WOODS & WHITE -v- HOPKINS [2016] WASC 16 (22 January 2016)

3 There is no dispute as to the factual context in which the issues posed by the directions arise.

4 The three companies who are the BYBA Partners are:

(a) Little Tiger Pty Ltd ACN 009 072 753 (in liq) as trustee for the BPH Trust;

(b) Gwyngalchu Pty Ltd ACN 123 851 945 (in liq) as trustee for the BPS Trust; and

(c) Nereus Pty Ltd ACN 126 167 039 (in liq) as trustee for the BPM Trust.

5 Little Tiger, Gwyngalchu and Nereus are associated with the current principals of the Accounting Practice, Rick Hopkins, Brynley Scott and Justin Manolikos.

6 The BYBA Partners are partners together in the Barringtons Your Business Advisors Partnership (BYBA Partnership).

7 The Accounting Practice was conducted by the BYBA Partnership and another partnership referred to as the BP Partnership (the Partnerships). The partners in the BP Partnership are Essfor Pty Ltd (in liq) as trustee for the Blah Trust, Trecco Bay Pty Ltd as trustee for the Goodbond Partnership Trust and Nereus as trustee for the JSM Trust (the BP Partners). Essfor is associated with Mr Hopkins, and Trecco Bay with Mr Scott.

8 The BYBA Partnership is the operating entity behind the Accounting Practice.

9 Another company, Barringtons Your Business Advisors Pty Ltd (BYBAPL), acted as agent for, and only on behalf of, the BYBA Partnership.

10 The BYBA Partnership paid a licencing fee to the BP Partnership, being the only income of the BP Partnership.

11 In May 2014, the shareholders of each of Little Tiger, Gwyngalchu, Nereus, Essfor and Trecco resolved to place each of these companies into voluntary liquidation. In each case the Liquidators were appointed. The appointments were made for the purpose of effecting a dissolution of the BYBA Partnership and the BP Partnership.

12 The desire to dissolve the BYBA Partnership and the BP Partnership occurred in the context of a dispute with two former principals of the Accounting Practice, Charlie Sam Napoli and Graham Arthur Addison. A company associated with Mr Napoli, Silverline Asset Pty Ltd, is a former partner in the BYBA Partnership. Mr Napoli was a partner in the BP Partnership. A company associated with Mr Addison, Jabrum Pty Ltd, is a former partner in the BYBA Partnership and another company associated with him, Graham Addison & Associates Pty Ltd (GAA), is a former partner in the BP Partnership. The dispute arose in December 2013 when Messrs Napoli and Addison and their associated entities were expelled from the BYBA Partnership and the BP Partnership. They allege that the expulsions were unlawful. The current and former principals of the Accounting Practice, and their associated entities, are involved in a number of Supreme Court actions which have not been progressed as a consequence of the winding up of the BYBA Companies.

13 Mr Woods appointed BYBAPL as his agent (in his capacity as Liquidator of each of the BYBA Partners) so as to ensure that the Accounting Practice was continually managed throughout the process of the voluntary winding up.

14 In the course of their work in the voluntary winding up, the Liquidators formed the view that each of the BYBA Partners, Essfor and Trecco were insolvent. They applied to the court for orders that each be wound up in insolvency (2014 Proceedings). This application was granted by Pritchard J, in a decision published as Woods & White v Little Tiger Pty Ltd (in liq).[1] The winding up in insolvency took effect on 15 September 2014. The Liquidators sought and were granted certain other directions which I will mention shortly.

15 The Liquidators formed the view that it was preferable for the Accounting Practice to be sold as a going concern, and so engaged in a public tender and sale process. The successful purchaser was Barrington Accounting Pty Ltd in its capacity as the trustee for three trusts, namely the OAU Trust, the JSMop Trust and the Caeldfwich Trust (Buyer). Messrs Hopkins, Scott and Manolikos control the Buyer. An asset sale agreement was negotiated and executed (ASA). One of the orders sought by the Liquidators in the 2014 Proceedings, and granted by Pritchard J, was an order approving the ASA pursuant to CA s 477(2B). This approval was necessary as the obligations in the ASA were to be discharged more than three months after that agreement was entered into. The ASA attempted to ensure that the work in progress (WIP) of the Accounting Practice was realised.

16 The ASA required the Buyer to complete the engagements reflected in the WIP of the Accounting Practice to allow the conversion of WIP to debtors and the collection of those debtors. The purchase price under the ASA is calculated on the realisations made by the Accounting Practice. As at 14 July, the Liquidators had collected the amount of $427,862 from debtors and purchase price instalments payable under the ASA. Of this amount, $98,383 represents collections from debtors that have been deposited into the Partnerships' former trading accounts held with CBA in the name of BYBAPL. The remainder is in the Liquidators' bank account. The Buyer is to pay further amounts under the ASA in respect of the collection of further WIP, debtor collections and instalment payments. The Liquidators expect that these receipts will total between $1 million and $1.2 million.

17 BYBAPL was placed into liquidation on 28 October 2014, with Jennifer Low being appointed liquidator.

18 The Accounting Practice used bank facilities provided by the Commonwealth Bank of Australia (CBA), being an overdraft and term loan facility. The current balance of the term loan facility is in the vicinity of $340,000. BYBAPL provided security for the facilities. The BYBA Partners provided guarantees to secure the CBA facility, limited to $150,000 and secured by a first registered charge. Messrs Hopkins, Scott, Manolikos, Napoli and Addison also each provided guarantees in favour of the CBA to secure the CBA facilities, again limited to $150,000. It appears that CBA has issued demands in relation to these guarantees on the term loan facility.[2]

19 The Liquidators have incurred remuneration, fees and expenses in relation to the realisation, care and preservation of the assets of the BYBPA Partnership. The expenses include expenses incurred by solicitors engaged by the Liquidators.

20 By letter dated 10 November 2014, lawyers for Mr Napoli and Silverline advised the Liquidators that they believed that the unsecured claims of the Australian Taxation Office (ATO) against the BYBA Partnership, Mr Napoli and Silverline should be paid out in priority to the Liquidators' remuneration, fees and expenses. They foreshadowed commencing proceedings to have this issue determined. This claim appears to have been the catalyst for the present application by the Liquidators.

The positions of the parties and issues arising for determination

21 The Liquidators filed two affidavits in support of the application. The first was by Mr Woods, sworn 14 July 2015. Mr Woods annexes to his affidavit the affidavits sworn by him in the 2014 Proceedings on 1 and 6 September 2014. The Liquidators also filed an affidavit sworn by Cameron D'Musgrave Belyea, a principal of the Liquidators' lawyers.

22 In the application as filed, the Liquidators sought three declarations, alternatively, directions, to the following effect:

(a) that they are entitled to an indemnity secured by an equitable lien against the assets of the BYBA Partnership for their costs and expenses;

(b) as to the priorities of distribution of the proceeds of the realisation of the assets of the BYBA Partnership; and

(c) providing for the determination of the amount of their costs and expenses as were properly incurred.

23 In the minute of proposed orders filed at the conclusion of the hearing, the Liquidators were content with directions being made, and only in relation to the issues in (a) and (b). They also proposed that the application be otherwise adjourned sine die, with the effect that the determination of the amount of expenses which could be the subject of the indemnity and equitable lien be deferred for later determination.

24 The Liquidators' position is that the indemnity and equitable lien in this case are a straightforward application of the principle in Re Universal Distributing Co Ltd (in liq).[3] Expressed in general terms, the principle is that where a party has by its effort generated a fund in the administration of which various parties are interested, the costs and expenses of realising the fund should be first claim upon the fund. The first claim is given effect to by the imposition, in equity, of an equitable charge over the fund. Although the minute of proposed orders, and many of the authorities, refer to an 'equitable lien', as observed by Deane J in Hewett v Court, 'it is, in truth, a form of equitable charge over the subject property'.[4] It is also referred to as an equitable charge by the High Court in Stewart v Atco Controls Pty Ltd (in liq).[5] Accordingly, I will refer to an equitable charge. The only relevant Australian authority on point is then to the effect that the assets of the BYBA Partnership, comprising corporate partners, are to be distributed in accordance with the priorities regime set out in CA s 556.

25 The first, second and third defendants are Messrs Hopkins, Scott and Manolikos. They do not oppose the directions sought by the Liquidators.[6]

26 The fifth defendants are Mr Addison, Jabrum and GAA. They appeared by counsel at the hearing, who advised the court that they did not oppose the directions sought by the Liquidators.[7]

27 The sixth defendant is CBA. CBA accepts that:[8]

(a) the Liquidators have an equitable lien over the proceeds of the realisation of the assets of the BYBA Partnership;

(b) the equitable lien takes precedence over CBA's interest;

(c) to the extent that the Liquidators' expenses, as endorsed by the creditors or the court, were incurred in caring for, preserving or realising partnership assets, the Liquidators are entitled to have those expenses paid in priority to CBA.

28 CBA was not represented at the hearing, though provided correspondence to the court to the effect that it did not oppose the directions sought by the Liquidators.[9]

29 Ms Low as liquidator of BYBAPL was not a party to the application. An affidavit was filed on her behalf, sworn by Andrew Mason on 12 October 2015. Mr Mason is the principal of her lawyers. At the hearing, counsel advised the court that Ms Low did not oppose the court making the directions sought.

30 The fourth defendants are Mr Napoli and Silverline. They filed two affidavits in opposition to the application. The first was sworn by Mr Napoli on 17 September 2015. The second was sworn by Mark Alan MacLennan on 23 September 2015. Mr MacLennan is a principal of the fourth defendants' lawyers.

31 The fourth defendants oppose the making of the directions sought. Silverline has lodged a proof of debt with the Liquidators claiming that the BYBA Partnership is indebted to it in the amount of $603,808 being for the balance of partner entitlements for the BYBA Partnership. Mr Napoli lodged a proof of debt with the Liquidators claiming that the BP Partnership is indebted to him personally in the amount of $100,390.[10] Mr Napoli is concerned that if the directions sought in the present proceedings are made, based on the current estimates of the Liquidators' costs, there are likely to be insufficient assets to discharge the obligations of BYBAPL to the CBA, or indeed any other creditor. He also takes the view that the remuneration for which the Liquidators are likely to seek approval is excessive.[11]

32 The fourth defendants' position is that the assets of the BYBA Partnership are just that: partnership assets. The rules of the distribution of assets following the dissolution of a partnership are set out in Partnership Act 1895 (WA) (PA) s 50 and s 57, which they say apply in the present case. The interests of the partners in the partnership assets is insufficient to sustain an equitable lien. The costs and expenses incurred by the Liquidators may only be paid out of the reside (if any) of the assets of the BYBA Partnership distributed to the BYBA Partners, being the

companies over which they have been appointed liquidators. The fourth defendants contend that their claims are liabilities of the BYBA Partnership, which must be dealt with in accordance with PA s 50 and s 57.

33 On the facts as I have outlined them, and the submissions made, five issues arise for determination:

• Is the present case an appropriate one in which to make a direction under CA s 479(3)?
• Should an equitable charge be granted in the circumstances of the present case?
• If an equitable charge is granted, in what order of priority should the assets of the BYBA Partnership be dissipated?
• Is there any other basis besides CA s 556 on which the costs and expenses of the Liquidators in winding up the BYBA Partners and dissolving the BYBA Partnership can be claimed against the assets of the BYBA Partnership?
• What final orders are appropriate?

Is the present case an appropriate one in which to make a direction under CA s 479(3)?

34 CA s 479(3) empowers a liquidator to 'apply to the Court for directions in relation to any particular matter arising under the winding up'. The primary purpose of a direction is to protect the liquidator from allegations that he or she has acted improperly or unreasonably or has caused actionable loss.[12] 'The proper subject of such an application for directions is the manner in which the liquidator should act in carrying out his functions'.[13] The power is intended to facilitate the liquidator's functions and should be interpreted widely to give effect to that intention.[14] A direction under CA s 479(3) is conventionally expressed in terms that the liquidator is 'justified' in adopting a particular course of action.[15] The directions sought by the Liquidators, as set out in the minute of proposed orders, are expressed in these terms. So expressed, the effect

of the direction is not to determine the rights and liabilities arising out of the transaction in issue.[16] It is thus not necessary for me to venture into the issue of whether the court may make a direction under CA s 479(3) determining substantive rights.

35 CA s 479(4) provides that, subject to CA pt 5.4B, 'the liquidator must use his or her own discretion in the management of affairs and property of the company and the distribution of its property'. Hence, in an application under CA s 479(3), the court will not generally give a direction that relates to the making of a business or commercial decision. Something more is required. '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 ... an issue calling for the exercise of a legal judgment'.[17]

36 In appropriate cases, the power in CA s 479(3) may be used to determine the entitlement to an equitable charge separately from the determination of the amount so secured.[18]

37 In my view, the issues which I have set out above clearly call for the exercise of a legal judgment. In the present case, I am satisfied that the discretion in CA s 479(3) is enlivened, and the case is an appropriate one in which to make directions.

Should an equitable charge be granted in the circumstances of the present case? Liquidators' position

38 The Liquidators' position is that the imposition of an equitable charge in the present case is a straight-forward application of the principle in Universal Distributing.[19] The principle is derived from the following passage from the judgment of Dixon J:[20]

If a creditor whose debt is secured over the assets of the company come in and have his rights decided in the winding up, he is entitled to be paid principal and interest out of the fund produced by the assets encumbered by his debt after the deduction of the costs, charges and expenses incidental to the realisation of such assets (In re Marine Mansions Co). The security is paramount to the general costs and expenses of the liquidation, but the expenses attendant upon the realisation of the fund affected by the security must be borne by it (In re Oriental Hotels Co; Perry v Oriental Hotels Co). The debenture‑holders are creditors who have a specific right to the property for the purpose of paying their debts. But if it is realised in the winding up, a proceeding to which they are thus parties, the proceeds must bear the cost of the realisation just as if they had begun a suit for its realisation or had themselves realised it without suit (cf In re Regent's Canal Ironworks Co; Ex parte Grissell; and see Batten v Wedgwood Coal & Iron Co). (citations omitted)

39 The principle in Universal Distributing has been recently endorsed by the High Court in Stewart v Atco Controls Pty Ltd (in liq)[21] and the Court of Appeal in Coad v Wellness Pursuit Pty Ltd (in liq).[22]

40 The Liquidators' point to the decision in Amni Pty Ltd v Williams as authority that the principle in Universal Distributing can apply in the present circumstances.[23] In Amni, like the present case, three companies carried on a business in partnership with each other as their sole activity. They were placed under official management pursuant to the then Companies Act 1961 (NSW) pt IX. The official management proceeded on the basis that it was the partnership that was under official management.[24] The financial difficulties of the partnership continued, and ultimately the three companies were placed into a members' voluntary liquidation. In distinction to the present case, the companies then appointed the liquidator as the receiver and manager of the partnership. The liquidator realised the assets of the partnership. Doubts then arose as to how these funds should be distributed. Powell J held that the liquidator could claim a first charge (lien) on the assets of the partnership, or in the alternative, a joint debt of each of the companies:[25]

Although, so far as I have been able to ascertain, there is no decision precisely in point with the present case, one must, I think, start with the basic proposition that a liquidator, whether appointed by the creditors, or the court, is but the agent of the company to wind up its affairs (Re Audley Hall Cotton Spinning Co [1868] UKLawRpEq 131; (1868) LR 6 Eq 245; Re Massey; Re Freehold Land and Brickmaking Co [1870] UKLawRpEq 61; (1870) LR 9 Eq 367; Re Trueman's Estate; Hooke v Piper [1872] UKLawRpEq 120; (1872) LR 14 Eq 278; Re Anglo-Moravian Hungarian Junction Railway Co [1875] UKLawRpCh 145; [1875] 1 Ch D 130; Re Quality House Pty Ltd (in Liq) and the Companies Act (1969) 89 WN (Pt 1) (NSW) 410) and an agent whose remuneration and costs - being part of 'the costs and expenses of the winding up' within the meaning of s 292(1)(a) of the Companies Act, 1961 - are entitled to share in a first charge on the assets of the company: see, for example, Re Audley Hall Cotton Spinning Co [1868] UKLawRpEq 131; (1868) LR 6 Eq 245; Re Massey; Re Freehold Land and Brickmaking Co [1870] UKLawRpEq 61; (1870) LR 9 Eq 367. Although a partner has no title to specific property owned by the partnership, he has a beneficial interest in the partnership assets, indeed in each and every asset of the partnership: Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd [1974] HCA 22; (1974) 131 CLR 321, at pp 327, 328; Commissioner of Taxation (Cth) v Everett [1980] HCA 6; (1980) 54 ALJR 196, at p 197. This being so, particularly, where, as is the case here, one person is the liquidator of each of the partner companies, his charge, so it seems to me, extends over the whole of the partnership property -although, technically, it may be that, if, in addition, there be some separate property, some measure of adjustment or apportionment as between the interest in the joint property and the separate property may need to be made.

41 The declaration made by Powell J makes it clear that the basis on which the liquidator could claim his costs and expenses was as liquidator of the companies, and not merely as receiver and manager of the partnership.[26]

42 Accordingly, in the minute of proposed orders, the Liquidators sought a direction in the following terms:

1. It is directed that the plaintiffs (as liquidators of the BYBA Partners) will be acting properly and are justified in proceeding to conduct the winding up of the BYBA Partners and the BYBA Partnership on the basis that:

(a) the plaintiffs are entitled to an indemnity secured by an equitable lien against the assets of the BYBA Partnership (including the proceeds of realisation of those assets) for the payment of the plaintiffs' costs and expenses of winding up the BYBA Partnership and in winding up each of the BYBA Partners (such costs and expenses to include the remuneration of the plaintiffs for acting as liquidators of the BYBA Partners) to the extent that those costs or expenses were properly incurred in the care, preservation and realisation of the assets of the BYBA Partnership;
>
> (b) the plaintiffs' entitlement to such an indemnity secured by an equitable lien against the assets of the BYBA Partnership has priority over any claims for payment in respect of: > > > (i) the debts or claims of the sixth defendant; and
> >
> > (ii) the unsecured debts of the BYBA Partnership (including those of the first, second, third, fourth and fifth defendants).

43 The fourth defendants' argument is that:[27]

(a) the Liquidators were only appointed over the BYBA Companies;

(b) the true nature of the interest of each BYBA Company in the assets of the BYBA Partnership was (and is) to insist upon those assets being applied for partnership purposes (pre‑dissolution) and, post‑dissolution, the right to insist upon a proper winding up of the partnership, repayment of partnership debts, with payment of any surplus to themselves;

(c) until, or unless, there is a surplus, there are no assets in respect of which each BYBA Company has a proprietary interest, to which a charge could attach;

(d) if there is a surplus, then the charge can only apply to the amount of the surplus; and

(e) the result contended for by the Liquidators would place them in a better position than the BYBA Companies would be in after the winding up of the BYBA Partnership.

44 It is correct that the Liquidators were only appointed over the BYBA Companies. Significantly, no receiver has been appointed over the BYBA Partnership, nor has any application been made to wind it up pursuant to PA s 50.

45 The fourth defendants are critical of the reasoning of Powell J in Amni submitting that whilst 'His Honour was correct to say that [each] partner has a beneficial interest in partnership assets, it is respectfully submitted that His Honour was not required to address the particular nature of a partner's interest in the partnership property'.[28] However, the issue of the nature of a partner's interest in partnership property does not arise in the present case. The equitable charge is not sought over the assets of the BYBA Partners; it is sought over the assets of the BYBA Partnership. The source of the claim is not any right which the Liquidators have over the assets of the BYBA Partners. Rather, it is their efforts and expenses in creating the fund comprised of the proceeds of the realisation of the assets of the BYBA Partnership.

46 The fourth defendants' say that their submission that the nature of a partner's interest in the partnership property is limited to a right to its proportion of the surplus after the realisation of the assets is apparent from the decision in Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd, in particular the following passage:[29]

The nature of a partner's interest in the partnership property has often been explained. The partner's share in the partnership is not a title to specific property but a right to his proportion of the surplus after the realization of assets and the payment of debts and liabilities. However, it has always been accepted that a partner has an interest in every asset of the partnership and this interest has been universally described as a 'beneficial interest', notwithstanding its peculiar character. The assets of a partnership, individually and collectively, are described as partnership property (Partnership Act, 1892, as amended (N.S.W.), s. 20). This description acknowledges that they belong to the partnership, that is, to the members of the partnership.

In In re Fuller's Contract ..., Luxmore J (as he then was) said:

' ... as between the partners, the partnership property must be dealt with in a particular way, but so far as all the rest of the world is concerned, there is no limitation on the interests of the partners; the partners have the beneficial interest in the partnership assets, which are held together as an undivided whole, but they respectively have undivided interests in them.'

It is significant that s. 20(ii) of the Partnership Act, 1892 , as amended (N.S.W.), treats a partner as having a beneficial interest in real estate belonging to the partnership for in this respect no distinction can be drawn between the nature of a partner's interest in real estate and his interest in personal estate.

The appellant submitted that the nature of a partner's interest was analogous to that of a residuary legatee in an unadministered estate. There is some similarity between the two cases in that the residuary legatee and the partner each have the right to insist upon due administration, the former of the estate and the latter of the partnership assets and liabilities, and the precise entitlement of each must await the due course of administration. Nevertheless we think that the interest of the partner in an asset of the partnership is sui generis ... It is, as we have said, recognized as a beneficial interest.

47 In Canny Gabriel, a financier agreed to finance certain contracts arranged by a concert promoter for concerts by Cilla Black and Elton John. They entered into an agreement by which, in consideration of advances, the promoter agreed to assign the financier a one half interest in the contracts and to perform the contracts as a joint venture. The advances were repayable prior to the distribution of profits, which were to be divided equally. Subsequently, the promoter granted an equitable charge over its undertaking, including its rights to box office receipts, to an advertising agency. The High Court held that the joint venture was a partnership, and that the financier's prior equitable interest as a partner prevailed over the advertising agency's equitable charge. Accordingly, the financier was entitled to retain, and be paid, the box office receipts in priority to the advertising agency.

48 For present purposes, it is important to refer to the paragraph immediately after those referred to by the fourth defendant:[30]

As such [the financier's interest in the partnership] constitutes an equitable interest and is not a mere equity to set aside or rectify a transaction by means of a court order (see Latec Investments Ltd v Hotel Terrigal Pty Ltd [(1965) [1965] HCA 17; 113 CLR 265]). Consequently it prevails over the subsequent equitable charge held by [the advertising agency], despite that company's ignorance of the prior equitable interest at the time when the equitable charge was granted.

49 The significance of the decision for present purposes is that if the equitable interest of a partner in the partnership assets is of a sufficient character to prevail over a subsequent equitable charge, it is of sufficient character to be the subject of an equitable charge. Were this not the case, it would not be possible for a financier to take security over the assets of a subsisting partnership.[31]

50 The fourth defendants also drew my attention to a recent restatement of the position by E M Heenan J in Atwell & Atwell v Roberts, where his Honour observed that the interest of the individual partner, which cannot be appropriated to his or her use whilst the partnership subsists, is the partner's aliquot share of the net surplus:[32]

[T]he right of any one partner in the firm of which he or she is currently a member is the right to carry on business together with the specific co‑partners with a view to profit and to share the profits of the business of the firm in accordance with the terms of the agreement. The property of the firm, whether it be held on trust or by co-ownership between some or all of the partners, is available for the use of the partnership business. Although each partner has a special equitable interest of a unique kind in the partnership property, that interest cannot be appropriated to the individual partner's use to the exclusion of the firm so long as the partnership subsists. Where a partnership, or some members of the firm on behalf of the partnership or as trustees, hold real property for the partnership, the interests of the partners in all items of real property are in the nature of personality - Partnership Act s 22. It is always the case that the measure of a partner's interest in the assets of the firm is that partner's aliquot share of the net surplus, if any, of all the assets of the firm over its liabilities and the cost of their realisation as in a winding up. That is why the nature of the retired partner's share or the share of a deceased partner in the assets of a firm is in the nature of debt rather than any real interest - Partnership Act s 55 and s 56 and Cameron v Murdoch (1986) 63 ALR 575; 60 ALJR 280.

51 However, this decision is consistent with, and does not detract from, the proposition in Canny Gabriel that, whilst the partnership subsists, each partner has an equitable interest in the assets of the partnership.

52 The following principles are well-established, and provide the context for the determination of the present issue:

(a) a voluntary administrator, receiver, receiver and manager, provisional liquidator or liquidator appointed by the court in respect of a company has a right of indemnity out of the company's property for, relevantly, his or her remuneration, costs and expenses;[33]

(b) the right of indemnity is secured by an equitable charge on the company's property; and[34]

(c) a secured creditor may not have the benefit of a fund created by a liquidator's efforts in the winding up without the liquidator's costs and expenses, including remuneration, of creating that fund first being met, and equity will create a charge over the fund in priority to that of the secured creditor.[35]

53 In relation to the last principle, in Stewart v Atco Controls Pty Ltd (in liq) the High Court set out the following circumstances in which the principle will apply:[36]

[T]here is an insolvent company in liquidation; the liquidator has incurred expenses and rendered services in the realisation of an asset; the resulting fund is insufficient to meet both the liquidator's costs and expenses of realisation and the debt due to a secured creditor; and the creditor claims the fund. In these circumstances, it is just that the liquidator be recompensed. To use the language of Deane J in Hewett v Court [(668 ‑ 669)], it might be said that a secured creditor would be acting unconscientiously in taking the benefit of the liquidator's work without the liquidator's expenses being met. However, such a conclusion is avoided by the application of the principle stated in Universal Distributing [that is, the principle set out in [52](c) above].

54 In the present case the contested issue arises because the funds over which the right of indemnity and equitable charge are asserted are not assets of each of the BYBA Companies; rather, it is the assets of BYBA Partnership.

55 In order to determine this issue, it is necessary to look at this species of equitable charge at a more general level of principle, the equitable charge which a liquidator is able to assert against the property of the company being an example of this principle. The observations on the nature of an equitable lien by Deane J in Hewett v Court are a convenient starting point:[37]

An equitable lien is a right against property which arises automatically by implication of equity to secure the discharge of an actual or potential indebtedness ... Though called a lien, it is, in truth, a form of equitable charge over the subject property ... in that it does not depend upon possession and may, in general, be enforced in the same way as any other equitable charge, namely, by sale in pursuance of court order or, where the lien is over a fund, by an order for payment thereout ... Equitable lien differs from traditional mortgage in that it does not transfer any title to the property and therefore cannot be enforced by foreclosure. While it arises by implication of some equitable doctrine applicable to the circumstances, its implication can be precluded or qualified by express or implied agreement of the parties ... It can exist over land or personalty or both. (citations omitted)

56 The existence of an equitable charge does not depend either upon contract or possession, but arises by operation of law, under a doctrine of equity 'as part of a scheme of equitable adjustment of mutual rights and obligations'.[38] As Deane J went on to observe in Hewett 'it is difficult, if not impossible, to formulate any satisfactory statement of the necessary or sufficient circumstances for the implication of an equitable lien which is applicable to any relationship at all'.[39] Along the same lines, Gibbs CJ observed:[40]

The rules of equity are not so rigid and inflexible that it is necessary to discover precise authority in favour of the existence of a lien before one can be held to have been created. I do not of course intend to suggest that the courts may proceed on general notions of justice without regard to settled principles.

57 The species of equitable charge claimed by liquidators is an example of a class of equitable charges which arise on the basis that a 'secured creditor cannot lay claim to the benefit of realised assets without the costs of their realisation being met'.[41] Or expressed slightly more generally: 'Where a party has by his efforts brought into court a fund in the administration of which various parties are interested, his costs and expenses should be first claim upon the fund'.[42] Even this expression, whilst sufficient, is not exhaustive as the decisions in Stewart and Coad illustrate that the fund does not actually have to be brought into court, in the sense of being paid into court.[43] This rule was described as 'long‑settled' by Finkelstein J in Australian Securities and Investments Commission v GDK Financial Solutions Pty ltd (in liq) (No 3), referring to 19th century case law.[44]

58 The case law dealing with this class of equitable charge was reviewed in detail by Buss JA in Coad. The following points emerge from his Honour's analysis:

(a) a distinction is drawn between the liquidator's remuneration, costs and expenses reasonably incurred in caring for, preserving and realising the assets which have produced the fund (which are secured by the charge), and the liquidator's other remuneration, costs and expenses (which are not);[45]

(b) in the case of an administrator, this equitable charge is separate and distinct from the statutory lien in CA s443F;[46]

(c) an equitable charge which would otherwise be held to exist, is not excluded by the provisions of the CA dealing with liquidators and administrators;[47]

(d) the equitable charge may exist even though the administrator did not create the fund;[48]

(e) the existence of the equitable charge does not depend on the capacity of the person claiming it or the source of his or her entitlement[49], and has been utilised by a solicitor[50] and a shareholder/ creditor;[51] and

(f) the rationale for the existence of this right of indemnity or equitable charge has not yet been articulated on a consistent legal basis.[52]

59 As I have noted, it is well‑established that a secured creditor may not have the benefit of a fund created by a liquidator's efforts in the winding up without the liquidator's costs and expenses, including remuneration, of creating that fund first being met, and equity will create a charge over the fund in priority to that of the secured creditor.[53] The question for present purposes is whether the fund so created may be the funds of a partnership carried on between three companies which are in liquidation. The decision in Amni is authority that the answer is in the affirmative.

60 It is not in issue that the Liquidators have expended effort and incurred expenses in the realisation of the assets of the BYBA Partnership. If I were to follow the decision in Amni, the effect would be that the Liquidators would be able to be indemnified for their costs and expenses properly incurred in the care, preservation and realisation of the assets of the BYBA Partnership. The Liquidators would be entitled to exercise this indemnity in priority to the debts and claims of the CBA (being a secured creditor of the BYBA Partnership) and unsecured debts of the BYBA Partnership, relevantly including the first, second, third, fourth and fifth defendants. Once the amount of the indemnity has been determined, and then paid out, the remaining funds will be available to satisfy the debts of the BYBA Partnership. This is consistent with the principle that 'where a party has by his effort brought into court a fund in the administration of which various parties are interested, his costs and expenses should be first claim upon the fund', a principle which has received strong endorsement at the intermediate appellate level.[54] It is a closely analogous application of the principle identified by the High Court in Stewart.[55] Even expressed in very general terms, I am satisfied that the defendants would be acting unconscientiously if they took the benefit of the Liquidators' work without the Liquidators' expenses being met.[56] In my view, the decision in Amni is correct in principle on this point, and should be followed in the present case.

61 The fact that the work done in realising the assets of the BYBA Partnership was undertaken by BYBAPL (before sale) and the Buyer (after sale) does not disentitle the Liquidators from the ability to assert the equitable charge. The equitable charge may arise whether or not the ultimate sale is effected by the liquidator and entitles the Liquidators to be paid in priority out of the fund whether or not they are in possession of the fund.[57]

62 The equitable charge includes future realisations, in this case being the future funds payable under the ASA.[58]

63 The distillation of the principle by the High Court in Stewart, in my view, provides the appropriate guidance as to the scope of the expenses that properly fall within the equitable charge:[59]

[A] secured creditor may not have the benefit of a fund created by a liquidator's efforts in the winding up without the liquidator's costs and expenses, including remuneration, of creating that fund being first met. To that end, equity will create a charge over the fund in priority to that of the secured creditor.

64 The Liquidators are entitled to be indemnified for their costs and expenses, including remuneration, of realising the assets of the BYBA Partnership. The Liquidators may claim costs and expenses, including remuneration, reasonably incurred in caring for, preserving and realising the assets of the BYBA Partnership. The expression 'care, preservation and realisation' is to 'be understood widely as it includes identifying or attempting to identify the assets; recovering or attempting to recover the assets; realising or attempting to realise the assets; protecting or attempting to protect the assets; and distributing the assets to the persons beneficially entitled to them'.[60] It is sufficient that the costs and expenses claimed by the Liquidators could 'in a general sense' be said to have been incurred in the realisation of the asset which created the fund.[61] These costs may include the costs of proceedings commenced and prosecuted to establish the entitlement to the equitable charge.[62] I will refer to these as the 'Reasonable Realisation Expenses'.

65 The direction sought by the Liquidators as set out in the minute of proposed orders is expressed in wider terms than set out in the previous paragraph. This is because there is firstly a reference to the 'costs and expenses of winding up the BYBA Partnership and in winding up each of the BYBA Partners (such costs and expenses to include the remuneration of the plaintiffs for acting as liquidators of the BYBA Partners)'. There is then the qualifying statement: 'to the extent that those costs or expenses were properly incurred in the care, preservation and realisation of the assets of the BYBA Partnership'. I do not see a need for the reference to the winding up of the BYBA Partnership and in winding up each of the BYBA Partners. Moreover, the reference is conceptually misleading for two reasons. First, the BYBA Partnership is not being wound up. Rather, it is being dissolved by agreement of the partners. Second, the basis for the imposition of the equitable charge is not the Liquidators' role in winding up each of the BYBA Partners. Rather, the basis is the work undertaken in realising the assets of the BYBA Partnership. I have set out my preliminary view as to the terms of the direction below [97].

66 Given the consensus across the bar table that the issue of the amount of those costs be deferred at this stage, it is appropriate that I not express any more detailed view on what expenses fall within the characterisation 'Reasonable Realisation Expenses'.

If an equitable charge is granted, in what order of priority should the assets of the BYBA Partnership be dissipated? Liquidators' position

67 There are two aspects to the Liquidators' position. The first is that the assets of the BYBA Partnership, being joint assets, are to be applied first to the joint debts of the BYBA Partners. The separate estate of each BYBA Partner, if there is any, is then to be applied in the first instance to payment of its separate debts. The second aspect is that in applying the assets of the BYBA Partnership to joint debts, the order of priority in CA s 556 is to be applied.

68 In relation to the first aspect, the starting point in the Liquidators' position is that CA s 553E applies s 110 of the Bankruptcy Act 1966 (Cth) (BA) to the winding up of an insolvent company. The former provision provides:

553E Application of Bankruptcy Act to winding up of insolvent company

Subject to this Division, in the winding up of an insolvent company the same rules are to prevail and be observed with regard to debts provable as are in force for the time being under the Bankruptcy Act 1966 in relation to the estates of bankrupt persons (except the rules in sections 82 to 94 (inclusive) and 96 of that Act), and all persons who in any such case would be entitled to prove for and receive dividends out of the property of the company may come in under the winding up and make such claims against the company as they respectively are entitled to because of this section.

(1) In the case of joint debtors, whether partners or not, the joint estate shall be applied in the first instance in payment of their joint debts, and the separate estate of each joint debtor shall be applied in the first instance in payment of his or her separate debts.

(2) If there is a surplus in the case of any of the separate estates, it shall be dealt with as part of the joint estate and if there is a surplus in the case of the joint estate, it shall be dealt with as part of the respective separate estates in proportion to the right and interest of each joint debtor in the joint estate.

70 The Liquidators say that the effect of BA s 110 in the present case is that the joint estate of the BYBA Partners, being the assets of the BYBA Partnership, are to be applied in the first instance in payment of the BYBA Partners' joint debts. The decision in Amni supports this conclusion.[63]

71 As to the second aspect, the Liquidators again rely on the decision in Amni. In Amni Powell J held that the relevant provisions of the companies legislation at the time applied to determine the order in which creditors of the partnership could claim access to joint assets in order to satisfy their debts.[64] Under the CA the priority order is now set by CA s 556.

72 The direction sought in the minute of proposed orders is based on the declarations made in Amni, adjusted to reflect the terms of CA s 556. It is in the following terms:

1. It is directed that the plaintiffs (as liquidators of the BYBA Partners) will be acting properly and are justified in proceeding to conduct the winding up of the BYBA Partners and the BYBA Partnership on the basis that, to the extent the same permits and subject to the plaintiffs' entitlement to an indemnity secured by an equitable lien as specified in para 1 above and the entitlement of the sixth defendant and any party absolutely entitled to exercise rights of subrogation, the plaintiffs should distribute the proceeds of realisation of the assets of the BYBA Partnership in the manner following:

(a) First, in satisfaction and discharge of the costs and expenses of winding up the BYBA Partnership and in winding up each of the BYPA Partners such costs and expenses to include: > > > (i) the remuneration of the plaintiffs for acting as liquidators of the BYPA Partners; and
> >
> > (ii) the costs of these proceedings.

Those debts and claims are to be paid in the order of priority in s 556(l)(a) to (de) of the Corporations Act 2001 (Cth), read together with s 559, as if:

1. the BYBA Partnership was a company which was ordered to be wound up on 29 May 2014; and
2. the debts or claims were incurred by the plaintiffs acting as liquidators of that company in winding up that company.

(b) Second, in satisfaction and discharge of all wages, superannuation contributions or superannuation guarantee charges payable in respect of services rendered to the BYBA Partnership by employees before the commencement of the windings up of the BYBA Partners (but so that the amount payable to any 'excluded employee' of one or more of the BYBA Partners as is attributable to 'non‑priority days' within the meaning of those terms in s 556 of the Corporations Act 2001 (Cth) does not exceed $2000).

(c) Third, in satisfaction and discharge of all amounts due on or before the commencement of the windings up of the BYBA Partners in respect of an employee of the BYBA Partnership for or in respect of leave of absence (but so that the amount payable to any 'excluded employee' of one or more of the BYBA Partners as is attributable to 'non‑priority days' within the meaning of those terms in s 556 of the Corporations Act 2001 (Cth) does not exceed $1500).

(d) Fourth, in satisfaction and discharge of retrenchment payments payable to employees of the BYBA Partnership (but so that the amount payable to any 'excluded employee' of one or more of the BYBA Partners does not include an amount attributable to 'non‑priority days' within the meaning of those terms in s 556 of the Corporations Act 2001 (Cth)).

(e) Finally, in satisfaction and discharge of all other unsecured debts of the BYBA Partnership.

As between themselves all debts or claims falling into any class referred to in paras 2(b) to (e) above rank equally between themselves and must be paid in full, unless the assets of the BYBA Partnership is insufficient to meet them, in which case they must be paid proportionately.

73 The fourth defendants submit that the starting point is that the assets of the BYBA Partnership are partnership assets. The rules of the distribution of assets following the dissolution of a partnership are set out in PA s 50 and s 57, which provide:

On the dissolution of a partnership every partner is entitled, as against the other partners in the firm, and all persons claiming through them in respect of their interests as partners, to have the property of the partnership applied in payment of the debts and liabilities of the firm, and to have the surplus assets after such payment applied in payment of what may be due to the partners respectively, after deducting what may be due from them as partners to the firm; and for that purpose any partner or his representatives may, on the termination of the partnership, apply to the court to wind up the business and affairs of the firm.

1. Rules for distribution of assets on final settlement of accounts

(1) In settling accounts between the partners after a dissolution of partnership, the rules set out in subsections (2) and (3) shall, subject to any agreement, be observed.

(2) Losses, including losses and deficiencies of capital shall be paid first out of profits, next out of capital, and lastly, if necessary, by the partners individually in the proportion in which they were entitled to share profits.

(3) The assets of the firm, including the sums, if any, contributed by the partners to make up losses or deficiencies of capital, shall be applied in the following manner and order -

(a) in paying the debts and liabilities of the firm to persons who are not partners therein;

(b) in paying to each partner rateably what is due from the firm to him for advances as distinguished from capital;

(c) in paying to each partner rateably what is due from the firm to him in respect of capital;

(d) the ultimate residue, if any, shall be divided among the partners in the proportion in which profits are divisible.

74 The fourth defendants relied on the English case of In Re Rudd & Son Ltd.[65] In that case, two companies that comprised a partnership went into creditors' voluntary liquidation. The same liquidator was appointed to each of them. The partnership's unsecured debts exceeded its assets by a substantial amount. The question in the case was whether the priorities applicable to the winding up of the companies also applied in the winding up of the partnership. Nourse J held that they did not, and that all partnership creditors ranked pari pasu as between themselves. There was no provision of the relevant companies legislation that had the effect of changing the priorities otherwise applicable on the dissolution of a partnership.

75 The fourth defendants submit that the assets of the BYBA Partnership are to be applied in payment of the debts and liabilities of the BYBA Partnership, with all unsecured creditors ranking equally.

76 The fourth defendants did not take issue with the first aspect of the Liquidators' position. Nor do I. In my view, BA s 110 is a rule 'in force for the time being under the Bankruptcy Act 1966 in relation to the estates of bankrupt persons'. There is nothing in CA pt 5.6 div 6 that provides to the contrary. The limited case law, including the decision in Amni, supports this conclusion.[66] In any event, as Nourse J held in Rudd, there is a rule of equity to similar effect.[67]

77 To use the words of Nourse J in Rudd, the 'result, so far as material, is that the creditors of the partnership are, in regard to the partnership assets, to take priority over the creditors of each of the companies'.[68] The effect in the present case is that as the BYBA Partners are joint debtors in their joint estate,[69] their joint estate (being the assets of the BYBA Partnership), is to be applied in the first instance in payment of debts of the BYBA Partnership. The separate estate of each BYBA Partner, if there is any, is to be applied in the first instance to payment of its separate debts. This seems correct as a matter of principle. The interest of an individual partner cannot be appropriated to his or her use whilst the partnership subsists, and even on dissolution is subject to payment of all the debts and liabilities of the partnership.[70] This conclusion is also consistent with PA s 50 and s 57.

78 The significance of the application of BA s 110 to the winding up of a company is that it provides a basis for a liquidator of a company to decline to use the assets of an individual company to pay a joint debt, at least until such time as all joint assets have been dissipated.

79 As to the second aspect, priority of payment, again as Nourse J pointed out in Rudd, neither the bankruptcy legislation nor the rule of equity goes further: 'There is nothing in either rule to say that the partnership creditors shall not rank pari pasu as between themselves'. In order to 'establish a preference for one or more classes of partnership debts over other [one] must look elsewhere'.[71]

80 No court order has been made for the winding up of the BYBA Partnership under PA s 50. The Liquidators are, in effect, causing the BYBA Partners to dissolve the BYBA Partnership. The regime in the PA, in particular s 50 and s 57, applies.

81 The issue is whether there is a basis for the application of the PA to be supplanted by CA s 556 in the present case. This in turn becomes the issue of whether I should follow the decision in Amni or the decision in Rudd.

82 When dealing with the interpretation of the CA, I should be slow to depart from a decision of a single judge unless I am convinced that the interpretation is plainly wrong.[72] However, as the legislative regime considered by Powell J is so different to that in place some 30 years later, to re‑examine the issue does not, in my view, offend against the policy identified by the High Court of uniformity of decision in the interpretation of national scheme legislation (a policy which applies with greater force now that the CA is now purely Commonwealth legislation).[73]

83 For two reasons, I am of the view that the decision in Amni should not be followed in the interpretation of CA s 556 and the interaction of the CA with the PA. The first reason is one of statutory construction; the second is one of principle.

84 As to statutory construction, the opening words of CA s 556(1) are: 'in the winding up of a company the following debts and claims must be paid in priority to all other unsecured debts and claims'. The section does not by its terms apply to the winding up or dissolution of a partnership. There is nothing in the reasoning adopted by Powell J in Amni which suggests a defensible basis to give CA s 556 an operation it does not purport to have. I make the same comment of CA s 556 as Nourse J made in Rudd about the equivalent section under consideration: 'It is not expressed to apply to a winding up of a partnership in which a company is a partner'.[74] The decision in Amni is at least distinguishable in the statutory context of CA s 556.

85 As to principle, a simple example demonstrates, to my mind, that the decision in Amni on this point is plainly wrong. The decision in Amni is predicated upon all partners being companies. What would happen if the partnership was comprised of companies and individuals? - indeed as the BP Partnership was until Mr Napoli was expelled. There can be no basis for applying the priority regime in CA s 556 to an individual. BA pt VI div 2 clearly contains the priority regime for an individual. For joint debts, there can only be one priority regime. The only logical outcome is to apply the priority regime in the PA. If there is a surplus payable to the individual partners after payment of all joint debts, and the application of other relevant provisions in the dissolution of the partnership, then in the distribution of the surplus:

(a) in the winding up of the corporate partner, CA s556 would apply; and

(b) in the bankruptcy of the individual partner, BA pt VI div 2 would apply.

86 This conclusion is consistent with the principle in equity that joint assets should be applied first to joint debts and separate assets first to separate debts. As Nourse J explains in Rudd:[75]

That rule, having been developed as a rule of equity, necessarily requires that partnership creditors to rank pari pasu as between themselves. A preference for one or more classes of the partnership debts over others cannot be founded on a rule of equity. Indeed it produces an inequity.

87 For these reasons, I am of the view that CA s 556 does not apply to determine the priority in which the assets of the BYBA Partnership are to be applied. Rather, those assets are to be dealt with in accordance with PA s 50 and s 57. Specifically, after payment of the Reasonable Remuneration Expenses, the assets of the BYBA Partnership are to be applied in 'paying the debts and liabilities of the firm to persons who are not partners therein'. The secured debt of CBA takes priority in accordance with the security granted.

88 There should be a direction to this effect, a draft of which is set out below [97].

Is there any other basis besides CA s 556 on which the costs and expenses of the Liquidators in winding up the BYBA Partners and dissolving the BYBA Partnership can be claimed against the assets of the BYBA Partnership?

89 In the directions sought by the Liquidators, set out above [72] the Liquidators assert that the costs and expenses of dissolving the BYBA Partnership and in winding up each of the BYPA Partners (including remuneration) should be paid out in priority to all other unsecured debts. This would be the effect of CA s 556. However, that section does not apply. The remaining issue is whether there is any other basis on which the outcome is achieved. Given my decision on the issue of the equitable charge, the only costs which need to be considered are those costs not incurred in caring for, preserving and realising the assets of the BYBA Partnership.

90 In Amni Powell J, was prepared to allow the liquidator's costs to be taken out of the partnership assets on a second basis, namely that they were a joint debt of each of the three companies. Specifically, his Honour stated:[76]

But, even if I be wrong in this view [that the predecessor to CA s 556 applied], and some more direct right to share in the joint property needs to be established, it seems to me that such remuneration as [the liquidator] became entitled to, and such costs as were incurred, in winding up the partnership ... ought to be treated as a joint debt of each of the three companies while, nonetheless - having been incurred for the purpose of winding-up the companies - retaining, in respect of each company, the character of being expenses of the winding-up.

91 The fourth defendants submit that this approach was only available in Amni as the liquidator had also been appointed as the receiver and manager of the partnership for the purpose of collecting, realising and distributing the assets of the partnership. They note that the Liquidators in the present case could have appointed themselves as receivers and managers to wind up the BYBA Partnership, but they did not do so.[77] However, Powell J speaks in terms of the expenses incurred in winding up the companies and, as I have already noted, bases the final orders on the position as liquidator, and views the costs of the receivership as being included in these costs.

92 The starting point in the analysis is the principle that joint debts are to be paid out of joint assets, and separate debts out of separate assets. There will be a class of expense incurred by the Liquidators which relates only to the particular company being wound up, for example, complying with statutory reporting requirements and closing down the bank account of the company. These are separate debts which must be paid out of separate assets; this is the effect of BA s 110 (see above [69]).

93 The second point in the analysis is that no order has been made to wind up the BYBA Partnership (for example, pursuant to PA s 50), nor to appoint a receiver to it. The dissolution of the BYBA Partnership has been in effect one carried out by its three remaining members, albeit that each is being controlled by the Liquidators. The work done by the Liquidators when standing in the stead of each BYBA Partner is, in my view, work done for each BYBA Partner. This gives rise to separate debts. It is only a matter of convenience that the Liquidators are winding up all three of the BYBA Partners; the same outcome could have been achieved if each BYBA Partner had a different liquidator appointed, and the three liquidators agreed to work together to dissolve the BYBA Partnership. This would have made it clearer that the work done by each liquidator when standing in the stead of the BYBA Partner was work done for that company and not the BYBA Partnership.

94 However, where the Liquidators standing in the stead of the BYBA Partners have jointly incurred a debt, then this debt (axiomatically) is a joint debt of the BYBA Partnership that must be satisfied out of joint assets. The decision to retain BYBAPL as their agent is the clearest example. Any liability to BYBAPL would be a joint debt, payable out of joint assets. It may well be that some of the expenses incurred by BYBAPL on behalf of the BYBA Partners are properly characterised as being for the care, preservation and realisation of the assets of the BYBA Partnership, and are thus within the equitable charge.

95 Thirdly, any joint debt incurred by the BYBA Partners under the control of the Liquidators ranks equally with the other joint debts of the BYBA Partnership. It is payable in accordance with PA s 50 and s 59, equally and, if necessary, proportionately. There is no statutory provision disturbing this priority.

96 The net result is that if there are any joint debts incurred by the BYBA Partners acting under the control of the Liquidators, which are not properly characterised as being for the care, preservation and realisation of the assets of the BYBA Partnership, these debts are payable in accordance with PA s 50 and s 57. To the extent that the decision in Amni provides to the contrary, I consider that it is plainly wrong. I do not consider that any direction is required in relation to these debts.

97 My preliminary view is that a direction in the following terms gives effect to the reasons set out above:

1. It is directed that the plaintiffs (as liquidators of the BYBA Partners) will be acting properly and are justified in proceeding to conduct the winding up of the BYBA Partners and the dissolution of the BYBA Partnership on the basis that:

(a) the plaintiffs are entitled to an indemnity secured by an equitable charge against the assets of the BYBA Partnership (including the proceeds and ongoing proceeds of realisation of those assets) for all costs and expenses, including remuneration, reasonably incurred in caring for, preserving and realising the assets of the BYBA Partnership;
>
> (b) the plaintiffs' entitlement to such an indemnity secured by an equitable charge against the assets of the BYBA Partnership has priority over any claims for payment in respect of: > > > (i) the debts or claims of the sixth defendant; and
> >
> > (ii) the unsecured debts of the BYBA Partnership (including those of the first, second, third, fourth and fifth defendants).

2. It is directed that the plaintiffs (as liquidators of the BYBA Partners) will be acting properly and are justified in proceeding to conduct the winding up of the BYBA Partners by causing the assets of the BYBA Partnership to be paid out on the dissolution of the BYBA Partnership:

(a) first, in satisfaction of the direction in paragraph 1;
>
> (b) second, to the secured creditors of the BYBA Partnership in accordance with the terms of the security granted;
>
> (b) third, in paying the debts and liabilities of the BYBA Partnership to persons who are not partners with all debts and liabilities to rank equally between themselves and to be paid in full, unless the assets of the BYBA Partnership are insufficient to meet them, in which case they must be paid proportionately.
>
> (c) then as set out in Partnership Act 1895 (WA) s 57.

3. The Originating Process dated 14 July 2015 is otherwise adjourned sine die.
4. There be liberty to apply.
5. The plaintiffs' costs of these proceedings are costs and expenses of realising the assets of the BYBA Partnership.

In this Order:

'BYBA Partners' means:

(a) Little Tiger Pty Ltd ACN 009 072 753 (In Liquidation) as trustee of the BPH Trust;

(b) Gwyngalchu Pty Ltd ACN 123 851 945 (In Liquidation) as trustee for The BPS Trust; and

(c) Nereus Pty Ltd ACN 126 167 039 (In Liquidation) as trustee for The BPM Trust.

'BYBA Partnership' means the partnership formerly carried on by the BYBA Partners known as 'Barringtons Accounting'.

98 I will hear from counsel as to the final wording of the direction.

[1] Woods & White v Little Tiger Pty Ltd (in liq) [2014] WASC 372.

[2] Napoli Affidavit, CSN‑5, page 75, annexure CSN‑7, pages 89 ‑ 91.

[3] Re Universal Distributing Co Ltd (in liq) [1933] HCA 2; (1933) 48 CLR 171, 174 (Dixon J).

[4] Hewett v Court [1983] HCA 7; (1983) 149 CLR 639, 663 (Deane J).

[5] Stewart v Atco Controls Pty Ltd (in liq) [2014] HCA 15; (2014) 252 CLR 307 [22].

[6] Belyea Affidavit, annexure CDB2, page 4.

[7] Belyea Affidavit, annexure CDB1, page 3.

[8] Woods Affidavit, annexure MDW5, pages 56 ‑ 57.

[9] Woods Affidavit, annexure MDW5, pages 56 ‑ 57.

[10] Napoli Affidavit, annexure CSN‑4, pages 63 ‑ 75.

[12] Coats v Southern Cross Airlines Holdings Ltd (in liq) [2000] 1 Qd R 84, 93 (Fitzgerald P, McPherson JA & Thomas J agreeing); Re Bell Group Ltd (in liq); Ex parte Antony Leslie John Woodings as Liquidator of The Bell Group Ltd (in liq) [2013] WASC 409; (2013) 97 ACSR 117 [38] (Allanson J) (Bell 2013).

[13] Bell 2013 [38]; Woods & White [92].

[14] Woods & White [95]; Re One.Tel Ltd [2014] NSWSC 457; (2014) 99 ACSR 247 [33] (Brereton J).

[16] Re Ansett Australia Ltd and Korda [2002] FCA 90; (2002) 115 FCR 409 [44] (Goldberg J); Woods & White [93].

[17] Ansett [65]; One.Tel [33]; Woods & White [95].

[18] Re Arcabi Pty Ltd (Receivers & Managers Appointed) (in liq); Ex Parte Theobald & Herbert [2014] WASC 310; (2014) 288 FLR 236 [8].

[21] Stewart [22] (Judgment of the Court).

[22] Coad v Wellness Pursuit Pty Ltd (in liq) [2009] WASCA 68; (2009) 40 WAR 53 [47] ‑ [49] (Buss JA, Wheeler & Pullin JJA agreeing).

[23] Amni Pty Ltd v Williams [1981] 2 NSWLR 138.

[27] Fourth defendant's submissions, pars 26 ‑ 27.

[28] Fourth defendant's submissions, par 23.

[29] Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd [1974] HCA 22; (1974) 131 CLR 321, 327 ‑ 328 (the Court).

[30] Canny Gabriel (328). See also Commissioner of State Taxation for the State of South Australia v Cyril Henschke Pty Ltd [2010] HCA 43; (2010) 242 CLR 508 [24] ‑ [27] (Judgment of the Court).

[31] As Mason J observed in United Builders Pty Ltd v Mutual Acceptance Ltd [1980] HCA 43; (1980) 144 CLR 673, 686 ‑ 688 (Barwick CJ, Gibbs & Wilson JJ agreeing), a charge of the property and undertaking of a partnership would be a floating charge, whereas a charge over the interest of an individual partner is a fixed charge, in that the property charged is the chose in action comprising the right to a proportion of the surplus after realisation of the assets and discharge of the debts and liabilities.

[32] Atwell & Atwell v Roberts[No 3] [2009] WASC 96 [53] (E M Heenan J).

[33] See generally: Coad [46], [89]; Re Arcabi [66] ‑ [72].

[38] Davies v Littlejohn [1923] HCA 64; (1923) 34 CLR 174, 185 (Isaacs J); Stewart [14]; Hewett (645); Coad [41].

[39] Hewett (668). See also: Hewett (645) (Gibbs CJ); Coad [44].

[41] Stewart [16]; Shirlaw v Taylor [1991] FCA 415; (1991) 31 FCR 222, 228 (Sheppard, Burchett & Gummow JJ).

[42] Shirlaw (228); Lockwood v White [2005] VSCA 30; (2005) 11 VR 402 [34] (Winneke, Buchanan JA & Gillard AJA agreeing); Coad [52]. See also the discussion in Coad [55] ‑ [59] on the principle of 'salvage'.

[43] Stewart [7] ‑ [8] (the fund was held by the liquidator); Coad [12] (the fund was held in trust by a solicitor in an interest bearing trust account).

[44] Australian Securities and Investments Commission v GDK Financial Solutions Pty Ltd (in liq) (No 3) [2008] FCA 448; (2008) 246 ALR 580 [13] ‑ [15] (Finkelstein J).

[45] Coad [49]; Universal Distributing (173 ‑ 175).

[46] Coad [89]; Lockwood [34] (Winneke, Buchanan JA & Gillard AJA agreeing).

[47] Coad [93], [54]; Shirlaw (232).

[49] Coad [71]; Moodemere Pty Ltd (in liq) v Waters [1988] VicRp 31; [1988] VR 215, 221 (Murphy J), 229 (Tadgell J).

[50] Deputy Commissioner of Taxation v Government Insurance Office (NSW) [1993] FCA 464; (1993) 45 FCR 284, 299 (Hill J, Beazley J agreeing).

[51] Young v ACN 081 162 512 Pty Ltd (in liq) [2005] NSWSC 139; (2005) 218 ALR 449 [9] ‑ [12].

[54] Shirlaw (228); Lockwood [34]; Coad [52].

[56] Stewart [23]; Hewett (668 ‑ 669).

[57] Re S & D International Pty Ltd (in liq) (Receivers & Managers Appointed) [2009] VSC 225 [273] (Robson J); Re Arcabi [69].

[62] Re Crown Meats Pty Ltd (in liq) [2013] VSC 118; (2013) 93 ACSR 576 [75], [84] (Robson J).

[65] In Re Rudd & Son Ltd [1984] 1 Ch 237.

[66] Amni (162 ‑ 163); Woodgate v Davis [2002] NSWSC 616; (2002) 55 NSWLR 222 [20] ‑ [25]; Re Brisbane Meat Agencies Pty Ltd [1963] Qd R 525, 531 ‑ 532 (Hart J). See also: McPherson's Law of the Company Liquidation (5th ed, 2015) [12.730].

[72] Re Brashs Pty Ltd (1994) 15 ACSR 477, 483 (Hayne J); Re York Street Mezzaine Pty Ltd (in liq) [2007] FCA 922; (2007) 162 FCR 358 [22] ‑ [23] (Finkelstein J); Sentron Pty Ltd v Australian Securities & Investment Commission [2000] WASC 272; (2000) 158 FLR 147 [10] ‑ [11] (Owen J).

[73] Australian Securities Commission v Marlborough Gold Mines Ltd [1993] HCA 15; (1993) 177 CLR 485, 492 (Mason CJ, Brennan, Dawson, Toohey & Gaudron JJ).

[77] Fourth defendant's submissions, pars 29 ‑ 30.