Warner, in the matter of GTL Tradeup Pty Ltd (in liq) [2015] FCA 323

Federal Court of Australia|2015-04-09|Before: Farrell J

Dal Pont GE, Law of Costs (3rd ed, LexisNexis Butterworths, 2013)

Date of hearing: 16 March 2015

Division: GENERAL DIVISION

Solicitor for the Intervener: Australian Securities and Investments Commission

Counsel for the Supporting Creditor: The supporting creditor did not appear

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1368 of 2014

IN THE MATTER OF GTL tRADEUP PTY LTD (IN LIQUIDATION) ANTHONY JOHN WARNER IN HIS CAPACITY AS LIQUIDATOR OF GTL TRADEUP PTY LTD (IN LIQUIDATION)

JUDGE: FARRELL J DATE OF ORDER: 9 April 2015 WHERE MADE: SYDNEY

The plaintiff must, on or before 5 pm AEST on Friday, 10 April 2015, send or cause to be sent a copy of the reasons for judgment in this matter delivered on 9 April 2015 by email or post to each of the persons named in the affidavit of Matthew John Davis sworn on 1 April 2015 at [5].
The copy of the reasons must be accompanied by a letter or email (as appropriate) advising that if the recipient wishes to make any submissions in relation to the proposed orders and directions set out at [83] of the reasons, the submissions must be sent to Mr Matthew Davis of Breene & Breene at his email address no later than 5 pm AEST on Friday, 17 April 2015. Recipients should be advised that submissions must be no longer than two A4 pages and in a typefont no smaller than 12 point Times New Roman.
The plaintiff must cause a copy of any response received from the recipients to be sent to Mr Chris Rowe of the Australian Securities and Investments Commission ("ASIC") at his email address and the Associate to Justice Farrell at his email address by 5 pm on the next business day.
The plaintiff and ASIC may provide any submissions they wish to make on the recipients' responses or the proposed orders and directions by 5 pm AEST on Wednesday, 22 April 2015. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1368 of 2014

IN THE MATTER OF GTL TRADEUP PTY LTD (IN LIQUIDATION) ANTHONY JOHN WARNER IN HIS CAPACITY AS LIQUIDATOR OF GTL TRADEUP PTY LTD (IN LIQUIDATION)

JUDGE: FARRELL J DATE: 9 April 2015 PLACE: SYDNEY

REASONS FOR JUDGMENT 1 Mr Warner and Mr Steven Kugel were appointed as joint and several liquidators of GTL Tradeup Pty Ltd ("GTL") on 30 September 2013 at an extraordinary general meeting of its members and the resolution was confirmed by creditors at a meeting on 11 October 2013. Mr Kugel has since resigned. 2 This is an application by Mr Warner expressed to be pursuant to ss 479 and/or 511 of the Corporations Act 2001 (Cth) ("Corporations Act") or, in the alternative, pursuant to s 4(2) of the Jurisdiction of Courts (Cross-Vesting) Act 1987 (Cth) and s 63 of the Trustee Act 1925 (NSW) ("Trustee Act"). A summary of the application is at [28] below. As GTL's liquidation was initiated as a voluntary winding up, Mr Warner accepts (correctly in my view) that his application should be determined under s 511 of the Corporations Act; I accept that by force of ss 506(1)(b) and 511 the Court can make a direction under s 479(3). Unless otherwise indicated, all references to legislation are to provisions of the Corporations Act or the Corporations Regulations 2001 (Cth) ("Regulations"). 3 Mr Warner seeks declarations and advice as to the manner in which he may deal with moneys standing to the credit of an account with the National Australia Bank ("NAB") (referred to as the "Statutory Moneys Trust Account") and accounts with Westpac Banking Corporation ("Westpac") ("Westpac Accounts") including in relation to his remuneration and payment of expenses related to this question. I will refer to these accounts collectively as the "Accounts". 4 Before its liquidation, GTL held an Australian Financial Services Licence under which it was authorised to provide foreign exchange and brokerage services to retail clients from 6 January 2011. It appears that GTL commenced trading in late 2011. The licence was cancelled on 21 November 2013. In November 2013, the Australian Securities and Investments Commission ("ASIC") advised GTL's liquidators that it was possible that GTL held client moneys in an account maintained for the purposes of s 981B of the Corporations Act and accordingly those moneys were subject to the trust imposed by s 981H and must be dealt with in accordance with reg 7.8.03.

Background 5 In the course of its business, GTL received money from clients who thereby gained access to its trading platform known as "MetaTrader 4" or "MT4" to buy and sell foreign currency by way of speculative investments. GTL's "Accounting Procedures" provided the following background as at 3 June 2012 (as written): GTL Tradeup Pty Ltd (GTL Tradeup) is in the business of allowing clients to trade their money on the foreign exchange markets. By the clients depositing funds (usually an initial minimum of $10K AUD) into GTL Tradeup's client trust bank account the client will be able to trade the equivalent of the $10K AUD into whichever currency platform they want. This results in a liability for GTL Tradeup as the money belongs to their client. The goal for their clients is ultimately to make a profit. In which case GTL Tradeup is required to hedge their position. In the event that the client loses money via the trading platform GTL Tradeup can take this amount as a sale and will be able to transfer the funds from the Client Trust Bank account into the Equity Account. 6 A product disclosure statement dated 9 October 2012 provided to the liquidators by Mr Andrew Jeffers (a former director who retired as a director on 23 September 2013) disclosed how client funds would be dealt with. It said (as written): Benchmark 5 - Client Monies Policy GTL Tradeup maintains and applies a clear policy in relation to the use of client money. Please be aware that any money deposited into your trading account is deposited with other client moneys in our segregated client account and co-mingled with other client deposits. This money is applied to client or settlement obligations to pay for agreed fees, margins and other costs as required. You should be aware that, for client accounts GTL Tradeup is permitted by law to use client moneys in the account to meet obligations incurred by GTL Tradeup in connection with margining, guaranteeing, securing, transferring, adjusting or settling dealings in derivatives (not just these Margin FX and CFDs) by GTL Tradeup, including dealings on behalf of people other than the client whose moneys were deposited into the account. Monies deposited into your trading account to meet margins, deposits, fees, transactions settlement, or other costs may be forwarded (if applicable) to our licensed third party clearing and execution providers, and applied against your margin, exchange, fee and settlement obligations. Client monies held for future transactions will be kept in the segregated client account as required by the Corporations Act. Although funds are kept in a segregated account you may not be afforded absolute protection. GTL Tradeup enters into arrangements with third party execution and clearing providers to facilitate transactions and settlements and uses monies received for Margin Calls and settlements for this purposes. Clients need to be aware that they are indirectly exposed to the financial risks of these counterparties and other organizations GTL Tradeup hold client monies with. If GTL Tradeup or our counterparties financial condition deteriorates then this places at risk the ability to return client monies and you may suffer unrecoverable losses. As client funds are co-mingled with funds from other clients in the segregated client account there is a likelihood that your funds may be used to cover payment obligations of other clients and you may suffer losses due to defaults by other clients. In the event of our insolvency your entitlements as a creditor will rank equally with all other clients 7 This is consistent with GTL's "Client Money" policy which indicates that it was issued in March 2012. The policy provided (as written): All moneys paid to the company for the supply of a financial service or a product offered by the company will be paid into an account designated as a client trust account, held with a major Australian bank within 24 hours of receipt. Only deposits, interest and other money permitted by the Corporations Act will be paid into this account. Client money is held in trust for the benefit of the client; the funds in the trust account are segregated from the company's funds and cannot be used to pay the creditors of the company in the event of receivership or liquidation. No trust monies will be used to pay creditors' of the company but funds are not segregated but are co-mingled in the one trust account. Funds from a non-defaulting client can be used to cover the obligations of a defaulting client. Available margins will not be withdrawn until clients close their positions and the company will either debit the loss from the client's deposited margin or credit profits to the client account. The company is entitled to withdraw, deduct or apply amounts payable to the company under the terms of the PDS or the Terms and Conditions or the FGS or the Corporations Act 2001. These amounts will generally only be debited from the client trust account when a client closes their positions in loss. Payments may be made out of or withdrawn from the client trust account in limited circumstances, including: • payments in accordance with any written direction of the client including a direction included in the Terms and Conditions to pay fees and other expenses relating to transactions and to settle transactions and to otherwise execute client instructions; • when a financial product is issued or transferred according to client instructions; • to meet proper charges; • to pay The company money to which it is entitled to; • to return money to the client; • Money may be withdrawn for hedging purposes; • to make payments otherwise authorised by Law; and • making certain investments authorised by the Corporations Act 2001 or Regulations (for example, an investment on deposit at interest with an Australian authorised deposit taking institution). We are also permitted to use money belonging to a client to meet the margin obligations of other clients and our own positions. Where a client incurs a loss as a result of entering into a transaction in a product offered by The company, then at the time that loss is realised (i.e. when the open position is closed out) The company is entitled to the amount of funds held in the client trust account equivalent to the value of the loss. For MT4 users the company may withhold any payment to satisfy any current or future margin requirements on their open positions. 8 Mr Warner deposed that client moneys would either be kept in client trust accounts (in various currencies) or paid to liquidity providers. The liquidity providers (also known as market makers) acted as counterparties to client trades and thereby provided a facility for foreign currency exchanges, allowing for nearly simultaneous settlement. Mr Warner ascertained that during its trading history, GTL dealt with eight liquidity providers which he named as Rabobank, FXDD, Boston Techno, Boston Technologies, Macquarie Bank, CFH Markets, LMAX Exchange and GTL Trading DMCC ("DMCC"). 9 DMCC is a Dubai based corporation owned and controlled by Mr Mahmood Riaz, the sole director of GTL as at 30 September 2013. 10 The product disclosure statement dated 9 October 2012 advised that GTL executed back to back transactions for each client transaction with "our parent entity GTL Trading DMCC located in Dubai" and that DMCC "utilises the hedging services of two primary counter parties - ABN Amro and Rabobank. Further information about GTL Trading DMCC is available on request from GTL Tradeup." 11 Mr Warner says that he held meetings with Mr Riaz and Mr Jeffers between 25 and 30 September 2013. They informed Mr Warner that GTL sustained trading losses of approximately $1 million on about 31 July 2013. As a result of those losses GTL had insufficient margin on deposit with its liquidity providers to be able to continue to trade with them. From that time, GTL dealt almost exclusively with DMCC as its liquidity provider. 12 From about late August 2013 to about 21 September 2013, clients called for the return of moneys invested, but GTL did not have money on hand to meet the calls. GTL sought the return of funds on deposit with DMCC. DMCC informed GTL that it had to close out its trading positions before it could return the funds on deposit. Mr Riaz subsequently informed Mr Jeffers that DMCC was unlikely to be able to respond to the calls for funds in the time required. 13 Based on his discussions with Mr Riaz and Mr Jeffers, and the Report as to Affairs signed by Mr Riaz dated as of 30 September 2013 ("RATA"), Mr Warner believes that GTL, in its capacity as statutory trustee, may have a claim against DMCC for $4,464,339 in respect of funds on deposit with it. Mr Jeffers and Mr Riaz told Mr Warner that there was an amount of $109,195.80 in respect of a debt owed by GTL to DMCC which should be set off for unpaid operational services in the month of July 2013. 14 In the report to creditors dated 16 April 2014, the liquidators advised creditors (among other things) that: The liquidators intended to apply to the Court for directions including who would be appropriate to administer the statutory trust and approval for remuneration; On 17 March 2014, at a meeting in Dubai, Mr Diaz advised Mr Kugel that DMCC is insolvent and has not traded since he left Australia (on 2 October 2013). Mr Diaz now lives in Pakistan and claims to have no money; The liquidators approached law firms in Dubai to enquire about the costs and process associated with a recovery action against DMCC. All of the law firms requested a substantial retainer, with the lowest being USD230,000. In his affidavit sworn on 17 December 2014, Mr Warner provided evidence of contact with eight firms; The liquidators believe that any money recovered would be subject to a statutory trust and must be disbursed to clients (rather than GTL's general creditors) in accordance with reg 7.8.03; As GTL and the liquidators are largely without funds, the liquidators had not been able to advance the claim or finalise investigations to determine if DMCC is trading or has assets to repay GTL. In the circumstances the liquidators formed the view that it would be difficult to recover moneys from DMCC. In his affidavit sworn on 17 December 2014, Mr Warner advised that no moneys have been received from DMCC; The liquidators had been advised by Slater & Gordon Lawyers that it had been approached by more than 100 clients for advice concerning the commercial viability of a claim against GTL's professional indemnity insurer. The liquidators had previously arranged for the payment of premiums. The policy was in run-off until 4 January 2014 and the insurer advised that no cover was available after that. Mr Warner says that the professional indemnity insurer has denied liability under the policy. 15 By letter dated 29 September 2014, ASIC suggested to Messrs Warner and Kugel that it was possible that trades between DMCC and GTL were fictitious and suggested courses open for further investigation. Mr Kugel's email reporting to Mr Warner on his conversation with Mr Riaz on 17 March 2014 indicates that Mr Riaz denies that he operated GTL as a Ponzi scheme. 16 Mr Warner closed all accounts with liquidity providers other than DMCC. He realised an aggregate of $83,105 from LMAX Exchange ($50,836), CFH Clearing Ltd ($11,254), FXDD ($10,523) and Rabobank UK ($10,492). He has also closed two foreign exchange trust accounts with NAB and realised $862.38. All of these moneys have been paid into the Statutory Moneys Trust Account. Mr Warner says that this account is separate from GTL's general liquidation account. 17 GTL also has a number of accounts with Westpac styled "GTL Tradeup Pty Ltd-Client Trust Account", three of which had nil balances as at 2 November 2013. Four had account balances as follows: $42,786.41, $3,738.11, $2,167.77 and $6,434.26. So far as Mr Warner is aware, GTL did not operate trust accounts other than client segregated accounts and therefore believes that these funds are held on statutory trust for GTL's clients. Absent an order of the Court, Westpac will not pay the balance of these accounts to Mr Warner. Mr Warner says that he intends to pay the moneys into the Statutory Moneys Trust Account. 18 Mr Warner believes that $139,093.69, which is the aggregate of the amounts in the Accounts, is subject to a statutory trust pursuant to s 981H of the Corporations Act and having regard to the fact that GTL's winding up has commenced, reg 7.8.03 applies to determine how the moneys standing to the credit of the Accounts should be distributed. 19 It appears from a list of account balances for each of the clients of GTL which was attached to the RATA ("Balances List") that there are 589 clients who are potential beneficiaries of any statutory trust with an aggregate AUD account balance as at 30 September 2013 of $4,386,704.47. Based on this, it is Mr Warner's view that there are insufficient moneys in the Accounts to pay all amounts which clients are entitled to be paid by GTL. He submits that no amounts have been paid to the Accounts in error and no proceeds of insurance have been received. He says it is therefore necessary to determine what the amount of each client's "entitlement" is and the proportion of it they should each be paid under reg 7.8.03(6)(d).

Uncertainties 20 There are a number of matters which lack clarity.

Balances List 21 Based on Mr Warner's discussions with Mr Riaz and Mr Jeffers, the amounts set out against the name of each client in the Balances List purports to be the gross liquidation value of the clients' positions as at 30 September 2013, the date of Mr Warner's appointment as liquidator. 22 Mr Warner does not know if the entries in the Balances List are accurate. He also does not know whether the failure to state an amount against some names on the Balances List was meant to reflect a nil balance or whether Mr Riaz did not know the position.

Terms of Product Disclosure Statements and Customer Agreements 23 Mr Warner does not have copies of all product disclosure statements issued by GTL in connection with its business. The Australian Financial Services Licence authorised GTL to conduct its financial services business from 6 January 2011. The liquidators' first report to creditors indicates that GTL commenced trading in "late 2011". The ASIC search contained in Exhibit AW-1 indicates that the first "in-use" notice issued in connection with a product disclosure statement was issued on 2 April 2012, with another being issued on 19 June 2012 and the last on 9 October 2012. The only product disclosure statement held by Mr Warner is the one dated 9 October 2012 given to him by Mr Jeffers. That product disclosure statement relevantly provides: 2.3 Opening a CFD, Margin FX ad Commodities account Before you enter into any CFD with GTL Tradeup you will be required to complete, sign and return a CFD, Margin FX and Commodities customer agreement and open a CFD, Margin FX and Commodities account (if you have not already done so). GTL Tradeup reserves the right to refuse to open a CFD, Margin FX and Commodities account for any persons. You must deposit the Minimum Deposit Amount as notified to you by GTL Tradeup into your CFD, Margin FX and Commodities account to activate your CFD, Margin FX and Commodities account. 24 Mr Warner does not have all customer agreements. He has ascertained from GTL's books and records that one undated form of customer agreement was issued to 19 clients and a different form entitled "Customer Agreement October 2011" was issued to 113 clients. The undated form of customer agreement and the "Customer Agreement October 2011" relevantly provide as follows (as written): 1. DEFINITIONS … Client Money means money as defined in section 981A of the corporations Act as amended from time to time; Client Money Rules means the rules relating to client money in the corporations Act; … 4. AUTHORISATION We will open one or more Accounts in your name at GTL Tradeup to carry your Contracts. You authorise GTL Tradeup to purchase and sell Contracts for your Account in accordance with your instructions received through the ITP or via telephone to the GTL Tradeup trading desk (the "Trading Desk") with GTL Tradeup acting as principal (and not as agent), subject to the terms of this Agreement. GTL Tradeup will also provide such other services and products as agreed upon between GTL Tradeup and you. You acknowledge that GTL Tradeup CFD Contracts and GTL Tradeup FX Contracts are not traded on or guaranteed by a regulated exchange or any clearing house and accordingly, acknowledge that trading in Contracts is not subject to the same regulatory or financial protections as is trading in futures contracts or other contracts traded on a regulated exchange. You represent and warrant that: a) you understand that as counterparties each of You and we will be relying on the creditworthiness of the other; b) each Contract will be individually negotiated as to its material economic terms; and c) GTL Tradeup is not acting as an investment adviser, commodity trading advisor or fiduciary with respect to you or the Account. … 14. CLIENT MONEY 14.1 All money paid to us by you or a person acting on your behalf or otherwise received by us on your behalf ("Client Money") will be held by us in accordance with the Chapter 7 of the Corporations Act. This means that Client Money will be held in one or more segregated accounts. You acknowledge that individual client accounts are not separate from each other and do not constitute a loan to us. 14.2 We may invest Client Money held in a segregated account as permitted by the Corporations Act. 14.3 You acknowledge that we are entitled to, and you authorise us to: a) withdraw, deduct or apply amounts owing by you to us or any of our Related Entities under this Agreement from Client Money held in a segregated account or invested by us including, without limitation, payment for or in connection with paying Initial Margins, adjusting or settling of Trades entered into by you or the payment of interest or finance charges to us, as you acknowledge that such amounts belong to us under this Agreement and may be used by us in our business from time to time, including for payments of amounts to our counterparties; and b) pay, withdraw, deduct or apply Client Money held in segregated accounts or invested by us as permitted under the Corporations Act, as you acknowledge that such amounts belong to us under this Agreement and may be used by us in our business from time to time, including for payment of amounts to our counterparties. 25 Mr Warner proposes to attempt to resolve some of these factual issues by a process akin to proof of debt which is set out in his affidavit sworn on 17 December 2014 at [56]. The process involves Mr Warner undertaking the following work: publication of a notice on the ASIC insolvency website and notices under reg 5.6.65, considering documentation provided, accepting or rejecting claims and distribution of proceeds to clients with established claims or ASIC in relation to cheques not banked within a reasonable time. Mr Warner estimates that this process will involve time costs and disbursements in the order of $21,310.75 (GST inclusive).

"Entitlement" 26 The method by which the "person's entitlement" should be calculated under reg 7.8.03(6)(d) is unclear having regard to the fact that "entitlement" is not defined in the Corporations Act or the Regulations.

Remuneration and expenses 27 There is no provision in reg. 7.8.03(6) for the payment of the liquidator's costs of this application or remuneration or costs in establishing the entitlement of clients to moneys in the Accounts and making distributions to those clients.

Application 28 Mr Warner seeks: a. declarations that the moneys held in the Westpac Accounts and the Statutory Moneys Trust Account are moneys held in trust for the persons named in annexure A to the application pursuant to s 981H of the Corporations Act as determined by Mr Warner in accordance with the Court's directions; b. an order directing Westpac to pay the whole of the moneys standing in the Westpac Accounts to Mr Warner to be deposited into the Statutory Moneys Trust Account to be held in trust for the persons named in annexure A to the application pursuant to s 981H of the Corporations Act as determined by Mr Warner in accordance with the Court's directions; c. pursuant to ss 479 and/or 511 of the Corporations Act or, in the alternative, pursuant to s 4(2) of the Jurisdiction of Courts (Cross-Vesting) Act 1987 (Cth) and s 63 of the Trustee Act, the opinion, advice and/or direction of the Court as to whether, after the declarations are made and the order to Westpac is complied with, Mr Warner is justified in proceeding on the basis that the funds in the Statutory Moneys Trust Account are moneys to which Pt 7.8 Div 2 Subdiv A of the Corporations Act applies and distributing funds held in that account under reg 7.8.03(6); d. a declaration that Mr Warner is entitled to an indemnity out of the moneys held in the Statutory Moneys Trust Account and the Westpac Accounts for his remuneration and costs, charges and expenses reasonably incurred in relation to his dealings with those Accounts, the remuneration to be determined in accordance with s 504 of the Corporations Act; and e. an order that Mr Warner's costs of this application be paid out of the funds held in the Statutory Moneys Trust Account on an indemnity basis. 29 I have been provided with a written opinion of Mr Michael Bennett, Counsel for Mr Warner, dated 11 March 2015 in relation to the matters addressed in the application. I have also been provided with a written outline of submissions dated 12 March 2015. Mr Bennett has been careful to take a neutral approach in relation to controversial issues consistent with the approach to a "trust dispute" recognised in Sons of Gwalia Ltd v Margaretic (2006) 232 ALR 119; [2006] FCAFC 92 at [6]. 30 Westpac asserts no beneficial interest in the Westpac Accounts and Mr Warner has advised that it did not wish to be heard on the application. 31 On 4 February 2015, Foster J granted ASIC leave to file a notice of intervention pursuant to r 2.10 of the Federal Court (Corporations) Rules 2000 (Cth) and ASIC intervened pursuant to s 1330 of the Corporations Act. ASIC provided written submission dated 13 March 2015 and appeared by its Counsel, Mr Stack. At the hearing, Mr Warner accepted a submission from ASIC that the declarations proposed in [28] a. and b. should include the words "as determined by Mr Warner in accordance with the Court's directions" and for ease of reference I have employed those words in my summary of the application. Otherwise, ASIC's submissions addressed the matters referred to in [28] d. and e. only. 32 Based on affidavits sworn on 4 and 6 March 2015 by Mr Matthew Davis (a solicitor employed by Mr Warner's solicitors), as at 6 March 2015 each of the clients named in the Balances List was served with the originating process and the supporting affidavit of Mr Warner sworn on 17 December 2014 by email or post save for those in respect of whom inadequate contact details were held. There were 17 clients in relation to whom email rejection messages were received (twice) and 43 clients without contact details after a search of records for more than two and a half days and ASIC's assistance in providing contact details for two clients. On 6 March 2015, I made an order dispensing with the need to serve those clients for whom there are no contact details, or where the emails sent to them had been rejected. 33 At the hearing, Mr Bennett advised that the only client to respond to service of the originating process and Mr Warner's supporting affidavit was Mr Nicholas Smith. By his affidavit sworn on 2 February 2015 and in written submissions to the Court, Mr Smith indicated that he does not oppose the orders sought by Mr Warner. Mr Smith had noted a reference in Mr Warner's supporting affidavit to an estimate of costs of seeking ASIC's approval to the destruction of GTL's books and records. Mr Smith is concerned that the books and records not be destroyed before he has exhausted prospects of recovery from GTL's professional indemnity insurer. An assurance was given to Mr Smith by Mr Warner's lawyers that Mr Warner would not seek such an order at the hearing of the application and he did not do so. 34 Since the hearing, and with the benefit of Exhibit AW-1 handed up at the hearing which contained a list of GTL's clients who are now clients of Slater & Gordon, I asked that Mr Warner establish whether Slater & Gordon has contact details for any of the clients for whom Mr Warner did not have a contact address and who therefore had not received notice of the hearing. By affidavit sworn on 1 April 2015, Mr Davis advised that through his own researches and with the assistance of ASIC and Mr Smith, he has identified contact details for 16 clients. He confirmed that a copy of the originating application and Mr Warner's affidavit sworn on 17 December 2015 had now been sent to those 16 clients. Conscious of the small amount of money available for distribution from the Accounts, I will direct Mr Warner to provide a copy of these reasons to those 16 clients who did not have notice of the proceedings with a view to their providing brief submissions on the application and proposed orders should they wish to do so.

Principles relevant to application under s 511 35 Section 511 appears in Pt 5.5 "Voluntary winding up" and Div 4 "Voluntary winding up generally"; it relevantly provides as follows: 511 Application to Court to have questions determined or powers exercised (1) The liquidator, or any contributory or creditor, may apply to the Court: (a) to determine any question arising in the winding up of a company; or (b) to exercise all or any of the powers that the Court might exercise if the company were being wound up by the Court. ... (2) The Court, if satisfied that the determination of the question or the exercise of power will be just and beneficial, may accede wholly or partially to any such application on such terms and conditions as it thinks fit or may make such other order on the application as it thinks just. 36 The principles applicable to resolving an application under s 511 are set out in In re MF Global Australia Ltd (in liq) [2012] NSWSC 994 per Black J at [7]-[9] ("Re MF Global"), in In the matter of ICS Real Estate Pty Ltd [2014] NSWSC 479 at [23]-[25] per Brereton J and in LexisNexis, Austin & Black's Annotations to the Corporations Act (at September 2014) [5.511] and the cases and text there cited. The principles may relevantly be summarised as follows: a. Similar principles apply whether the Court exercises power under s 479(3) or s 511, save that under s 511 the Court must be satisfied that the determination of a question in the winding up of the company or the exercise of the power will be "just and beneficial". That is, s 511(2) confers a discretion on the Court which must be exercised by reference to whether it is advantageous to the liquidation. The term "just and beneficial" is said to involve a similar concept to that comprised by the expression "just and equitable". b. The function served by the power of the Court to give directions under s 479(3) and determine a question or exercise a power under s 511 is to give a liquidator advice as to the proper course of action to take in the liquidation. The Court may give directions that provide guidance on matters of law and the reasonableness of a contemplated exercise of discretion but will typically not do so where a matter relates to making and implementing a commercial or business decision. c. A direction can be made under s 479(3) in a voluntary liquidation by reason of ss 506(1)(b) and 511. d. If the liquidator has given full and fair disclosure to the Court concerning the application, the effect of a determination under s 511 is to sanction a course of conduct by a liquidator and thereby protect the liquidator from claims that he or she has acted unreasonably or inappropriately. e. The power under s 511(1)(a) to "determine any question arising in the winding up" accommodates the determination of substantive rights, although the Court would not do so without affording potentially affected parties the opportunity to be heard. f. Where a question concerns the respective rights of beneficiaries of a trust or their identity it is generally considered inappropriate to give advice under s 63 of the Trustee Act.

Consideration 37 I am satisfied that Mr Warner has brought this application properly having regard to the inadequacy of the moneys in the Accounts to meet all likely client claims, the uncertainty about how potential beneficiaries' entitlements are to be determined (including because not all client agreements have been located) and uncertainty about how to treat the Balances List. Directions are also appropriate to determine what, if any, entitlement Mr Warner may have to remuneration and expenses relevant to his administration of the moneys in the Accounts and this application. I accept Mr Warner's submission that those uncertainties raise questions of law and the reasonableness of his contemplated exercise of discretion that are not of a business or commercial nature.

Sections 981A-981H of the Corporations Act (Subdivision A) 38 Neither Mr Warner nor ASIC submitted to the Court the basis on which they considered that GTL was obliged to comply with Pt 7.8 Div 2 Subdiv A (ss 981A-981H) (which I will refer to as "Subdivision A"), however, the issue is not contentious. GTL held a financial services licence and it described the services that it offered in the Financial Services Guide dated 1 June 2012 as over-the-counter contracts for differences (in respect of equities, currencies, bullion, commodities and indices), margin foreign exchange and margin foreign exchange options in respect of major currencies and spot and forward foreign exchange contracts. GTL explained that it was a market maker, not an agent when dealing in its financial products, which it described as "over-the-counter" derivatives. Through these activities, GTL provided a "financial service" (s 766A) by dealing in (s 766C) or making a market for (s 766D) a financial product (s 763A). A financial product is a facility through which, or through the acquisition of which, a person "makes a financial investment" (s 763B), "manages financial risk" (s 763C) or "makes non-cash payments" (s 763D). The contracts proposed by GTL included "derivatives" (ss 761A and 761D) issued by GTL (s 761E(5)), or "foreign exchange contracts" (s 761A) which were "financial products" (s 764A). GTL therefore carried on a financial services business (ss 761A and 761C). 39 The statutory regime in Subdivision A and regs 7.8.01-7.8.05 was the subject of detailed consideration by Black J in Re MF Global at [25]-[40] and by Gordon J in Georges v Seaborn International (Trustee), in the matter of Sonray Capital Markets Pty Ltd (in liq) (2012) 87 ACSR 442; [2012] FCA 75 ("Sonray") at [74]-[81]. Those provisions have not relevantly changed. 40 In Sonray at [77], Gordon J summarised the effect of ss 981A-981H as follows: …the effect of these provisions is to create one or more mixed trust funds with special characteristics: they are intended to be used specifically for the provision of financial services and for the holding of and dealing in financial products; they can be used to meet margin calls and to act as security for dealings in derivatives, including dealings on behalf of clients other than the depositing client; however, they cannot be used to satisfy the creditors of the licensee. Such money "is taken to be held on trust by the licensee for the benefit of the client": s 981H(1) and cf Re Lehman Brothers International (Europe) (in administration) [2010] EWCA Civ 917 at [67]-[72] and [181]. 41 The statutory trust imposed by s 981H attaches to moneys paid by a client to a licensee to which s 981A applies whether or not the licensee complies with obligations imposed on the licensee by s 981B to pay the money into a segregated account: Sonray at [81]; Re MF Global at [38]. 42 I am satisfied that Mr Warner would be justified in acting on the basis that moneys in the two foreign exchange accounts with NAB and the Westpac Accounts are subject to Subdivision A pursuant to s 981A and have been kept by GTL for the purposes of s 981B. I am therefore satisfied that Mr Warner would be justified in treating the moneys now standing to the credit of the Statutory Moneys Trust Account and the Westpac Accounts as being moneys subject to the statutory trust imposed by s 981H. This is based on: the fact that GTL held an Australian Financial Services Licence pursuant to which it conducted a financial services business; the terms of the financial services guide, product disclosure statement and customer agreements; the accounting procedures and "client money" internal documents; and Mr Warner's evidence, all of which indicate that moneys paid by clients of the financial services business to GTL were paid to an account segregated for client moneys. I will give directions accordingly. However, I do not consider it necessary or desirable to make a declaration to that effect nor do I consider that I am in a position to identify the beneficiaries of that trust by reference to annexure A to the application; that issue is still to be determined under the process suggested by Mr Warner.

Reg 7.8.03 43 As GTL has commenced winding up and by force of s 981F, reg 7.8.03 relevantly provides in relation to client moneys: 7.1.03 How money to be dealt with if licensee ceases to be licensed etc … (4) For each person who is entitled to be paid money from an account of the financial services licensee maintained for section 981B of the Act, the account is taken to be subject to a trust in favour of the person. (5) If money in an account of the financial services licensee maintained for section 981B of the Act has been invested, for each person who is entitled to be paid money from the account, the investment is taken to be subject to a trust in favour of the person. (6) Money in the account of the financial services licensee maintained for section 981B of the Act is to be paid as follows: (a) the first payment is of money that has been paid into the account in error; (b) if money has been received on behalf of insureds in accordance with a contract of insurance, the second payment is payment to each insured person who is entitled to be paid money from the account, in the following order: (i) the amounts that the insured persons are entitled to receive from the moneys in the account in respect of claims that have been made; (ii) the amounts that the insured persons are entitled to receive from the moneys in the account in respect of other matters; (c) if: (i) paragraph (b) has been complied with; or (ii) paragraph (b) does not apply; the next payment is payment to each person who is entitled to be paid money from the account; (d) if the money in the account is not sufficient to be paid in accordance with paragraph (a), (b) or (c), the money in the account must be paid in proportion to the amount of each person's entitlement; (e) if there is money remaining in the account after payments made in accordance with paragraphs (a), (b) and (c), the remaining money is taken to be money payable to the financial services licensee. (7) This regulation applies despite anything to the contrary in the Bankruptcy Act 1966 or a law relating to companies. 44 In those circumstances, I accept that Mr Warner would be justified in acting on the view that reg 7.8.03(6) governs the manner in which he must deal with the funds in the Accounts having regard to s 981F of the Corporations Act. I will give a direction to that effect.

"Entitlement" 45 Neither the Corporations Act nor the Regulations defines what is meant by the phrase "entitled to be paid money from the account" in regs 7.8.03(4) and 7.8.03(6)(c) or "the amount of each person's entitlement" in reg 7.8.03(6)(d). Submissions provided by Mr Warner have in this regard relied primarily on Sonray, Re MF Global and the decision of White J in In the matter of All Class Insurance Brokers Pty Ltd (in liq); Vardy v Westpac Banking Corporation [2014] NSWSC 475 ("All Class"). 46 The effect of reg 7.8.03(6) was summarised by Gordon J in Sonray at [79] as follows: So, for example, where moneys are paid into a segregated account and the balance in that account represents a particular client's payment or the proceeds of that payment, the client will be entitled to an equitable charge over the whole balance of the account: s 981H of the Corporations Act read with reg 7.8.03(4). Regulation 7.8.03(6)(c) provides for the realisation of that entitlement. Where a number of clients have an entitlement to be paid moneys in a segregated account but the balance is insufficient to meet each entitlement in full, then the money is paid in proportion to each client's entitlement: reg 7.8.03(6)(d). 47 This summary is uncontroversial where a licensee has paid all moneys subject to s 981A into a segregated account under s 981B, since there is a logical resonance between the statutory trust imposed by s 981H and that recognised by reg 7.8.03(4) in relation to moneys in the account. It demonstrates that reg 7.8.03 assumes compliance with s 981B; reg 7.8.03 does not expressly cater to the greater complications which arise where there has been defalcation by the licensee in paying moneys into the segregated account or where there are a multiplicity of segregated accounts, especially where the accounts may have been mixed. 48 The term "entitlement" was considered by Black J in Re MF Global at [100]-[101] and he went on to say at [102]: The case law indicates, and I accept, that, where client funds have been mixed in an account maintained under s 981B of the Corporations Act and that account is deficient, principles of trust law relevant to determining that question will be applicable, subject to the statutory regime. The relevance of trust law principles to the corresponding provisions in the United Kingdom was recognised by the Court of Appeal in Re Lehman Brothers International (Europe) (in admin) [2010] EWCA Civ 917, where Arden LJ noted at [65] that, where statutory rules established a trust with little elaboration, the Court would turn to general principles of trust law to determine the applicable rules and principles. In Sonray, Gordon J observed at [82]-[86] that, given the statutory trust imposed by section 981H(1), the words "entitled" and "entitlement" import "the principles applicable to trusts and, in particular, to deficient mixed trust accounts" such that "all contributors to a deficient mixed fund hold an equitable charge over the entire fund and its traceable proceeds to the value of their contributions." Her Honour referred to the principles applicable to deficient mixed trust accounts in cases such as Re French Caledonia Travel Service Pty Ltd (in liq) above and Australian Securities and Investments Commission v Letten (No 7) above which involve a rateable distribution (at [84]) subject to equality of claims (at [86]) and also noted that one way in which differential treatment may be justified is the establishment of a remedy founded on tracing (at [86]). I note, however, that there may be limited occasion for such differential treatment once a relevant entitlement has been established, since reg 7.8.03(6)(d) expressly requires a deficient account to be paid in proportion to the amount of each person's entitlement and to that extent mandates a pari passu distribution. 49 In All Class at [46]-[48], White J rejected the suggestion in Sonray at [82]-[86] that differential treatment of clients with an entitlement might be justified based on principles of tracing and found that that would only be so if the outcome were permitted by reg 7.8.03(6). White J held that reg 7.8.03(6) is a code which displaces the usual rules concerning distribution out of a deficient fund and requires payment in proportion to the amount of each person's entitlement on a pari passu basis. 50 Accepting that the express words of reg 7.8.03(6) must be accorded primacy, the case law demonstrates that factual circumstances, including fraudulent or inadvertent failure by a licensee to pay client moneys to or appropriately manage segregated accounts as contemplated by Subdivision A, or the mixing of funds in segregated accounts, can complicate significantly a straightforward application of the regulation. For instance, the factors relevant to a determination of both what an "entitlement" is and from what account or "pool" of accounts payments under reg 7.8.03 can or should be drawn are highly factually dependent not least because reg 7.8.03 does not deal overtly with the situation where there is more than one segregated account. That complexity is reflected in the language employed by Black J in Re MF Global at [102]. 51 In Re MF Global at [44]-[48], Black J held that where segregated accounts have not been mixed, those separately maintained accounts need not be pooled having regard to the singular use of the term "account" in reg 7.8.03. That view has considerable force and the application of reg 7.8.03 would be straightforward where the licensee has observed its obligations to all clients under s 981B. However, in a circumstance where a licensee fails to perform its obligations under s 981B with respect to some but not all of its clients, it is difficult to see how this view aligns with the trust imposed under s 981H which arises at the time moneys are paid to a licensee (not when they are contributed to the account maintained under s 981B) or the "claims" based approach discussed by Black J at [107]. That issue does not fall for determination in this case; it merely demonstrates the difficulties which can arise in applying reg 7.8.03 in a straightforward and fair way.

Pooling 52 The case law provides clearer guidance that where funds in more than one segregated account have been mixed so that it is not practical in a cost effective way to calculate the portion of the balance of each segregated account attributable to individual clients, it can be appropriate for moneys in deficient segregated accounts to be pooled with a view to their proportionate distribution because it is consistent with the aims of the statutory regime and is the best approximation to a fair outcome. This was done in both Sonray and Re MF Global and in Re MF Global Black J advised that the liquidator would be justified in pooling segregated accounts along four product lines. 53 GTL operated a number of accounts and there were at least two foreign currency accounts with the NAB as well as the four extant Westpac Accounts. No question has arisen concerning how to deal with foreign currency accounts, since Mr Warner converted the relatively insignificant amount in those accounts to Australian currency before the application was made. I note that Westpac's original communication with Mr Warner suggested that the extant accounts were denominated in foreign currencies but Westpac later corrected that position. The only evidence of how GTL ran its business is contained in the product disclosure statement dated 9 October 2012, the accounting procedures and "client money" internal documents referred to previously and the two forms of customer agreements. Based on that evidence, I am satisfied that client moneys in the segregated accounts maintained by GTL were mixed and clients were told that they would be mixed. There is no clear direction in the evidence as to how the Accounts might be differentiated along product lines nor did Mr Warner suggest that it should be. 54 I am satisfied that Mr Warner would be justified in pooling the moneys in the Accounts by paying the moneys standing to the credit of the Westpac Accounts into the Statutory Moneys Trust Account and I will make that direction. To give effect to that direction I will make an order directing Westpac to pay the moneys standing to the credit of the Westpac Accounts to Mr Warner to be deposited into the Statutory Moneys Trust Account. I am also satisfied that Mr Warner would be justified in distributing the moneys then in the Statutory Moneys Trust Account on the basis that reg 7.8.03(6) applies and I will make that direction.

Basis for determining entitlements 55 How should "entitlements" be determined? Some different bases for determining the amount of an entitlement were conveniently summarised by Black J in Re MF Global at [103]-[108]. Based on his review of the cases, Black J suggested three possible bases: (1) a "contributions" based approach having regard to the amount of money actually segregated for clients; (2) a "claims" based approach having regard to the amount which ought to have been segregated had the licensee complied with its obligations (this approach was preferred by a majority of the Supreme Court of the United Kingdom in Re Lehman Brothers International (Europe) (in admin) [2012] 3 All ER 1; [2012] UKSC 6 at [127] (Lord Clarke JSC), [159] (Lord Dyson JSC) and [196] (Lord Collins)); and (3) a "contractual" approach having regard to the gross liquidation value of clients' positions as determined under client agreements. 56 Mr Warner submitted that the third approach is appropriate and I accept that submission. There is no evidence on the basis of which to make determinations under the first two approaches and the "gross liquidation value" of client positions based on contractual arrangements determined as at the time reg 7.8.03 first applied to the funds was the approach adopted in Re MF Global at [110]-[116]. Further, although Mr Warner has customer agreements for only 132 of the 589 persons who are listed in the Balances List, Mr Jeffers advised Mr Warner that the Balances List has been drawn up on the basis of the gross liquidation value of clients' positions as at 30 September 2013. Counsel for Mr Warner acknowledged that making distributions on the basis that the Balances List is correct would be the most cost effective approach. However, it is far from clear that the Balances List is correct. 57 I consider that Mr Warner would be justified in determining entitlements on the contractual basis, on the assumption (in the absence of proof to the contrary) that the October 2011 standard form customer agreement governed the relationship and employing the "proof of debt" like process which Mr Warner proposes (see [25] above) to determine entitlements of clients as at 30 September 2013 by reference to the gross liquidation value of their position. I will give a direction accordingly.

Indemnity from Accounts 58 Mr Warner seeks indemnity from the Accounts for: Unbilled work in progress of $14,396.41 (GST inclusive) that Mr Warner says relates to the interests of clients subject to statutory trusts. That work includes preparation for and attending at meetings with ASIC; investigation and correspondence with law firms in Dubai in relation to possible recovery action against DMCC; correspondence to creditors in relation to this application and preparation for the Court hearing; closing the NAB foreign exchange accounts; opening the Statutory Moneys Trust Account; and correspondence with Westpac; Estimated costs and expenses of $21,310.75 (GST inclusive) for administering the process of verifying claims and distributing moneys from the Accounts (see [25] above); and Legal costs and disbursements in relation to this application. At the hearing I indicated that, in the circumstances of this case (primarily that there is a small fund from which payment can be made and there are already significant calls on it) I would not be prepared to make an open ended order as to costs. Following the hearing, Mr John Breene, by an affidavit sworn on 17 March 2015, advised that Mr Warner had incurred legal professional costs and minor disbursements of $47,388.66. 59 The aggregate amount that Mr Warner claims (recognising that $21,310.75 is an estimate) is $83,095.82 from a statutory trust pool in the Accounts of $139,093.69. There appears to be little prospect of a recovery from DMCC which would enhance the pool. No action has yet been initiated against the professional indemnity insurer (which has denied liability) and it does not appear that clients are willing to fund Mr Warner to undertake that action. 60 Regulation 7.8.03 makes no provision for payment of the liquidator's remuneration, legal costs or expenses.

Remuneration and expenses 61 Mr Warner relies on All Class at [29]-[31] in which White J found that the liquidator would be justified in retaining a sum sufficient to pay his reasonable remuneration and expenses in relation to his administration of funds to which reg 7.8.03 applied; there were no non-trust assets. White J relied on the decision of Young CJ in Eq in Re Greater West Insurance Brokers Pty Ltd (2001) 39 ACSR 301; [2001] NSWSC 825 in relation to s 28(4) of the Insurance (Agents and Brokers) Act 1984 (Cth), a predecessor provision to reg 7.8.03 which was in materially the same terms. Young CJ in Eq held at [22] that such payments were not precluded. White J found that the legislators, in enacting reg 7.8.03, must be taken to have known of this interpretation and have intended that result. In Sonray at [307], Gordon J made orders that the liquidator's remuneration and expenses may be recovered from the trust funds in priority to client entitlements. In In re MF Global Australia Ltd (in liq) (No 2) [2012] NSWSC 1426 ("Re MF Global (No 2)") at [61], Black J held that expenses related to recoveries incurred by the liquidator be made from segregated accounts. 62 In In the matter of AAA Financial Intelligence Ltd (in liq) [2014] NSWSC 1004 ("Re AAA"), Brereton J considered an application under s 511 in relation to the payment of a liquidator's remuneration and expenses in respect of trust funds. Although it does not appear that reg 7.8.03 was considered in that case notwithstanding that the company carried on a financial services business, I respectfully adopt Brereton J's summary at [13] of the principles applicable to when a liquidator of a company acting as trustee may recover remuneration, costs and expenses from trust assets including those subject to reg 7.8.03: (1) Where the company is trustee of a trading trust and has no other activities, the liquidators are entitled to be paid their costs and expenses, whether for administering the trust assets or for "general liquidation work", out of the trust assets [Re Suco Gold Pty Ltd (1993) 33 SASR 99; 7 ACLR 873; Grime Carter & Co Pty Ltd v Whytes Furniture (Dubbo) Pty Ltd [1983] 1 NSWLR 158; Re Sutherland; Re French Caledonia Travel Service Pty Ltd (in liq) [2003] NSWSC 1008; (2003) 59 NSWLR 361; 48 ACSR 97, [201]; Bastion v Gideon Investments Pty Ltd (in liq) (2000) 35 ACSR 466, 480 [70]; In the matter of North Food Catering Pty Ltd [2014] NSWSC 77]. (2) Where the company does not act solely as trustee, costs and expenses referable to work done in relation to trust assets which may nonetheless be considered as having been done for the purpose of winding up the company ought ordinarily be borne primarily by the (non-trust) property of the company, to the extent that the assets permit [Re GB Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674, 685-689; Re Greater West Insurance Brokers Pty Ltd [2001] NSWSC 825; (2001) 39 ACSR 301; French Caledonia, [209]]. (3) At least where the non-trust assets do not permit that course, and perhaps even when they do, a liquidator is entitled to be indemnified out of trust assets for his costs and expenses, but only to the extent that they are referable to administering the trust assets [13 Coromandel Place Pty Ltd v CL Custodians Pty Ltd (in liq) (1999) 30 ACSR 377, 385; French Caledonia, [211], [213]. This is pursuant to the court's equitable jurisdiction to allow a trustee remuneration costs and expenses out of trust assets, which extends to a person such as a liquidator who is, for practical purposes, controlling a trustee [Berkeley Applegate (Investment Consultants) Ltd; Harris v Conway [1989] Ch 32, 50-51; Re Application of Sutherland [2004] NSWSC 798; (2004) 50 ACSR 297; Trio Capital Ltd (Admin App) v ACT Superannuation Management Pty Ltd [2010] NSWSC 941; (2010) 79 ACSR 425; In re MF Global Australia Ltd (in liq) (No 2) [2012] NSWSC 1426, [55]; Alphena Pty Ltd (in liq) v PS Securities Pty Ltd atf Joseph Family Trust [2013] NSWSC 447; (2013) 94 ACSR 160]. (4) In principle, where the liquidator does work which would entitle him both to remuneration as liquidator by the company, and recovery from the trust assets, there are two funds liable and there should be contribution between them. However, where there are no assets of the company available, it is unnecessary to consider the question of contribution. If a liquidator has done work which is attributable equally to the winding up of the company and the administration of trust assets, and there are no assets of the company at all to meet his expenses in doing so, the expenses are payable solely from the trust assets [French Caledonia, [212]]. (5) Where the liquidator is administering, through the company of which he/she is liquidator, more than one trust, the liquidator is not entitled to charge the beneficiaries of one trust with the costs and expenses incurred in relation to the other, although where allocation is not possible a pari passu allocation may be permitted [Re Suco Gold, ACLR 882-3; 13 Coromandel, 386]. 63 ASIC does not oppose the Court giving a direction in relation to the payment of the liquidator's remuneration and expenses out of the statutory trust assets in the Accounts. Rather, ASIC's submissions were directed to the basis for establishing the reasonableness of remuneration and costs claimed by Mr Warner having regard to the limited fund out of which payment might be made. 64 ASIC's submission was made on the basis that GTL has no non-trust assets. Mr Warner has confirmed that GTL has non-client funds of $6,122 in cash at bank but he does not expect any further non-trust assets to become available. As at 10 March 2015, Mr Warner had $58,936.31 (GST inclusive) of unbilled work in progress referable to the liquidation which Mr Warner considers is unlikely to be paid. In those circumstances, and having regard to the approach adopted in In the matter of AAA Financial Intelligence Ltd (in liq) (No 2) [2014] NSWSC 1270 ("Re AAA (No 2)") at [5]-[7] I will deal with this application on the basis that there are no available non-trust assets to fund the administration of the statutory trust assets or their distribution under reg 7.8.03. 65 Subject to my comments at [70]-[71] below, I also respectfully adopt the statement of considerations relevant to the assessment of the "reasonable remuneration" of the liquidator by Brereton J in Re AAA at [18]: In allowing remuneration to a liquidator in these circumstances, the Court treats the work done in administering the trust as an incident of the liquidation and approaches the application for remuneration as if it were one by an official liquidator for approval of remuneration [Alphena v PS Securities, [53], [63]-[64]]. In that context, a liquidator's entitlement is to "reasonable remuneration" for his or her services in winding up the company [Re Wm Rose & Co Ltd (1897) 3 ALR (CN) 65, 66], and the court has a very wide discretion in allowing and fixing the level and the basis of remuneration [Re Universal Distributing Co Ltd (in liq) (1933) 48 CLR 171]. There is no longer any scale, but the court has regard to the factors listed in Corporations Act, s 473(10). The remuneration may be fixed as a percentage of the company's assets realised, a percentage of its assets distributed, or a combination of the two; or as a fee calculated by reference to the time spent. The liquidator bears the onus of establishing that the remuneration claimed is fair and reasonable, including that the work was properly performed in the due course of administration and that the amount claimed is a fair and reasonable reward for it [Re Anderson Group Pty Ltd [2002] NSWSC 764; (2002) 20 ACLC 1607]. While liquidators should not be discouraged from taking on difficult liquidations, they must not take steps in a liquidation without considering the likely benefits to creditors; and liquidators should be rewarded for value, rather than indemnified against costs, although this does not mean that they should only be remunerated if they add value to the company's assets [Australian Securities and Investments Commission v Rowena Nominees Pty Ltd (in liq) [2006] WASC 36; (2006) 56 ACSR 673, [10]-[11], [13], [33]-[34]]. 66 Section 504(2) sets out the factors which are relevant to the Court's review of a liquidator's remuneration and consideration of whether the remuneration is reasonable: In exercising its powers under subsection (1), the Court must have regard to whether the remuneration is reasonable, taking into account any or all of the following matters: (a) the extent to which the work performed by the liquidator was reasonably necessary; (b) the extent to which the work likely to be performed by the liquidator is likely to be reasonably necessary; (c) the period during which the work was, or is likely to be, performed by the liquidator; (d) the quality of the work performed, or likely to be performed, by the liquidator; (e) the complexity (or otherwise) of the work performed, or likely to be performed, by the liquidator; (f) the extent (if any) to which the liquidator was, or is likely to be, required to deal with extraordinary issues; (g) the extent (if any) to which the liquidator was, or is likely to be, required to accept a higher level of risk or responsibility than is usually the case; (h) the value and nature of any property dealt with, or likely to be dealt with, by the liquidator; (i) whether the liquidator was, or is likely to be, required to deal with: (i) one or more receivers; or (ii) one or more receivers and managers; (j) the number, attributes and behaviour, or the likely number, attributes and behaviour, of the company's creditors; (k) if the remuneration is ascertained, in whole or in part, on a time basis: (i) the time properly taken, or likely to be properly taken, by the liquidator in performing the work; and (ii) whether the total remuneration payable to the liquidator is capped; (l) any other relevant matters. 67 In its submissions, ASIC pointed out that in Re AAA (No 2) at [26], Brereton J reiterated the remarks in Re AAA at [18] and went on to discuss the remarks of Finkelstein J in Korda, in the matter of Stockford Limited (subject to deed of company arrangement) [2004] FCA 1682 at [38]-[40] that a balance needs to be struck between the object of conserving the funds under administration and the view that the market should be allowed to operate in the normal way with insolvency practitioners being able to charge usual hourly rates which (at least to a degree) are likely to be competitively set, and that a sliding scale may be appropriate in small insolvencies. 68 Brereton J was less convinced than Finkelstein J of the capacity of market forces to control liquidator's fees: see [41]; he was plainly exercised by the need to mitigate concerns that the liquidator is the dominant beneficiary of a small administration and stressed the need for close scrutiny of the liquidator's claims for remuneration: see Re AAA (No 2) at [36]. ASIC pointed out that Brereton J concluded that reasonable remuneration cannot be assessed solely by the application of the liquidator's quoted standard hourly rates for time reasonably spent on the basis that it does not reward them for value but indemnifies them for cost; it should not be the default positon having regard to the factors which are set out at, for example, s 504(2)(d), (g) and (h): see Re AAA (No 2) at [45]. Noting that commissions or fixed percentages of the amount realised for the benefit of the creditors may operate as an incentive to the liquidator to achieve a better return for creditors, in the event, Brereton J fixed the liquidator's remuneration at 20% of the assets realised which resulted in a discount of the claimed remuneration, noting that 20% is a higher rate than the rate which was once conventional. 69 ASIC did not urge the Court to take the same approach in this case. Rather, it wished to place before the Court the options available. ASIC accepted that Mr Warner's application to the Court was properly made; there are "tricky elements" having regard to the paucity of information that is available to the liquidator through no fault of his own and there are a large number of claimants over a small sum (which adds cost). Having said that, ASIC noted that Mr Warner has already billed $91,210.30 (being the aggregate of professional costs of $79,031.33 and disbursements (including GST)) in relation to non-trust assets. This amount has been approved by creditors. 70 There is no doubt that the Court must consider critically a liquidator's proposed remuneration and be reticent to approve it in whole or part where it is evident that the liquidator has undertaken work the commercial justification for which is obscure over and above the liquidator's capacity to earn fees from his or her pursuit. In evaluating whether particular activities should be pursued, the liquidator must have a primary purpose of maximising return to creditors, not maximising the return to the liquidator. However, Mr Bennett's point is well taken that the Corporations Act does not require the liquidator to perform his or her role without prospect of remuneration or indemnity: see ss 545 (assets insufficient to meet expenses of winding up) and 568 (disclaimer of onerous property). While it is true that it is distasteful to the community and a cause of chagrin to creditors to see that the cost of administering the winding up of a company or trust estate results in little return to the creditors or beneficiaries, there is nonetheless a benefit to creditors and beneficiaries in having their position resolved and to the community of not permitting assets to remain unproductively in the hands of a defunct company for long periods. Without the prospect of reasonable remuneration, it is difficult to see why a liquidator would be willing to take on work which produces those results. 71 Whether remuneration is reasonable cannot be assessed solely by reference to time costing based on reasonable market rates or because it represents a particular percentage of the return which creditors achieve; each claim to remuneration must be evaluated on its own merits. In determining the value returned from the liquidator's work, it is relevant to consider not only the absolute return to creditors but also whether the work for which remuneration is claimed was necessary to be done: not all necessary work results in a return to creditors, but that does not mean that remuneration for it is not reasonable or justified even at the price of a more limited return to creditors. 72 In this case, there is no suggestion that Mr Warner has done anything more or less than that required of him for the purpose of getting in moneys from providers into the Accounts, determining entitlement to moneys in the Accounts and taking necessary steps to ascertain the prospects of greater recovery from DMCC and the professional indemnity insurer. 73 I am satisfied that Mr Warner's unbilled work in progress of $14,396.41 (inclusive of GST) in relation to the administration of statutory trust assets to date is reasonable having regard to the issues which he had to address. It is difficult to see how it might have been conducted less expensively on the liquidator's part: I note that Mr Kugel met with Mr Riaz in Dubai without travel or accommodation cost to the liquidation. 74 Given the paucity of information available to Mr Warner, the process referred to at [25] appears to be required. Mr Warner's estimate of $21,310.75 (GST inclusive) for administering the proposed claims verification process in relation to the persons named on the Balances List appears to be reasonably based, but he should only be entitled to recover reasonable remuneration under s 504 for work and expense actually expended to a limit of $21,310.75 (GST inclusive). 75 In 13 Coromandel Place Pty Ltd v C L Custodians Pty Ltd (in liq) (1999) 30 ACSR 377 Finkelstein J said (at 385): These cases establish, clearly enough in my opinion, that provided a liquidator is acting reasonably he is entitled to be indemnified out of trust assets for his costs and expenses in carrying out the following activities: identifying or attempting to identify trust assets; recovering or attempting to recover trust assets; realising or attempting to realise trust assets; protecting or attempting to protect trust assets; distributing trust assets to the persons beneficially entitled to them. 76 The activities undertaken by Mr Warner which are the subject of this application fall squarely within this description. Even though the non-trust assets which are available are small, I consider that the appropriate directions are that Mr Warner is justified in having recourse to the Statutory Moneys Trust Account for: (1) his reasonable remuneration being his unbilled work in progress to an amount of $14,396.41 (GST inclusive) and (2) to a maximum amount of $21,310.75 (GST inclusive), his reasonable remuneration and expenses for time and cost actually incurred in getting in moneys in the Westpac Accounts to the Statutory Moneys Trust Account, determining entitlements and distributing funds to clients with proved claims in accordance with the procedure proposed by Mr Warner referred to at [25] above.

Legal costs 77 The general rule is that where a trustee acts reasonably and in good faith the trust bears the cost of a trustee's application for advice and directions either directly or under the trustee's indemnity: see Dal Pont GE, Law of Costs (3rd ed, LexisNexis Butterworths, 2013) at [10.9]. 78 In the context of reg 7.8.03(6), in All Class at [53]-[54], White J was of the view that the liquidator was entitled to be indemnified out of the funds held on the statutory trust for reasonable costs of the application. In Re MF Global (No 2) at [8], Black J also accepted that where the conduct of the proceedings is an essential step in the distribution of trust assets to the persons beneficially entitled to them, the underlying character of the proceedings is that of trust proceedings, notwithstanding that directions are sought under ss 479(3) and 511 of the Corporations Act and the usual rule should be followed that the trustee is entitled to be indemnified for the cost of the proceedings out of trust assets. 79 Contrary to ASIC's submission I do not take comments in In the matter of National Buildplan Group Pty Ltd (subject to a deed of company arrangement) [2014] NSWSC 146 at [45], MF Global (No 2) at [61], Re Application of Sutherland (2004) 50 ACSR 297 at [22] or Re French Caledonia Travel Service Pty Ltd (in liq) (2003) 48 ACSR 97 at [217] to assert a different position. 80 Having regard to the limited funds in the Accounts, I do not consider it appropriate to make an open ended order in relation to recovery of legal costs of this application or other legal expenses related to the administration of the statutory funds. 81 Breene & Breene's account for its legal services from 1 May 2014 to 16 March 2015 is $47,388.66. Before GST, Breene & Breene's professional costs amount to $25,139.50 and Mr Bennett's account was $9,800. The balance of the account was GST, minor disbursements and court filing fees. Mr Bennett's account is itemised. Breene & Breene's account is detailed without being itemised. The descriptions of the work done appear to relate solely to matters relevant to the statutory trust and this application and not to general winding up issues. The account relates to communications with ASIC which appear to have related to the status of the Accounts and recovery of moneys owing by DMCC, consideration of documents governing client relationships and establishing contact details for clients, preparation of two affidavits by Mr Warner, two by Mr Davis and one by Mr Breene, obtaining written advice from Mr Bennett for provision to the Court, attending to issues raised by Mr Smith in connection with this application, related conferences and attendance at directions hearings and the hearing of the application. Although this amount is substantial in relation to the $139,093.69 cash balance of the Accounts, it would not be so regarded if the amount in the Accounts had been over $4 million (which may have been the case if DMCC had paid the amounts due from it) and the work required would not have been materially different. 82 I will order that Mr Warner's costs of the proceedings and expenses related to legal advice concerning the administration of the moneys subject to reg 7.8.03 to an amount of $47,388.66 be paid from the Accounts.

Conclusion 83 Before making orders, I will make directions for a procedure which allows Mr Warner, ASIC and any client referred to at [34] to consider these reasons and to make any submissions that arise from the directions and orders I propose to make. Subject to any such submissions, I consider that it would be just and beneficial to make directions pursuant to ss 511 and 479(3) of the Corporations Act and orders to the following effect: (1) Westpac and Mr Warner, as liquidator of GTL, are entitled to treat moneys standing to the credit of accounts styled "GTL Tradeup Pty Ltd - Client Trust Account" referred to in a letter a copy of which appears at pages 369-370 of Exhibit AW-1 ("Westpac Accounts") as moneys subject to a statutory trust pursuant to s 981H of the Corporations Act to be held and distributed in accordance with reg 7.8.03 of the Regulations and these orders; (2) NAB and Mr Warner, as liquidator of GTL, are entitled to treat moneys from time to time standing to the credit of the account styled "GTL Tradeup Pty Ltd (in liquidation) No 2 Account" referred to in a statement a copy of which appears at page 334 of Exhibit AW-1 (the Statutory Moneys Trust Account) as moneys subject to a statutory trust pursuant to s 981H of the Corporations Act to be held and distributed in accordance with reg 7.8.03 of the Regulations and these orders; (3) Westpac must transfer all moneys standing to the credit of the Westpac Accounts to Mr Warner as liquidator of GTL or directly to the Statutory Moneys Trust Account. Mr Warner must pay or direct Westpac to pay all moneys from the Westpac Accounts to the Statutory Moneys Trust Account; (4) After making provision for his remuneration, costs and expenses (including the costs of this application), Mr Warner is justified in determining entitlement to distributions from the Statutory Moneys Trust Account under reg 7.8.03(6) on the basis set out at [57] of my reasons employing the process referred to in [25] of my reasons and in making distributions in accordance with that determination; (5) Mr Warner is justified in paying moneys from the Statutory Moneys Trust Account to himself or as he directs to an aggregate maximum amount of $83,095.82 as follows: (a) $47,388.66 (inclusive of GST) on account of legal costs and expenses as set out in the affidavit of Mr John Breene sworn on sworn on 17 March 2015; (b) $14,396.41 (inclusive of GST) on account of Mr Warner's remuneration for work undertaken as set out in annexure B to his affidavit sworn on 10 March 2015; and (c) Subject to due performance of the work of administering the process of establishing the persons entitled to the moneys in the Statutory Moneys Trust Account and making required distributions, paying Mr Warner's reasonable remuneration (determined in accordance with s 504(2)) and expenses for performing that work up to an aggregate maximum amount of $21,310.75 (GST inclusive); and (6) Mr Warner has leave to relist the matter for further directions. I certify that the preceding eighty-three (83) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Farrell.

Subdiv A Corporations Regulations 2001(Cth)

Corporations Act 2001(Cth)ss 479, 504(2), 506(1)(b), 511, 545, 568, 761A, 761C, 761D, 761E, 763A, 763B, 763C, 763D, 764A, 766A, 766C, 766D, 1330, Pt

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