In the matter of MINMXT Holdings Pty Ltd (In liquidation)

BARRETT AJA: These reasons are concerned with claims upon a fund that resulted from the sale of real property at Bella Vista of which MINMXT Holdings Pty Ltd (“Holdings”) was the registered proprietor.

Mr Preiner became the liquidator of Holdings on 15 June 2016 upon the making of an order for winding up in insolvency by the Federal Court of Australia. It soon became clear to him that all activities of Holdings had been as a trustee and that Holdings’ sole asset (the land at Bella Vista) was trust property. That circumstance led Mr Preiner to seek from this court an order appointing him to be the receiver of the trust property. [1] The court made orders as follows on 1 August 2016:

In exercise of the power conferred by the second of these orders, Mr Preiner sold the Bella Vista land for a price of $2.5 million. The sale was completed on 28 October 2016. After allowing for expenses of sale and a sum secured by a registered mortgage discharged on completion, the net proceeds received by Mr Preiner were $911,604.68. He continues to hold that sum.

It should be noted that, at an early stage of his administration, Mr Preiner took urgent court action to challenge an earlier sale of the Bella Vista property. Among the orders made on 1 August 2016 was an order under s 468 of the Corporations Act 2001 (Cth) declaring void a disposition of the property by contract for sale made on 13 May 2016 for a price of $2.1 million.

Mr Preiner has approached the court in order to determine the extent of his entitlement to resort to the fund resulting from the sale completed on 28 October 2016. His position is that he is justified in appropriating and retaining for himself out of that trust property the whole of his remuneration for work done as both receiver and liquidator and all expenses duly incurred by him in those capacities. Mr Preiner also says that his right to retain remuneration and expenses out of the fund that now constitutes the trust property is, as to the whole thereof, a right that is superior in point of priority to all other claims upon the fund.

The balance of the fund remaining after satisfaction of the whole of his remuneration and expenses should, in Mr Preiner’s opinion, be paid into court to abide determination of entitlements other than his own. He seeks an order accordingly. As a corollary, he seeks an order that he be discharged as receiver.

Mr Preiner’s application was served on several persons who had agreed to remove caveats from the title to the Bella Vista property in order to allow the sale by Mr Preiner to proceed to completion. Each such person claimed an interest in the land. The agreement to remove the caveat was, in each case, on terms that the net proceeds of the sale by Mr Preiner would be held intact pending determination of rights to that fund.

Four of the persons served appeared and made submissions upon the hearing of Mr Preiner’s application. Those four are Prospa Advance Pty Ltd, Mr Andrew Osborne, Hoot Gold Coast Pty Ltd and Hoot Townsville Pty Ltd. I shall refer to these parties as “the represented respondents”.

Mr A A Narayan, solicitor, appeared for Mr Preiner. Mr M W Young SC appeared for Prospa Advance Pty Ltd. Mr Jarrod White of counsel appeared for Mr Osborne. Mr D J Edney, solicitor, appeared for the Hoot companies.

The represented respondents do not accept that Mr Preiner enjoys, in respect of recoupment of the whole of his remuneration and expenses, a right in respect of the fund that is superior in point of priority to all other claims on the fund. They agree that he has a right to resort to the fund for that total amount but say that the right enjoys priority as against them only to such extent as may be commensurate with an equitable lien arising in accordance with the principle in Re Universal Distributing Co Ltd (1933) 48 CLR 171; [1933] HCA 2 (“Universal Distributing”) as more recently elaborated in Stewart v Atco Controls Pty Ltd (2014) 252 CLR 307; [2014] HCA 15.

The matters for decision, briefly stated, are accordingly as follows:

The first of these issues concerns the position, as regards trust property and recoupment of remuneration and expenses out of it, occupied by, respectively, a receiver of the trust property appointed by the court and the liquidator of a corporate trustee that has become subject to winding up. Principles applicable to each will be examined briefly.

In Moodemere Pty Ltd v Waters [1988] VR 215, Tadgell J said (at 229) that both a receiver appointed by the court and (subject to the terms of his appointment) a receiver appointed out of court have “a right to resort for their proper out-of-pocket expenses and remuneration to the proceeds of realisation of the fund that they are required to realise” and that the right “is limited by reference to the interest in the fund that is enjoyed by the beneficiary or beneficiaries for whom the realisation is made or attempted.” The appointment of a receiver in a case such as the present is a means of countering the jeopardy to which trust property is exposed because of the corporate trustee’s inability to function effectively as trustee after winding up commences. The receiver assumes the role of safeguarding and administering trust property for the benefit of beneficiaries that should have been performed by the corporate trustee. The receiver’s right to remuneration and expenses is to be viewed accordingly.

In the case of a liquidator of a company which (as in the present case) conducted no activities other than as trustee, the proper remuneration of the liquidator, as well as costs and expenses duly incurred, are debts incurred in performing the trust so that the right of indemnity or recoupment out of trust property is attracted. In that connection, reference need only be made to the often cited judgment of Campbell J in Re French Caledonia Travel Service Pty Ltd (2003) 59 NSWLR 361; [2003] NSWSC 1008 and the observation at [201] (based on what was said by King CJ in Re Suco Gold Pty Ltd (1983) 33 SASR 99) that the rights of the company, as trustee, to be indemnified out of the trust property is available to the liquidator for application in the winding up, including in relation to the liquidator’s remuneration and expenses. The right thus accruing to the liquidator of a company that acted exclusively as a trustee is not a right to remuneration under the companies legislation but a right referable to his or her activities in the administration of the trust property. [2]

As to both remuneration and expenses referable to the appointment as receiver and those relevant to the appointment as liquidator, therefore, Mr Preiner has a right which may, in a sense, be regarded as a derivative right based on (and no more or less favourable than) the right of Holdings, as trustee, to be indemnified out of trust property for debts duly and properly incurred as such trustee. That right is exercisable prospectively by way of exoneration or retrospectively by way of reimbursement (see Re Blundell (1888) 40 Ch D 370 at 376-7). It arises simply as an incident of the office of trustee (Worrall v Harford (1802) 8 Ves Jun 4; (1802) 32 ER 250 and is recognised and confirmed by s 59(4) of the Trustee Act:

No party represented on this application took issue with the principles to which I have, to this point, referred. The difference between them concerned the priority to be afforded to the trustee’s right (and, therefore, what I have called the derivative right of Mr Preiner as receiver and liquidator) to resort to trust property. The submission made by Mr Narayan on behalf of Mr Preiner was, as I have said, that the right to retain remuneration and expenses out of the trust property is a right that is superior, in point of priority, to all other claims upon that property.

Mr Narayan sought to make good his submission by reference to isolated statements in decided cases that the trustee’s right to indemnity out of trust property is a “first charge” upon that property. Reference was made to passages in Jennings v Mather [1902] 1 KB 1, Commissioner of Federal Police v Cornwell (1990) 98 ALR 677 and Hayman v Equity Trustees Ltd (2003) 8 VR 557; [2003] VSC 353. Particular emphasis was placed on the following statement of Barton J in Savage v Union Bank of Australia Ltd (1906) 3 CLR 1170; [1906] HCA 37 at 1192: [3]

Mr Narayan submitted that, in accordance with Barton J’s statement, the trustee has a right to assert his or her interest in the trust property in priority to “everybody, including the cestuis que trust” (with emphasis on “everybody”) – so that, whatever the circumstances may be, it is not open to any person in the world to claim an equitable interest in the trust property superior to that enjoyed by the trustee in support of the right of indemnity and reimbursement.

Mr Narayan also placed emphasis on Re The Exhall Coal Co Ltd (1866) 35 Beav 449; 55 ER 970 and, in particular, the headnote of that case in Beavan’s Reports:

In that case, one Bleckley was the trustee of the property of a mining company, including the mine and machinery. The company in trust for which Bleckley held that property had issued debentures supported by a charge over its assets and undertaking. The question was whether Bleckley’s right to recoup his proper outlays out of the trust property had priority over the interests of the debenture holders in that property. The positive answer given by Lord Romilly MR proceeded on the basis that the subject matter of the charge given by the company to the debenture holders was, of necessity, the company’s beneficial interest in the trust property held by Bleckley. The contest was accordingly between the trustee’s right to resort to the trust property in respect of debts properly incurred in the execution of the trust and the beneficial interest in that property enjoyed by the beneficiary and subjected by that beneficiary to the security granted to the debenture holders.

The cases to which Mr Narayan referred do not support the proposition that the trustee’s right to resort to trust property by way of indemnity for debts properly incurred gives rise to an interest in that property that is superior to every other conceivable interest. Barton J’s statement in Savage v Union Bank was made in a context involving competition between the trustee and a creditor at law seeking to levy execution upon trust property. Its apparent breadth is confined by that context: it does no more than confirm that equity will not allow the legal rights of a creditor with a common law judgment to be enforced without appropriate regard for and accommodation of equitable rights. The statement in the headnote to the Exhall Coal case is concerned only with the respective positions of trustee and persons claiming through the beneficiary by virtue of the charge given by the beneficiary over its beneficial interest.

The position of a trustee and the nature of the trustee’s interest in the trust property was summarised as follows in Agusta Pty Ltd v Provident Capital Ltd [2012] NSWCA 26; (2012) 16 BPR 30,397 at [41]:

Descriptions of the trustee’s right or interest in trust property in support of the right of indemnity as “first” or “superior” do no more than acknowledge the respective ranking of the interest of the trustee and the interests of the beneficiaries. The trustee is entitled to satisfaction out of the trust property in priority to the beneficiaries. If and to the extent that equitable interests other than those of the trustee and the beneficiaries subsist in the trust property (for example, because of an equitable mortgage created by the trustee in due exercise of his or her powers), priority as between those other interests and the trustee’s beneficial interest falls to be determined according to general principles of equity.

It can therefore be said that Mr Preiner has a right to resort to the fund in his hands to satisfy his proper remuneration and expenses as receiver of Holdings’ property under the order of 1 August 2016 and as liquidator of Holdings; and that that right (derived as it is from the trustee’s right) constitutes or is reflected in an equitable interest of Mr Preiner in that fund which is superior to the interests of the trust beneficiaries. But that interest does not enjoy any form of automatic priority over equitable interests other than those of the beneficiaries.

In one respect, however, Mr Preiner is entitled to an equitable interest in the trust property in his hands that enjoys priority over the interests of the beneficiaries and whatever equitable interests may reside in the respondents (or others). I refer to the equitable interest arising in accordance with the Universal Distributing principle. In Stewart v Atco Controls Pty Ltd (above), that principle was described in this way (at [22] – [23]):

It was also said in Stewart v Atco (at [16]) that a valid analogy may be drawn with a solicitor's particular lien (as distinct from the general or retaining lien that entitles retention of documents until fees are paid), which arises over any property recovered or judgment obtained by a solicitor's work. The particular lien arises on the equitable principle that the persons who get the benefit of the recovery of money should bear the expense of recovering it.

The essence of the Universal Distributing principle is that an official such as a receiver or liquidator who incurs expenses in due course of administration in caring for, preserving or realising property has a first ranking right for those expenses against any fund thereby created, or the property itself, in priority to any other claimant including a secured creditor.

In Universal Distributing itself, Dixon J referred (at 174) to a claim made for expenditure with respect to “the care, preservation and realisation of the property”. Another formulation (found in the judgment of Buss JA in Coad v Wellness Pursuit Pty Ltd (2009) 40 WAR 53; [2009] WASCA 68 at [96] refers to “costs and expenses, attributable to work done exclusively in caring for, preserving and realising the company’s assets”. An example of expenditure on “care and preservation” of a building given by Spigelman CJ in Dean-Willcocks v Nothintoohard Pty Ltd [2006] NSWCA 311; (2007) 25 ACLC 109 was expenditure on changing locks and providing security guards.

There were, as the represented respondents concede, aspects of Mr Preiner’s administration as receiver and liquidator that were directly related to the recovery, care, preservation and realisation of the Bella Vista property. He retrieved the property from the void contract for sale to which it had ostensibly been subjected on 13 May 2016 and, having done so, proceeded to preserve it and to market it afresh. His efforts resulted in a new contract for sale at a significantly higher price and, after paying out the registered mortgagee, he came to hold the fund of $911,604.68 that remains in his hands.

None of the respondents disputes that, according to the Universal Distributing principle, Mr Preiner has a right, superior to the rights of the holders of equitable interests predating the winding up, to have out of the fund so much of his remuneration and expenses as was related to care, preservation and realisation of the Bella Vista land.

I turn, therefore, to questions of quantification. [5] In view of the conclusions reached to this point, it is necessary to come to a view as to both a total amount and the part of it related to care, preservation and realisation of the property. Because items referable to the receivership and those referable to the appointment as liquidator are both payable out of the fund, there is no need to distinguish between those two classes when determining either the total or the part concerning care, preservation and realisation.

Mr Preiner has placed before the court a very detailed account of the work done and expenses incurred in the course of his administration. That account is contained in his Remuneration Request Approval Report (Exhibit ABP-3 to his affidavit of 15 December 2016) as updated and summarised at paragraph 9 of the affidavit just mentioned. The account runs to some 75 pages and is arranged under several headings. A time-costed basis of remuneration has been adopted, according to hourly rates which are set out. Other possible approaches to quantification of remuneration are, of course, available but it is, to my mind, highly significant that all of the represented respondents have expressed themselves content with the time-costed basis and none has questioned the hourly rates. Those parties have a clear and direct interest in ensuring that only reasonable remuneration is allowed. I am satisfied that their attitude, coupled with the fact that my own perusal has not suggested anything anomalous or questionable in the Remuneration Request Approval Report, makes it unnecessary to consider whether some alternative approach to quantification is preferable. The total amount attributed to the work as a whole is $124,065.70 inclusive of GST (an element for projected work after the date of the report is a component of the total). The represented respondents do not challenge this overall figure which, on my assessment, conforms to the sixth and seventh principles stated by Young CJ in Eq in Ide v Ide [2004] NSWSC 751; (2004) 184 FLR 44 and reflects appropriate proportionality of the kind referred to in Templeton v Australian Securities and Investments Commission [2015] FCAFC 137; (2015) 108 ACSR 545.

When it comes to the question of allocation of remuneration items to categories relevant to the Universal Distributing claim, however, it is the position of the represented respondents that a number of items set out in Mr Preiner’s detailed account of work done did not involve recovery, care and preservation of the Bella Vista property. The items which the represented respondents say should be excluded are:

I do not intend to go through the items line by line. It is sufficient to say that I accept the assessment advanced on behalf of the represented respondents. On that basis, the sum for remuneration that qualifies for priority on the Universal Distributing basis is the sum they accept, being $60,323 (before GST) plus outgoings of $8,274.47.

In the result, therefore, the appropriate orders and directions will be to the following effect:

Implicit in what I have just said is a conclusion that is not, at this point, possible to come to any firm view about the claims of the respondents to the interlocutory process filed on 2 December 2016. Mr Young SC submitted that his client (Prospa Advance Pty Ltd) had sufficiently established its position by evidence to warrant an immediate order in its favour. Mr White and Mr Edney, representing the other represented respondents, submitted that it is premature for any such order to be made. Their submission must be accepted. The represented respondents for whom Mr White and Mr Edney appeared have claims that were considered sufficient to sustain caveats on the title to the Bella Vista land. To this point, however, they have merely addressed the question raised by Mr Preiner’s application. There has not yet been any occasion for any respondent to do more than argue against Mr Preiner’s claim to a first ranking position for the whole of his remuneration and expenses and, in that context, to seek to confine him to what is justified on the Universal Distributing basis. There has been no need for the respondents to address the question of the priorities that prevail among themselves. Nor has any of them been able to assess the merits of the others’ claims to occupy secured positions. If the respondents cannot ultimately agree on these matters, there will have to be a determination by the court.

For the present, I do no more than direct that Mr Preiner do, within seven days, agree with the represented respondents short minutes of orders as generally described at [35] above and file the agreed short minutes by delivery to my Associate..