Park & Muller (liquidators of LM Investment Management Ltd) v Whyte No 2

This recent decision will be of much interest to insolvency practitioners. His Honour first considered an application for orders that the remuneration of the administrators and liquidators be paid from the trust property of trust funds administered by the company. His Honour concluded that the liquidators could be paid from the trust property of those funds, but that recourse could only be had to the appropriate amount attributable to each of the relevant trusts, and – to the extent to which the company undertook non-trust business – that the remuneration attributable to the non-trust business must be separated. Second, Jackson J briefly considered the topical issue of the liquidators’ remuneration and the appropriate process to be followed for determining the liquidators’ remuneration in this case.

Jackson J

17 October 2017

This matter concerned an application for orders that the remuneration of the first applicants, as administrators and liquidators, and some expenses, be paid from the trust property of relevant trust funds which were administered by LM Investment Management Ltd (“LMIM”). [2]. The first applicants also applied for an order to determine their remuneration as liquidators of LMIM. [2].

Various issues arose in the application, only some of which are set out below.

Direct payment from trust property

The first applicants claimed direct payment for their remuneration as liquidators, and for some expenses, from the trust property of the funds. [70]. As Jackson J observed, this is not provided for in the Corporations Act 2001 (Cth), which is part of the statutory framework of a liquidator’s management of a company in liquidation. [70]. The assumption underlying the scheme of priority set out in the Corporations Act is that debts and claims will be paid from the “property of the company” – but “where a company is trustee of a private trading trust [as was the case here] the trust property is not property of the company”. [71]. 

The applicants relied “upon the court’s powers, in the context of a company winding up, to order that the liquidator of a trustee company be paid remuneration and expenses from trust property”. [73]. Jackson J noted that, while the cases relied upon accepted a right to an indemnity or allowance from trust property in some circumstances, “the basis in principle for that conclusion [was] not clearly settled”. [73].

His Honour set out the varying views which have been given in the authorities. [75]–[90]. As his Honour observed, some of those formulations tied the entitlement to indemnity for remuneration to the activities of the company as trustee, “whereas others tie[d] it to costs and expenses incurred in relation to protection of the trust assets that would have been incurred in any event”. [89]. Jackson J ultimately approved the formulation in Re Independent Contractor Services (Aust) Pty Limited (in liq) (No 2) (2016) 305 FLR 222, where Brereton J said:

“The liquidators of a company which is the trustee of a trading trust and has no other activities, 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.” [87].

Jackson J concluded:

“[A]lthough there is no shortage of cases under Australian law to suggest that a liquidator may not be entitled to a complete indemnity for the general costs of the liquidation, that reasoning does not appear to apply where the only business of the company that is identified is that the company acted as trustee of the relevant trust or trusts.” [93].

Not solely a trustee of one trust

A related point considered by his Honour was that LMIM was not a trustee of just one trust, and in addition to acting as responsible entity and trustee of other registered schemes, LMIM “had assets in its own right and was carrying on business as a funds’ manager on its own account”. [94]. On the issue of LMIM being a trustee of more than one trust, Jackson J said:

“[T]he circumstance that the trustee is acting for more than one trust does not preclude an order for payment of the liquidators’ remuneration and expenses from trust property, but requires that the recourse be the appropriate amount attributable to each of the relevant trusts.” [96].

And on the issue of LMIM carrying on non-trust business:

“Where the trustee also carries on non-trust business, the position ordinarily requires a separation of the liquidator’s remuneration and expenses that are attributable to the trust from that part of the liquidator’s costs and expenses attributable to the company’s non-trust business.” [97].

Importantly, his Honour emphasised that “[i]t is up to the liquidators to separate the relevant tasks and remuneration and expenses”. [108].

Reasonableness of remuneration

The remuneration of the first applicants as administrators and liquidators was challenged on the basis that the evidence of the applicants did not sufficiently correlate the work which was proved to have been done with that which was reasonable for the purposes of a claim for remuneration. [156]–[157].

Jackson J referred to the leading recent case on remuneration: Sanderson as liquidator of Sakr Nominees Pty Ltd (in liq) v Sakr (2017) 93 NSWLR 459.  [161]. His Honour also noted that the “extent of the description [by the first applicants] and necessity of the task performed in the course of the administration and the liquidation [was] brief”. [163]. Nevertheless, his Honour emphasised that “it is not the function of the court to hypercritically assess the day by day activities or tasks carried out in the course of a complex administration over a lengthy period of time with the benefit of hindsight”. [163].

It was submitted that the matter should be referred to a registrar or special referee. [165]. But, as the hearing progressed, the issues in dispute were confined and it became unnecessary to make such orders. [175]. His Honour also did not order that the remaining questions be referred to a registrar or referee. [301].

In the result, after considering the other issues which arose, his Honour considered that the appropriate course was to give the applicants and the respondent, in light of his Honour’s reasons, the opportunity to agree upon the appropriate form of orders or, failing agreement, to make directions to resolve the remaining questions. [302].

J English