had expressly limited (by their contractual arrangements with APCHL) their entitlement to be repaid to seeking recourse only to trust assets, senior counsel for the liquidators informed the Court that:[314]

I've clarified with Mr Glick that the position taken by the KCDA parties, and also the position, I should say, taken by PTAG is that they do not oppose the making of the directions in paragraphs 2(b) and 2(c) in the form which is now put forward by the further amended originating process.

229 Accordingly, the liquidators seek orders that those directions be made, and the interested parties do not oppose them.

Consideration and disposition in respect of the directions sought in paragraphs 2(b) and 2(c) of the FAOP

230 The liquidators' submissions have identified a proper basis for the Court to make the directions sought in paragraphs 2(b) and 2(c) of the FAOP. The interested parties have indicated that they do not oppose the making of those directions in the form sought. I am satisfied that it is appropriate for the Court to make those directions.

231 For the reasons set out above, I am not satisfied that it is appropriate for the Court to make directions 1(a), 1(b) or 1(c) concerning the Eligible Unitholders claims and the lodgment of a global proof of debt by PTAG, or direction 2(a) concerning the claims of the Excluded Unitholders. In those circumstances, it remains open to the unitholders of the Prime Trust to lodge proofs of debt in the liquidation of APCHL to be dealt with by the liquidators in the ordinary course.

232 In the case of directions 2(b) and 2(c), concerning the payment of dividends to creditors of APCHL and from what assets, both the liquidators and the interested parties are agreed that it is appropriate that the directions sought in paragraphs 2(b) and 2(c) be made. No submission to the contrary has been filed by any of the relevant financiers listed in subparagraphs 2(b)(i)-(iii). I am satisfied that it is appropriate for the Court to make those directions in the form sought in the FAOP.

233 I will hear counsel as to the appropriate form of the orders and directions to be made to give effect to these reasons.

Philip & Glennys Powell ATF Prime Numbers Super Fund

STIRLING LINDLEY HORNE and PETR VRSECKY as joint and several liquidator of AUSTRALIAN PROPERTY CUSTODIAN HOLDINGS LIMITED (IN LIQ) (ACN 095 474 436)

KIDDER COMMUNITIES PTY LTD (ACN 130 631 891) (RECS AND MGRS APPT)

AUSTRALIAN PROPERTY ADMINISTRATORS PTY LTD (ACN 067 857 425)

PRIME TRUST ACTION GROUP (PRIME ACTION SUPPORT GROUP IARN A1015519W)

[1] APCHL was placed into voluntary administration on 18 October 2010 and, by resolution of its creditors, into liquidation on 23 November 2011, with the plaintiffs being appointed as liquidators.

[2] A Corporate Structure Chart showing the relationship between the various entities within the Prime Group (which appeared as exhibit SLH-4 to the affidavit of Stirling Lindley Horne sworn 28 June 2019 (Horne 28.06.19 affidavit) ) is set out as Annexure A to these reasons.

[3] Plaintiffs' submissions filed 24 December 2019, at [3] (liquidators' submissions).

[6] Supplementary Affidavit of Stirling Lindley Horne sworn 15 August 2019 (Horne 15.08.19 affidavit), at [9]-[10].

[7] This version of the FAOP was filed on 23 July 2020, following the hearing.

[8] Exhibit PTAG-1: affidavit of Stephen O'Reilly sworn 14 November 2019 (O'Reilly affidavit), at [17].

[9] Wendy Hertzog, an investor in Prime Trust, was an independent member until her death in April 2016.

[10] Exhibit PTAG-1: O'Reilly affidavit, at [3].

[11] Exhibit PTAG-1: O'Reilly affidavit, at [1].

[12] Exhibit PTAG-1: O'Reilly affidavit, at [23].

[13] Exhibit PTAG-1: O'Reilly affidavit, at [22].

[14] Exhibit PTAG-1: O'Reilly affidavit, at [52].

[15] Exhibit PTAG-1: O'Reilly affidavit, at [24].

[16] Exhibit PTAG-1: O'Reilly affidavit, at [25].

[17] Exhibit PTAG-1: O'Reilly affidavit, at [26].

[18] Exhibit PTAG-1: O'Reilly affidavit, at [48].

[19] Submissions of the Prime Trust Action Group dated 3 March 2020 (PTAG's submissions), at [5].

[20] PTAG's submissions, at [6]. Section 90-21(1) of the Insolvency Practice Schedule provides that '[t]he Court may, as to all matters relating to the external administration of a company, have regard to the wishes of the creditors or contributories as proved to it by any sufficient evidence.'

[21] Exhibit KCDA-1: Affidavit of Kelly Powers sworn 3 March 2020 (Powers affidavit), at [8]-[9] and exhibit KP-2 thereto.

[22] Exhibit KCDA-1: Powers affidavit, at [12] and exhibit KP-4 thereto.

[23] The Form 537: Notice as to Partial Rejection of Formal Proof of Debt (contained in exhibit KP-4) records that the formal proof of debt for $67,011,587.57 was admitted to the extent of $28,264,416.28 less $6,350,000 (already received) and rejected to the extent of $38,747,171.29.

[24] The Form 537: Notice as to Rejection of Partial Formal Proof of Debt (contained in exhibit KP-4) records that the formal proof of debt for $58,855,885.00 was admitted to the extent of $5,699,822.82 [sic] and rejected to the extent of $53,156,062.18. A total of $5,699,922.82 (comprised of a Base Fee of $2,255,000 and a Bonus fee of $3,444,922.82) was admitted to rank for dividend in the liquidation.

[25] Exhibit KCDA-1: Powers affidavit, at [11] and exhibit KP-3 thereto.

[26] Exhibit KCDA-1: Powers affidavit, at [15] and exhibit KP-7 thereto.

[27] Transcript, 22.07.20, at p 78.14-78.23 (Mr Evans QC).

[28] Transcript, 22.07.20, at p 78.14-78.23 (Mr Evans QC).

[29] (1992) 7 ACSR 742 at 745.

[30] Named in directions 2(b)(i), (ii) and (iii) as being Capital Finance Australia Limited, Suncorp Metway Limited and Industry Funds Management (Nominees 2) Pty Ltd.

[31] Section 90-15(3)(a).

[32] [2018] NSWSC 481, at [7]-[8]. See also Re Courtenay House Capital Trading Group Pty Limited (in liq) (2020) 147 ACSR 1, at [12]-[14] (per Rees J); Re Krejci (as liquidator of Community Work Pty Ltd) (in liq) [2018] FCA 425, at [46]-[47] (per Gleeson J); Re Buddy Management Pty Ltd (in liq) [2019] FCA 566, at [40] (per Gleeson J).

[33] Liquidators' submissions at [54]-[58]. Those claims for misleading and deceptive conduct include references to an alleged failure to 'disclose that the management rights to Prime Trust properties (Management Rights) had value...' and that APCHL's '...divesting of valuable Trust rights without accounting to the Prime Trust and its unitholders was a matter that a reasonable investor would consider relevant to the decision whether or not to invest.'

[34] FOS is now known as the 'Australian Financial Complaints Authority' or 'AFCA'.

[35] Amended originating process dated 15 August 2019, filed on 13 December 2019 (underlining and strikethrough in original to show amendments).

[36] Senior counsel for the plaintiffs informed the Court at the hearing that this affidavit replaced an earlier unsworn affidavit of Mr Horne that circulated amongst the parties on or about 27 March 2020. Due to the impacts of COVID‑19 on the plaintiffs' solicitor's ability to witness the earlier affidavit it remained unsworn until it was withdrawn and replaced by the third supplementary affidavit: Transcript, 22.07.20, at p 3.02-3.22.

[37] FAOP dated 22 July 2020, filed on 23 July 2020 (underlining and strikethrough in original to show amendments).

[38] Transcript, 22.07.20, at p 13.03-16.15 (Mr Evans QC).

[39] Transcript, 22.07.20, at p 15.09-15.18 (Mr Glick QC). Counsel for PTAG submitted that whether the direction in paragraph 2(a) should be made (and implicitly, the form of that direction) was a matter for the liquidators, not PTAG: Transcript, 22.07.20, at p 49.07-49.09 (Mr Muller).

[40] Liquidators' reply submissions dated 27 March 2020 and filed on 21 July 2020 [15]-[18(a)], [53(b)] (liquidators' reply submissions); Transcript, 22.07.20, at p 16.26-16.30 (Mr Evans QC).

[41] PTAG's submissions, at [34]; KCDA parties' submissions filed on 3 March 2020, at [46] (KCDA submissions).

[42] Transcript, 22.07.20, at p 17.22-18.08 (Mr Evans QC).

[43] See generally, orders made on 22 July 2020 (22 July orders).

[44] FAOP; Transcript, at p 3.23-3.31 (Mr Evans QC).

[45] The email from the liquidators' solicitor dated 23 July 2020 noted that counsel for the KCDA parties had not responded to the request.

[48] Transcript, 22.07.20, at p 4.11-4.15, 5.09-5.18 (Mr Glick QC).

[49] Transcript, 22.07.20, at p 5.31-6.07.

[50] The Court made such an order on 22 July 2020.

[51] 22 July orders, [3(a)]; Transcript, 22.07.20, at p 7.06-7.07 (Mr Evans QC).

[53] Transcript, 22.07.20, at p 6.18-7.25 (Mr Evans QC)..

[54] Transcript, 22.07.20, at p 19.25-19.28, 8.2--9.12 (Mr Muller).

[55] Transcript, 22.07.20, at p 7.31-8.14, 50.22-50.23.

[59] CB1280-1299 and see Transcript, 22.07.20, at p 94-95.

[60] Transcript, 22.07.20, at p 11.19-11.25 (Mr Evans QC).

[61] Transcript, 22.07.20, at p 12.16-2.19 (Mr Evans QC).

[62] Transcript, 22.07.20, at p 12.11-12.19 (Mr Evans QC).

[63] Transcript, 22.07.20, at p 12.23-12.26 (Mr Evans QC).

[64] Transcript, 22.07.20, at p 12.02-12.05 (Mr Evans QC).

[66] Liquidators' submissions, [14(b)]

[67] Horne 28.09.19 affidavit, at [25].

[68] The three unitholder complaints were made by the following unitholders:

(a) Mr Donald Steel and Associates Pty Limited as trustee for the Salignus Superannuation Fund;

(c) Mr Hans Desler (now deceased) and Mrs Irma Desler and as trustees for Desler Pension Fund.

[69] Liquidators' submissions, at [12]

[70] A copy of the FOS Determinations appears as exhibit SLH-6 to the Horne 28.06.19 affidavit. The three determinations are:

(a) FOS Determination dated 26 November 2012 - Steve and Joanna O'Reilly (Case No. 212722) (O'Reilly FOS Determination);

(b) FOS Determination dated 26 November 2012 - Hans and Irmgard Desler (Case No. 223013) (Desler FOS Determination), and

(c) FOS Determination dated 29 May 2013 - Donald Steel and Associates ATF Salignus Superannuation Fund (Case No. 245241) (Steel FOS Determination).

[71] The FOS determinations determined that the unitholders were entitled to compensation in the following amounts:

(a) in respect of the Salignus Superannuation Fund, $30,108.37;

(b) in respect of Mr Steve O'Reilly and Mrs Joanna O'Reilly, $91,603;

(c) in respect of Mr Hans Desler and Mrs Irmgard Desler, $92,923; and

(d) in respect of the Desler Pension Fund, $54,571.

The liquidators were subsequently informed by FOS that the Salignus Superannuation Fund did not accept the FOS determination made in respect of its complaint.

At the hearing, the Court was informed by senior counsel for the liquidators that the insurer under APCHL's directors and officers policy accepted the Desler's claim but no money was paid under it either to Mr or Mrs Desler or the Desler Pension Fund because the policy was liquidated in other litigation funding: Transcript 22.07.20, at p 27.31-28.08.

[72] Horne 28.06.19 affidavit, at [34].

[74] Liquidators' submissions, at [14].

[75] Liquidators' submissions, at [14].

[76] PTAG relies upon the views expressed by the liquidators in the Horne 28.06.19 affidavit, in particular at paragraphs 24 to 30, 33, 34 and 36.

[77] Being Section A (Introduction) and Section B.1 (concerning directions 1(a) and (b) and direction 2(a)) of the liquidators' submissions and their submissions in respect of proposed direction 1(c) (concerning the global proof of debt) of the liquidators' submissions.

[81] Transcript, 22.07.20, at p 21.16-22.01 (Mr Muller).

[82] Transcript, 22.07.20, at p 22.06-22.09 (Mr Muller).

[83] Transcript, 22.07.20, at p 25.17-25.23 (Mr Muller).

[84] Transcript, 22.07.20, at p 23.29-24.02 (Mr Muller).

[85] Transcript, 22.07.20, at p 21.29-21.30 (Mr Muller).

[86] [2002] FCA 90; (2002) 115 FCR 409; 40 ACSR 433.

[87] [2010] FCA 1231; (2010) 190 FCR 59; 80 ACSR 401.

[88] [2002] FCA 90; (2002) 115 FCR 409, at [65]; [2002] FCA 90; 40 ACSR 433, at [65].

[90] See for example Re GB Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674; 5 ACSR 673 at ACSR 678-9; Re Magic Aust Pty Ltd (in liq) (1992) 7 ACSR 742, at 745; 10 ACLC 429 (holding that it is not appropriate for direction to be given that a liquidator admit or reject a particular proof of debt, which would not determine the validity or otherwise of the claim or prevent a subsequent appeal from the liquidator's decision made in accordance with that direction).

[91] See for example Re Mento Developments (Aust) Pty Ltd; Rambaldi v Wixart Pty Ltd (2009) 73 ACSR 622; [2009] VSC 343; Sports Alive Pty Ltd (in liq) v ACT Gambling and Racing Commission [2013] VSC 69.

[92] (2012) 88 ACSR 18; [2012] VSC 125, at [44].

[93] (2007) 25 ACLC 1433; [2007] FCA 1443, at [50].

[94] [1994] FCA 1031; (1994) 49 FCR 334; 121 ALR 626.

[95] [1994] FCA 1031; (1994) 49 FCR 334, at 352 [60]; [1994] FCA 1031; 121 ALR 626, at [60].

[96] [2010] FCA 1231; (2010) 190 FCR 59; 80 ACSR 401.

[97] ([2010] FCA 1231; 2010) 190 FCR 59; 80 ACSR 401, at [273].

[98] [2010] FCA 1231; (2010) 190 FCR 59; 80 ACSR 401, at [268].

[100] [2010] FCA 1231; (2010) 190 FCR 59; 80 ACSR 401, at [259], [332] quoting Re TVSN Ltd [2005] NSWSC 692; Australian Securities and Investments Commission v Nelson (2003) 44 ACSR 719; [2003] NSWSC 129; Australian Securities and Investments Commission v Enterprise Solutions 2000 Pty Ltd (1999) 33 ACSR 403; [1999] QSC 387; Australian Securities Investments Commission v Tasman Investment Management Ltd (2006) 59 ACSR 113; 202 FLR 343; [2006] NSWSC 943, followed.

[101] [2010] FCA 1231; (2010) 190 FCR 59; 80 ACSR 401, at [336].

[103] Transcript, 22.07.20, at p 33.02-33.20 (Mr Muller).

[104] Transcript, 22.07.20, at p 33.23-34.05 (Mr Muller).

[105] Transcript, 22.07.20, at p 34.27-34.30 (Mr Muller).

[106] Transcript, 22.07.20, at p 35.05-35.12 (Mr Muller).

[107] Transcript, 22.07.20, at p 41.12-41.19 (Mr Muller).

[108] Transcript, 22.07.20, at p 42.20-42.28 (Mr Muller).

[110] Horne 28.06.19 affidavit, at [43]-[44].

[113] KCDA parties' submissions, at [2.1].

[115] KCDA parties' submissions, at [5].

[116] Exhibit SLH-6: O'Reilly FOS Determination, at [49]-[50]; Desler FOS Determination, at [58]-[59]; Steel Determination, at [57]-[60].

[117] KCDA parties' submissions, at [19].

[119] KCDA parties' submissions, at [19].

[120] KCDA parties' submissions, at [23].

[121] KCDA parties' submissions, at [24].

[122] Horne 15.08.19 affidavit, Exhibit SLH-24, Terms of Reference, at [8.7].

[123] Horne 15.08.19 affidavit, Exhibit SLH-24, Terms of Reference, at [8.9].

[124] Horne 28.06.19 affidavit, at [31].

[125] KCDA parties' submissions, at [24.4]. At [24.4] the KCDA parties submit:

The ToR [being the FOS Terms of Reference in place at the relevant time] required such acceptance to be notified within 30 days of the Determination {ToR [8.7]}. This has the effect, certainly in relation to the Steel claim and - on the evidence - probably in relation to the O'Reilly and Desler claims, that the 2012-13 Determinations are not binding on APCHL, or indeed the unitholders in whose favour they were made.

[126] In the case of Mr and Mrs O'Reilly, see exhibits PTAG-2, , PTAG-3, , and PTAG-4,.

[127] PTAG reply submissions, at [10(b)].

[128] KCDA parties' submissions, at [25].

[129] Liquidators' submissions, at [56]; see also exhibit SLH-6: O'Reilly FOS Determination, at [44]-[46]; Desler FOS Determination, at [50]-[54]; Steel FOS Determination, at [50]-[54].

[130] Wardley Australia Ltd v Western Australia [1992] HCA 55; (1992) 175 CLR 514, at 536-8.

[131] Section 1041I(2) provides that '[a]n action under subsection (1) [for recovery of losses] may be begun at any time within 6 years after the day on which the cause of action arose.'

[132] (2016) 315 FLR 164; [2016] VSC 656.

[133] [2016] VSC 656; (2016) 315 FLR 164, at 172 [52]; [2016] VSC 656, at [52], considering Motor Terms Co Pty Ltd v Liberty Insurance Ltd [1967] HCA 9; (1967) 116 CLR 177.

[134] This being six years prior to the 'relevant date' in the external administration of APCHL. Relevantly, in that regard, administrators were appointed on 18 October 2010 and the voluntary winding up commenced on 23 November 2011.

[135] Wardley Australia Ltd v Western Australia [1992] HCA 55; (1992) 175 CLR 514 at 538.

[136] PTAG reply submissions, at [11].

[137] Liquidators' submissions, at [83].

[138] KCDA parties' submissions, at [29].

[139] Transcript, 22.07.20, at p 51.14-51.16 (Mr Glick QC).

[140] Transcript, 22.07.20, at p 51.17-51.20 (Mr Glick QC).

[141] Transcript, 22.07.20, at p 51.29-51.31 (Mr Glick QC).

[142] Transcript, 22.07.20, at p 52.12-52.20 (Mr Glick QC).

[143] Transcript, 22.07.20, at p 52.22-53.24 (Mr Glick QC).

[144] Transcript, 22.07.20, at p 53.14-53.18 (Mr Glick QC).

[145] Transcript, 22.07.20, at p 54.08-54.10 (Mr Glick QC).

[146] Transcript, 22.07.20, at p 55.02-55.03 (Mr Glick QC).

[147] Transcript, 22.07.20, at p 56.11-56.31 (Mr Glick QC).

[148] Liquidators' submissions, at [42].

[149] The liquidators estimate that PTAG represents more than 70% of the unitholders.

[150] Liquidators' reply submissions, at [20].

[151] Liquidators' reply submissions, at [35].

[152] Liquidators' submissions, at [43], referencing Horne 28.06.19 affidavit, at [48].

[153] Transcript, 22.07.20, at p 67.30-68.01 (Mr Evans QC).

[154] Re Accommodation Clearing House Pty Ltd (in liq) [2013] NSWSC 784, in respect of the former section 511 of the Act. Counsel for the liquidators observed it may be that section 90-15 is not subject to the same limitation.

[155] Liquidators' submissions, at [32].

[156] Liquidators' submissions, at [50].

[157] Horne 28.06.19 affidavit, at [42].

[158] Liquidators' submissions, at [39].

[159] Liquidators' submissions, at [44] and Horne 28.06.19 affidavit, at [48].

[160] Liquidators' submissions, at [45].

[161] Liquidators' submissions, at [46]. At the hearing, given the consensus reached between the parties concerning directions 2(b) and 2(c), senior counsel for the liquidators revised the figures set out in Table 3 (see [121] below).

[162] Transcript, 22.07.20, at p 76.29-77.02 (Mr Evans QC).

[163] The original Table 2 appears at [38] of the liquidators' submissions.

[164] Transcript, 22.07.20, at p 77.06-77.09 (Mr Evans QC).

[165] Amendments are shown in italics.