Pressing Charges: Court Upholds Liquidators’ Claim for Remuneration out of Trust Assets

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By Kirsten Farmer, Partner and Joe Pokoney, Associate

It is said that Sisyphus, the ancient king of Ephyra, is destined for eternity to roll a boulder uphill, only to watch it roll down again. Perhaps Sisyphus should have been a liquidator. One could certainly forgive the liquidator of Aberdeen All Farm Pty Ltd (In Liq) (Aberdeen) for thinking so.

After taking appointment in February 2018, Aberdeen has been embroiled in Supreme Court litigation, by which certain parcels of land were claimed to have been held on trust for Barry McWhinney as a result of an alleged fraud.

That claim was aired before the Real Property List in the Supreme Court of NSW, resulting in orders that the land – ominously known as “Silent Grove” – was held by Aberdeen on trust for Mr McWhinney.

The property itself was encumbered by mortgage in favour of the Bank of Queensland and Mr McWhinney understandably sought to be next in line. The liquidator of Aberdeen, however, sought to be paid remuneration, costs and expenses prior first.

Mr McWhinney opposed the liquidator’s claim.

By Further Amended Interlocutory Process filed on 21 February 2020, the liquidator sought the intervention of the Court, asserting that Silent Grove was charged with the payment of his remuneration, costs and expenses.

In considering the question, Black J drew upon his Honour’s own judgment in Re National Buildplan Group Pty Ltd (subject to deed of company arrangement) [2014] NSWSC 146 in which his Honour distilled (at [34]) the relevant principles in this way:

“…a liquidator may, if acting reasonably, be indemnified out of trust assets for costs and expenses incurred in recovering or attempting to recover, realising or attempting to realise, or protecting or attempting to protect, trust assets and in distributing those assets to the persons beneficially entitled to them. [Counsel] also properly acknowledges that the court may decline to make such an order if a company did not act solely as trustee and has sufficient assets to meet the liquidator’s remuneration, costs and expenses, and where the work done by the liquidator in relation to trust assets may properly be treated as done in winding up the company’s affairs…”

His Honour went on to accept (at [21]) the liquidator’s evidence that the remuneration, costs and expenses related to the identification and preservation of the Silent Grove property, which was held by Aberdeen on trust. The liquidator was therefore entitled to be indemnified from the trust assets for those expenses.

In characterising the nature of that right, the Court quoted with apparent approval the judgment of Brereton J (as his Honour then was) in Re Independent Contractor Services (Aust) Pty Ltd (in liq) (No 2) [2016] NSWSC 106, holding that the liquidator enjoyed the benefit of a claim in the nature of a lien over the trust assets to secure his remuneration, costs and expenses.

One question remained: should the amount claimed by the liquidator be approved? On this issue, too, Mr McWhinney opposed the liquidator.

In approving the liquidator’s claim in the quantum sought, his Honour considered the issue of ‘proportionality’, as explained by the NSW Court of Appeal in Sanderson, as liquidator of Sakr Nominees Pty Ltd (in liq) v Sakr (2017) 118 ACSR 333, and the appropriate methodology of the Court in scrutinising a liquidator’s claim “in a broad way” rather than “a line by line review of the relevant narratives”.

As his Honour identified, this ‘broad’ approach was consistent with recent cases, including the decision of Gleeson JA in Re Banksia Securities Ltd (in liq) (recs and mgrs apptd) [2017] NSWSC 540.

Whilst his Honour’s judgment does not seek to break new ground, it is a timely affirmation for insolvency practitioners as to the Court’s powers to enforce a liquidator’s claim for indemnification out of trust assets, as well as the (increasingly) established approach to the Court’s approval of liquidator’s remuneration.

For further information, please do not hesitate to contact us.

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