In the matter of Courtenay House Capital Trading Group Pty Ltd (in liq)

By Interlocutory Process filed on 18 December 2020, Messrs Jahani and McInerney as joint and several liquidators (“Liquidators”) of Courtenay House Pty Ltd (in liq) and Courtenay House Capital trading Group Pty Ltd (in liq) (“Companies”) seek directions under s 90-15 of the Insolvency Practice Schedule (Corporations) (“IPSC”) and under s 63 of the Trustee Act 1925 (NSW) in respect of certain matters. I will first set out the background to the application and applicable principles, then turn to the factual background and affidavit evidence on which the Liquidators and several interested persons who appeared at the hearing relied, and then address the issues in the order in which they are addressed in the Liquidators’ proposed form of orders.

The Court’s power to give a direction under s 90-15 of the IPSC at least allows the Court to give a liquidator advice as to the proper course of action for him or her to take in a liquidation, and the Court may give directions that provide guidance on matters of law and the reasonableness of a contemplated exercise of discretion, although it typically will not do so where a matter relates to the making and implementation of a business or commercial decision, where no particular legal issue is raised and there is no attack on the propriety or reasonableness of the decision. The power to give directions under this section is wider than its power to give such directions under former s 479(3) of the Corporations Act 2001 (Cth): Walley; Re Poles & Underground Pty Ltd (admins apptd) [2017] FCA 486 at [41]; Warner (liquidator), Re Sakr Bros Pty Ltd (in liq) [2019] FCA 547 at [18]; Re Go Energy Group Ltd [2019] NSWSC 558 at [16]; Re Plutus Payroll Australia Pty Ltd (in liq) (2019) 139 ACSR 536; [2019] NSWSC 1171 at [4].

Section 63 of the Trustee Act in turn authorises the Court to give an “opinion advice or direction on any question respecting the management or administration of the trust property” and permits relief aimed at resolving legitimate doubts held by a trustee as to the proper course of action and protecting the trust and those entitled to it. In Re Australian Pipeline Ltd (2006) 60 ACSR 625; [2006] NSWSC 1316 at [17], Barrett J noted the role of such advice in providing guidance for the future and referred to Marley v Mutual Security Merchant Bank and Trust Co Ltd [1991] 3 All ER 198 at 201 where Lord Oliver of Aylmerton observed that:

In Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar Diocesan Bishop of The Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66; [2008] HCA 42 at [56]–[59], the majority of the High Court observed that there were no implied limitations on the power to give advice or on the discretionary factors relevant to the giving of advice, and the power is confined only by the subject matter, scope and purpose of the legislation, and may be exercised whenever a question arises as to “the management or administration of the trust property” or “the interpretation of the trust instrument”. The majority also noted (at [64]) that the procedure operates as “an exception to the Court’s ordinary function of deciding disputes between competing litigants” and affords a facility for providing “private advice” to trustees although the Court is not bound to give such advice. The function of the Court in a judicial advice application is to determine what should be done in the best interests of the trust: Macedonian Orthodox Community Church St Petka Inc above; Re Estate Late Chow Cho-Poon; Application for judicial advice [2013] NSWSC 844 at [45]. In Equititrust Ltd (in liq) (rec apptd) (recs and mgrs apptd) v Equititrust Ltd (in liq) (rec apptd) (recs and mgrs apptd) (No 4) [2017] FCA 1133 at [7], Jagot J observed, inter alia, that (1) the jurisdiction or power to give judicial advice is not constrained by any implications or limitations not found in the express words of the section; (2) the Court’s discretion is confined only by the subject matter, scope and purpose of the legislation, and there are no implied limitations on the discretionary factors that may arise or rules governing the relative importance of such factors; (3) the judicial advice procedure is intended to be summary in character; (4) a judicial advice application is in the nature of ‘private advice’ and a departure from usual Court proceedings in which there are multiple, adversarial parties and a person served with documents in respect of a judicial advice application is not thereby a ‘party’ to the application; (5) the right to obtain judicial advice protects the trustee, but it thereby also protects the interests of the trust, by enabling the trustee to act in the interests of the trust without fear of being personally liable for costs; (6) the function of the Court in a judicial advice application is to determine what should be done in the best interests of the trust; and (7) the usual form of order is that the trustee “would be justified” in taking the relevant course of action. I have drawn on my judgments in Re Go Energy Group Ltd above at [18]ff and Re Montpac Pty Ltd (in liq) and Global Network Link Pty Ltd (in liq) [2020] NSWSC 1237 at [8]ff for this summary of these principles.

Ms Hulmes, who appears for the Liquidators, in turn submits and I accept that there is no legal impediment to the Liquidators bringing this application without joining representative creditors as defendants, where interested persons have been given notice of the application. Here, affected parties have been afforded an opportunity to be heard although they have largely not taken it up, and that is sufficient in an application under s 90-15 of the IPSC: Re Hawden Property Group Pty Ltd (2018) 125 ACSR 355; [2018] NSWSC 481 at [8]ff. So far as section 63 of the Trustee Act is concerned, investors have all been given notice of this application as is required pursuant to s 63(8) of the Trustee Act and, under s 63(10), any investors who consider their rights may be prejudiced are entitled, but are not required, to apply to the Court for such orders or directions as the circumstances may require.

The factual background to this application has been addressed in earlier judgments of the Court, including Brereton J’s judgment in Re Courtenay House Capital Trading Group Pty Limited (in liq) and Courtenay House Pty Limited (in liq) (2018) 125 ACSR 149; [2018] NSWSC 404 (“Brexit Judgment”) and in my judgment in Re Courtenay House Capital Trading Group Pty Limited (in liquidation) and Courtenay House Pty Limited (in liq) [2019] NSWSC 1113 (“August 2019 Judgment”). The Court of Appeal then determined an appeal from an aspect of the August 2019 Judgment in Caron and Seidlitz v Jahani and McInerney in their capacity as liquidators Courtenay House Pty Ltd (in liq) and Courtenay House Capital Trading Pty Limited (in liq) (No 2) (2020) 382 ALR 158; [2020] NSWCA 117 (“Appeal Judgment”) and Rees J considered an issue as to the application of the principle of hotchpot in Re Courtenay House Capital Trading Group Pty Limited (in liquidation) and Courtenay House Pty Limited (in liquidation) (2020) 147 ACSR 1; [2020] NSWSC 780 (“Hotchpot Judgment”).

The Liquidators fairly summarise that factual background in their written submission as follows:

The Liquidators rely on Mr Jahani’s affidavit dated 18 December 2020, which sets out the history of the liquidation, refers to the several previous judgments and sets out the work which the Liquidators have subsequently done to prepare for a distribution to the Westpac Investors (as defined), and also outlines the process which has been adopted for reviewing proofs of debt received by the Liquidators, cross-checking them against records held by the Liquidators in relation to the Companies and calculating the dividend payable to creditors who have not responded to the Liquidators’ request for information to assist in the calculation of distributions. Mr Jahani also addresses the costs of the appeal proceedings; the position in respect of Kyle Sheridan and investors associated with the “Oceanic Sun Group”, an issue to which I will return below, and a claim by the liquidator of a separate entity, Ocean Sun Collaborative Group Pty Ltd (in liq) (“OSCG”). Mr Jahani also addresses the possible application of the “lowest intermediate balance” rule, which was also addressed in the Appeal Judgment, and expresses the unsurprising opinion that that approach could not practically be applied to the Westpac Investors generally, where it would involve scrutiny of more than 33,000 transactions involving more than 500 investors; difficulty with the treatment of transactions involving unknown sources and previous investors; an inability of investors to verify the results of the calculation for themselves; and significant costs and delays in the liquidation. Mr Jahani also recognises the possibility that it will not be possible to comply with the timing requirements for declaration and payment of a dividend to investors, under reg 5.6.65 of the Corporations Regulations 2001, a matter which I address below.

By his second affidavit dated 23 February 2021, Mr Jahani addressed a minor error in his earlier calculation of the amounts proposed for distribution to Westpac Investors, by eliminating a duplicated claim, where both a company and its director had claimed for the same amount. By his third affidavit dated 8 March 2021, Mr Jahani undertook a further calculation of the amounts proposed for distribution to investors, so as to reflect an observation in the Appeal Judgment that there should be a pro rata deduction of an amount of $60,000 withdrawn on 21 April 2017 across Post-21 April Investors (as defined in the Liquidators’ November 2018 report to the Court), other than in respect of “Category F” investors (as defined). Mr Jahani now seeks judicial advice that he would be justified in implementing proposed calculations on that basis. By a further affidavit dated 12 March 2021, Mr Jahani refers to the amount of $1,791,349.57 which is proposed to be withheld by the liquidators from the distribution to be paid to Westpac Investors and notes that amount is made up of costs and disbursements already incurred by the Liquidators but not yet paid in respect of works done up to and including December 2020 and an amount which is intended to pay for estimated costs and disbursements of the Liquidators from December 2020 until the completion of the Companies’ liquidation. I will address that evidence below in dealing with that matter.

The Liquidators also relied on the affidavit dated 1 March 2021 of Mr McKenzie, their solicitor, who referred to service of the application on legal representatives of several interested parties, and on the Australian Securities and Investments Commission, which indicated that it did not intend to appear or make submissions in respect of the application. The Interlocutory Process and supporting documents were also uploaded to a portal maintained by the Liquidators’ firm for the purpose of notifying creditors of issues relating to the liquidation.

An interested party who was heard in the application, Mr Zadel, relied on his affidavit dated 26 February 2021. Mr Zadel there referred to his contention that the “Oceanic Sun Group” was a fraudulent scheme and that the funds which it (or Kyle Sheridan) claimed against the Companies would be its only asset of significance available to satisfy the claims of investors in that scheme. Mr Zadel referred to the circumstances in which he became aware of the Oceanic Sun Group through another person, to his later being introduced to Kyle Sheridan, and to the circumstances in which he invested $50,000, and subsequently larger amounts, with the Oceanic Sun Group. Mr Zadel also refers to the circumstances in which he subsequently became informed of the suggested failure of the Oceanic Sun Group, such that funds had been lost, and identifies claims which he considers he has against Kyle Sheridan and the other person with whom he was dealing. Mr Zadel also refers to his subsequently becoming aware of OSCG, which it appears was not incorporated until after the Court had made orders in respect of the Companies in April 2017, and he notes that the Liquidators of OSCG have rejected his proof of debt on the basis that OSCG did not exist when he made his investments with the “Oceanic Sun Group”. Mr Zadel supports the Liquidators’ proposal to pay the funds claimed by the Oceanic Sun Group or Kyle Sheridan into Court

Another interested parson, Ms Parr, appeared at the hearing and relied on her affidavit dated 4 March 2021. Ms Parr gave evidence of her introduction to the “Oceanic Sun Group Bank” around August 2016 and her subsequent investment of substantial funds with the Oceanic Sum Group. It is not entirely clear whether Ms Parr invested those funds on her own account or on behalf of another group or unincorporated body known as the “Life Is for Living Project”. Ms Parr refers to her unsuccessful attempts to obtain repayment of those funds in March and April 2020 and to claims by a person associated with the Oceanic Sun Group in April 2020 that the funds had been lost. Ms Parr also submitted a proof of debt to the liquidators of OSCG, but refers to her current understanding that the Oceanic Sun Group was not a legal entity but a non-profit unincorporated “project”. Ms Parr considers that she has claims against two individuals associated with the Oceanic Sun Group, including Kyle Sheridan, and also supports the Liquidators’ proposal to pay the funds claimed by the Oceanic Sun Group or Kyle Sheridan into Court.

The Liquidators seek a direction, under s 90-15 of the IPSC or alternatively s 63 of the Trustee Act that, in calculating the distribution to be made to the Westpac Investors, they are justified in applying, or alternatively not applying, the principle of hotchpot to deposits made by the Post-21 April 2017 Westpac Investors.

The orders made by the Court of Appeal in respect of the Appeal Judgment provided, expressly “[s]ubject to the application of hotchpot”, for the basis on which the Liquidators were justified in determining the amounts to be distributed to Post-21 April 2017 Westpac Investors (as defined). Bell P observed (at [55]) that:

By the Hotchpot Judgment, Rees J in turn gave directions as to the methodology that the Liquidators would be justified in adopting to calculate the funds that were to be distributed to the Westpac Investors and held (at [134]) that the funds in the Westpac Accounts should be distributed in accordance with an approach described as “Scenario 2”. That approach requires any returns or commissions paid to investors to be subtracted from the Capital Outstanding (as defined) to provide a "Net Claim", and the final dividend is then calculated by distributing the net assets by reference to the Net Claim. If an investor reinvested their returns, the new investment is combined with the existing investment for the purposes of the calculation.

The Liquidators note that the precise way in which the doctrine of hotchpot should be applied to the Post-21 April 2017 Westpac Investors deposits has not been the subject of specific consideration by the Court of Appeal or by Rees J. However, it seems to me that the orders made by the Court of Appeal assume that the principle of hotchpot is to be applied in respect of distributions to the Post-21 April 2017 Westpac Investors, in accordance with their concession to that effect at the hearing before it; Rees J has then determined the manner in which the hotchpot principle should be applied, adopting one of the approaches which the Liquidators had proposed; there was no suggestion, in the proceedings before Rees J, that that principle applied differently in respect of earlier investors and the Post-21 April 2017 Westpac Investors; there is no apparent reason why that principle would apply differently in respect of the Post-21 April 2017 Westpac Investors; and none of the Post-21 April 2017 Westpac Investors appeared at this hearing to identify any reason why that principles should apply differently in respect of them. This seems to me to provide sufficient basis to direct that the Liquidators should apply the principle of hotchpot in respect of distributions to the Post-21 April 2017 Westpac Investors. In reaching that conclusion, I recognise that, as Mr Jahani indicated in his affidavit dated 18 December 2020, the application of that principle reduces the amounts payable to two of the Post-21 April 2017 Westpac Investors, one of which will receive no distribution on that approach and the other of which will receive a significantly reduced distribution, after amounts that those investors had previously received from the Companies are taken into account. There is nothing surprising or inappropriate about that result, where it is the result of appropriately taking into account the amounts they had previously received from the Companies as amounting, in substance, to a return on the amounts they had previously invested with them.

Second, the Liquidators seek a direction under s 90-15 of the IPSC and s 63 of the Trustee Act that they are justified in determining that the total costs of the appeal (being representative investors’ costs as ordered by the Court of Appeal and the Liquidators’ costs) should be borne pro-rata by each of the Post-21 April 2017 Westpac Investors and the other Westpac Investors.

Ms Hulmes points out that two sets of orders were made in the Court of Appeal in relation to the costs of the appeal; first by Basten JA and then in the Appeal Judgment; the Liquidators considered there was some doubt about the way in which the two sets of orders operated together, and wrote to the solicitors for the parties who appeared in the appeal to obtain their view as to how the costs of the appeal should be allocated between the “funds” that were the subject of the appeal; and there was agreement between the appellants and the respondents in the appeal that the total costs of the appeal (that is, the appellants’ costs, the respondents’ costs and the Liquidators’ costs) should be borne pro-rata by each of the Post 21 April 2017 Westpac Investors and the other Westpac Investors. Where representative investors within the relevant classes support the position now proposed by the Liquidators, as to the manner in which the Court of Appeal’s orders should be implemented, it seems to me that the Liquidators are justified in acting in accordance with that position. I will make the directions sought in that respect.

The Liquidators seek a direction under s 90-15 of the IPSC and s 63 of the Trustee Act that they are justified in not applying the “lowest intermediate balance rule” in calculating the amounts that are to be distributed to the Post-21 April 2017 Westpac Investors and the other Westpac Investors.

I recognise that, in the Appeal Judgment, the Court of Appeal held that where evidence is available, the lowest intermediate balance rule provides the fairest, most equitable and principled basis for the allocation of limited funds between investors. Bell P described (at [14]) the rule as one which:

It appears that there was reference in submissions on the appeal to the possible application of the lowest intermediate balance rule to those investors who made deposits prior to 21 April 2017. Bell P observed (at [170]-[174]):

The President also observed (at [120]) that:

Bathurst CJ observed (at [5]) that:

The practical concerns recognised in the Appeal Judgment will arise in many cases where the lowest intermediate balance rule might otherwise be applied, since it is hardly desirable that a liquidator expends the monies which might otherwise be distributed to investors in determining the amount that would have been distributed, had the monies not first been exhausted by the costs of that determination.

Ms Hulmes here submits that, since the Appeal Judgment had noted the possible application of the lowest intermediate balance rule to the remaining funds in the Westpac Accounts, the Liquidators had given consideration to whether that rule could be applied the remaining funds in the Westpac Accounts. She submits, by reference to Mr Jahani’s evidence, that the Liquidators have formed the view that “although theoretically the [lowest intermediate balance] rule could be applied to the remaining funds in the Westpac Accounts, there are several complications which would make the approach economically unfeasible and potentially inaccurate.” She notes, by reference to that evidence, that those complications are the significant data size (approximately 33,000 bank transactions) and the need for specialised data analytics software to undertake the calculations; the large number and value of “unknown transactions”, given the poor state of the Companies’ records; uncertainty about the impact that investors who have fully redeemed their investment will have on the application of the lowest intermediate balance rule to the remaining investors; and the significant costs and further time that would be associated with undertaking the exercise as well as the inability for the investors to “cross-check” their net claim when the rule is applied. She notes that, in the light of these factors, the Liquidators have formed the view that the complexities and practical difficulties associated with applying the lowest intermediate balance rule in this case mean that it is not an appropriate course to adopt.

I have referred above to Mr Jahani’s evidence as to the difficulties in applying the lowest intermediate balance rule approach to the Westpac Investors other than the several Post-21 April Investors. I am satisfied that the Liquidators should have the direction they seek, modified to respect the effect of the Appeal Judgment in respect of the Post 21-April Investors, so that they need not apply that approach in respect of the Westpac Investors other than the several Post-21 April Investors. I am satisfied that the application of that approach to other investors would have likely reduced the amount of, and significantly delayed, a distribution to investors generally, and the reliability of its outcome would have been uncertain for the reasons noted by the Liquidators. A question may also arise whether it is desirable that the lowest intermediate balance rule be applied only to a distribution to several investors, where (as is the case here) it cannot be applied to a distribution to investors generally. The form of the direction initially proposed by the Liquidators sought to address that question by not applying the approach required by the Appeal Judgment to the Post-21 April Investors. In oral submissions, the Liquidators fairly accepted that that approach was not open to me at first instance, where the approach to be applied to the Post-21 April Investors had been determined by the Appeal Judgment.

The Liquidators seek a direction, under s 90-15 of the IPSC and s 63 of the Trustee Act, and subject to the direction as to the hotchpot principle to which I have referred above, that they are justified in distributing funds to the Westpac Investors in accordance with the proposed distribution set out in the schedule that is Annexure A to Mr Jahani’s affidavit dated 8 March 2021 (“Westpac Distribution Schedule”) and on the basis that they have deducted reasonable provision for future costs and expenses.

Ms Hulmes points out that the Liquidators put forward two Distribution Schedules, the first of which sets out the Liquidators’ proposed distribution to each of the Westpac Investors (other than in respect of the post-21 April 2017 deposits) (“Westpac Distribution Schedule”) and the second of which sets out the Liquidators’ proposed distribution to each of the Post-21 April 2017 Westpac Investors (“Post-21 April Distribution Schedule”). In calculating the proposed distributions to each investor, the Liquidators have made pro rata deductions to account for costs and expenses already incurred in the liquidation and have also made allowance for estimated future costs and expenses to the finalisation of the liquidation, as specified in an “Estimated Outcome Statement” prepared by the Liquidators which sets out the payments and receipts for the liquidation. The costs of the appeal have also been apportioned between the investors on a pro-rata basis, as noted above. The Distribution Schedules contain two alternative distribution calculations, on the basis that hotchpot applies to the Post-21 April 2017 Westpac Investors’ investments, and on the basis that it does not, and the former approach is supported by the direction to which I have referred above.

Ms Hulmes refers to Mr Jahani’s evidence in support of the direction that the Liquidators are justified in distributing funds to the Westpac Investors in accordance with the proposed distributions set out in the Distribution Schedules, and notes that the Liquidators have calculated the dividend estimates which appear in the Distribution Schedule using the Scenario 2 methodology, consistently with directions of Rees J made in the Hotchpot Judgment. She also refers to Mr Jahani’s evidence as to the way in which the Liquidators verified the claims of each of the investors and notified them of their proposed distribution.

I have considered whether the Liquidators have established that their provision for future costs and expenses of the liquidation is reasonably made. As I noted above, by his affidavit dated 12 March 2021, Mr Jahani refers to an amount of $1,791,349.57 which is proposed to be withheld from the distribution to Westpac Investors, which relates to costs and disbursements already incurred by the Liquidators but not yet paid in respect of works done up to and including December 2020 and an amount which is intended to pay for estimated costs and disbursements of the Liquidators from December 2020 until the completion of the Companies’ liquidation. Mr Jahani sets out a breakdown of those costs and expenses, comprising the Liquidators’ current costs as at December 2020 in the amount of $525,439; his solicitor’s costs as at December 2020 in the amount of $219,717 and costs of solicitors acting for representative parties in the proceedings as at December 2020 in an amount approaching $50,000. He also refers to the Liquidators’ anticipated future costs of completing the liquidation of $550,000; his solicitors’ anticipated future costs of $275,000 and provision for future costs of representative parties from December 2020 in an amount of approximately $73,000. He also refers to an amount of $100,000 set aside under a Settlement Deed with a third party from whom the Liquidator had made recoveries, which may be payable to that third party in specified circumstances.

Mr Jahani also outlines the work done by the Liquidators and his solicitors underlying the claim for outstanding costs; the work done by the solicitors acting for representative parties underlying the claim for their costs; and the anticipated future work underlying the Liquidators’ anticipated future costs, including the preparation of distribution schedules and correspondence with investors in relation to this application and the ultimate distribution of remaining funds to investors, and the carrying out of further investigations in relation to matters arising from recent public examinations, including the possibility of third party claims. He refers to the work which he expects the solicitors acting for the Liquidators to undertake in that respect and to the anticipated claims for future costs in respect of the solicitors acting for representative parties. He also notes that part of the amount allowed for future costs has already been the subject of an order made by Rees J in the Hotchpot Proceedings, directing that the Liquidators would be justified in withholding the sum of $300,000 from distribution for future legal and investigation expenses. Mr Jahani notes that the Liquidators do not intend to pay any part of the outstanding costs or future costs until the Committee of Inspection or, failing that, the Court has authorised them to do so. I note, for completeness, that the Court does not ordinarily exercise a jurisdiction in respect of the approval of disbursements, which is a matter for the Liquidators’ commercial judgment. I am satisfied that this evidence provides a sufficient basis to support the directions sought in respect of the amounts to be withheld in respect of outstanding and future costs. I note that the withholding of those amounts ensures that they will be available for proper costs and disbursements payable by the Liquidators, but does not prevent their future distribution to the Westpac Investors if they are not ultimately expended on such proper costs and disbursements.

I also considered whether this direction merely seeks the Court’s sanction for calculations undertaken by the Liquidators, which should not be necessary once the Court had given direction as to the applicable principles, where the making of those calculations was a matter for the exercise of the Liquidators’ professional skill. Ms Hulmes submits, and I accept, that the direction has a wider scope, since the proposed distribution also reflects the steps that the Liquidators have taken to seek information from investors and to assess their proofs of debt and estimate future costs and expenses of the liquidation as set out in Mr Jahani’s affidavit. Ms Hulmes also refers to several matters noted by Rees J in the Hotchpot Judgment (at [7]), namely that issues of complexity have arisen in this liquidation; the prospect of an attack on the Liquidators’ actions may be higher than usual, where many investors lost significant amounts by reason of the Ponzi scheme operated by the Companies; and that prospect is increased because the Companies did not maintain proper books and records and those which the Liquidators have obtained were of limited reliability. I also note that Brereton J made a direction to a similar effect to that which the Liquidators now seek, in respect of the Companies’ Brexit scheme, although it does not appear that he delivered a written judgment as to his reasons for doing so. On balance, it seems to me that the direction that the Liquidators seek extends beyond a mere approval of the Liquidators’ calculations and is properly given to provide the Liquidators with protection in respect of the complex exercise of dealing with investors’ claims.

The Liquidators also seek a direction that they are justified in distributing funds to the Westpac Investors by paying those funds into the bank account nominated by the investor or alternatively, where no bank account has been nominated, drawing a cheque payable to that investor and sending that cheque to the investor by post. Mr Jahani’s evidence addresses the basis of that manner of distribution; funds were distributed in a similar manner in respect of the Brexit Fund; and it is not apparent that there would be any other practical alternative to the distribution of such funds. I am satisfied that an order may be made on that basis.

The Liquidators seek a further direction that they may distribute any remaining surplus to the Westpac Investors after payment of all future costs and expenses in the same proportion as provided for in these directions. This approach is consistent with the approach taken in the Brexit proceedings, where an initial distribution was followed by a second distribution once all costs and expenses had been finalised. It seems to me that that approach properly addresses the possibility that additional funds are available, because, for example, lesser future costs and disbursements are incurred than have been estimated, in the same proportion as are provided in these orders.

The Liquidators seek a direction, under s 90-15 of the IPSC and ss 63 and 95 of the Trustee Act that they are justified in paying the amounts set out in the “Oceanic Sun Group Distribution Schedule”, being Annexure C to Mr Jahani’s affidavit dated 8 March 2021, into Court. They also seek an order that Kyle Sheridan, Mr Zadel and Ms Parr are to provide them, by their solicitors, with notice of any application that any of them make in respect of the Oceanic Sun Group Funds (as defined). The latter order reflects the fact that the Liquidators have an unsatisfied costs order in their favour against Kyle Sheridan in respect of earlier proceedings. Mr Zadel and Ms Parr support that direction, and Kyle Sheridan opposes it. I note, for completeness, that the Liquidators have not at this time pursued orders 5(b) and 5(c) of their Interlocutory Process, which sought, inter alia, to deduct costs payable to them by Kyle Sheridan to them from the amounts to be paid to the Oceanic Sun Group. They rightly recognise that such an order depends upon the proposition that Kyle Sheridan is the same as the Oceanic Sun Group (as he contends), which is now a matter of controversy.

Ms Hulmes notes that this amount relates to deposits made into the Westpac Accounts on behalf of, or in relation to, the “Oceanic Sun Group”, although it is not apparent that is a legal entity. She points out that Kyle Sheridan is associated with the Oceanic Sun Group and has appeared in these proceedings to make submissions for it in the past and also commenced separate proceedings against the Liquidators and their solicitors bringing claims in respect of funds purportedly invested with the Companies on behalf of himself or the Oceanic Sun Group which were dismissed, under the name K Sheridan v Colin Biggers & Paisley [2019] NSWSC 528. Ms Hulmes also notes that the Liquidators’ investigations indicated that the Oceanic Sun Group appears to have invested $10.6 million in the Companies, being $7.8 million into the Brexit Account and $2.8 million into the Westpac Accounts. In June 2018, Brereton J ordered that the Liquidators would be justified in making distributions to the investors who had deposited funds into the Brexit Account, including the Oceanic Sun Group (after accounting for the Liquidators’ costs and expenses) and, in accordance with that direction, the Liquidators made payments to the Oceanic Sun Group in July 2018 and December 2018, totalling approximately $7.5 million (First Jahani Affidavit [55]-[57]).

Ms Hulmes also refers to Mr Jahani’s evidence that, around July 2020, the Liquidators were contacted by Mr Zadel who informed them that he had invested funds in the Oceanic Sun Group and had been informed that all his funds had been lost (First Jahani Affidavit [64]) and he contended that those funds had been invested with the Companies. In August 2020, the Liquidators received further correspondence from Ms Parr, who also claimed to have invested funds with the Oceanic Sun Group (First Jahani Affidavit [66]). In September 2020, the Liquidators were informed that OSCG was being wound up in insolvency and they have now also received correspondence from OSCG’s liquidator seeking that the funds referable to the Oceanic Sun Group be paid into Court whilst investigations continue. The Liquidators also recognise that OSCG was incorporated on 2 August 2017, after the Companies were wound up, and that plainly suggests that OSCG and the Oceanic Sun Group are not the same.

Ms Hulmes notes that the Court has held, in earlier judgments, that the funds deposited into the Westpac Accounts are held on trust for investors, and she points out that s 95(1) of the Trustee Act relevantly provides that, where trustees have in their hands or control money belonging to a trust, they may pay same into Court, and that provision applies to trustees whether express, implied or constructive: s 99 of the Trustee Act; Residential Housing Corp v Esber (2011) 80 NSWLR 69; [2011] NSWCA 25 at [115]. Ms Hulmes submits that, given the uncertainty about the origins of the funds deposited on behalf of the Oceanic Sun Group, the status of OSCG as a company in liquidation and the allegations made by Mr Zadel and Ms Parr, the Liquidators seek directions that they would be justified in paying into Court the funds that would otherwise have been distributed to the Oceanic Sun Group. She also submits that this would preserve the funds whilst any parties who wish to assert an entitlement to those funds take the appropriate steps, while ensuring that the finalisation of this liquidation is not delayed whilst those issues are resolved.

Mr Macinnis, who appears for Mr Zadel, rightly points out that the Court has not determined Kyle Sheridan’s entitlement to funds payable to the Oceanic Sun Group in any earlier contested proceedings. I recognise that, in proceedings relating to the Brexit Fund, Brereton J directed that the Liquidators would be justified in repaying funds invested by the Oceanic Sun Group to the bank account from which they had been invested, but that order made no determination as to the persons who were entitled to the funds that were returned to that bank account. Mr Macinnis submits that Kyle Sheridan’s ownership of the funds is now put in issue, because Mr Zadel’s evidence raises the question whether those funds were raised from individuals who may have claims in respect of the monies they paid into the relevant account, as distinct from claims for debt or for monies had and received against Kyle Sheridan. In particular, Mr Macinnis identifies the possibility of a claim against relevant funds by way of a trust arising in accordance with the principle in Black v S Freedman & Co (1910) 12 CLR 105 at 110. Mr Macinnis accepts that these proceedings are not the vehicle for final determination of the entitlement of individuals to the relevant funds or of the position of claimants in respect of the Oceanic Sun Group inter se. He nonetheless submits that the funds would properly be paid into Court, where they are the only realistic source of recovery in respect of losses made by individuals who he contends were “defrauded” by the promoters of the Oceanic Sun Group. Mr Macinnis also submits that the payment of funds into Court would operate analogously to a freezing order, and submits that such an order would be justified in the relevant circumstances. I do not consider it necessary to reach a determination as to that question, given the conclusions which I reach on other grounds.

Mr Kaylinger, who appears for Ms Parr, also supports the payment of the funds claimed by the Oceanic Sun Group into Court, and contends that Ms Parr has a legal interest in those funds arising out of potential causes of action against the Oceanic Sun Group (if that is a legal entity as to which proceedings could be brought) and against Kyle Sheridan on several bases. Mr Kaylinger submits that the Court need not determine the validity of those claims and that Ms Parr has an arguable case in respect of them. He also rightly submits that there is, at the least, “a considerable level of ambiguity” as to the legal status of the Oceanic Sun Group and Kyle Sheridan’s relationship with that Group, which is not addressed by any evidence given by Kyle Sheridan in this application. Mr Kaylinger also submits that there is a sufficient basis to give the relevant direction on the basis that otherwise a judgment or prospective judgment against the Oceanic Sun Group or Kyle Sheridan would be wholly or partly unsatisfied where a fraudulent misappropriation of assets or serious wrongdoing is here made out. Again, it does not seem to be necessary to reach a conclusion on that basis.

Mr Phelps, who appears for Kyle Sheridan, submits that the Oceanic Sun Group’s claim against the Companies has been established and accepted on proof of debt since the early stages of the liquidation. That submission is undermined by the uncertainty as to the legal character of the “Oceanic Sun Group”, which would need to be resolved in order to conclude that it (as distinct from individuals associated with it) was a creditor of the Companies. Mr Phelps also submits (and Mr Macinnis accepts as I noted above) that it is beyond the scope of the winding up of the Companies for the Liquidators to seek to investigate the dealings between the Oceanic Sun Group and the Oceanic Sun Group’s creditors. That proposition also assumes that the Oceanic Sun Group is a legal entity and, in any event, the Liquidators do not seek to undertake such an investigation, but instead to pay money into Court where there is uncertainty as to the person or persons to whom it would otherwise be payable. Mr Phelps otherwise does not address the allegations made by Mr Zadel and Ms Parr, and that approach is understandable where it is not necessary to reach a determination as to those allegations in this application.

Mr Phelps fairly recognises that he can cast little light on the legal character of the Oceanic Sun Group, at least on the evidence as it stands. Mr Phelps submits that there is no legal relationship between the Oceanic Sun Group and OSCG, and there is support for that proposition where OSCG seems to have been incorporated after the Court had made freezing and other orders in respect of the Companies. Mr Phelps refers to the Companies’ records of payments made to it, but those records do not take matters further, where they sometimes refer to Kyle Sheridan and the “Oceanic Sun Project”, sometimes to the “Oceanic Sun Group” and sometimes both to the “Oceanic Sun Group” and Kyle Sheridan. No doubt, those records indicate that the Companies understood they were dealing with the “Oceanic Sun Group”, and understood that Kyle Sheridan represented that Group in those dealings, but they do not assist in determining the question of ownership of the relevant funds or the legal status of the Oceanic Sun Group. Mr Phelps also submits that any question of dealings between Ms Parr and the “Creditor” (there referring either to the Oceanic Sun Group or Kyle Sheridan or both) are a matter between Ms Parr and the “Creditor” and are not a matter for the liquidation. That submission requires the qualification that the issues raised by Ms Parr and Mr Zadel have raised a question as to the legal entity to which payment should be made by the Liquidators so as to discharge any claim by the “Oceanic Sun Group”, which at least depends in part upon the identification of a legal entity that corresponds to that description. Mr Phelps rightly notes that no proceedings have to date been commenced by Mr Zadel or Ms Parr, but a payment into Court will preserve the opportunity for them, Kyle Sheridan or other persons who may claim an interest in the relevant funds to establish that claim in a context that other interested parties will have the opportunity to be heard.

It does not seem to me that it is necessary or appropriate to reach factual findings as to the circumstances of the dealings between Kyle Sheridan or the Oceanic Sun Group and Mr Zadel or Ms Parr, where those matters may well be in issue in any subsequent proceedings in which claims are brought against funds that the Liquidator seeks to pay into Court. It seems to me sufficient to support the direction sought by the Liquidators that it is presently impossible to identify a legal entity which meets the description of the “Oceanic Sun Group” and it is by no means apparent whether Kyle Sheridan is, as he contends, that entity; or that he and the other person with whom investors dealt and Kyle Sheridan are together that entity; or whether the investors in the Oceanic Sun Group are together that entity, in the form of an unincorporated association. It is also no longer possible for the Liquidators to pay the amount into the bank account from which it originated, because it appears that account has been closed, and it does not seem to me that the evidence that is presently available would allow the Liquidators to reach any conclusion that the funds could be paid to Kyle Sheridan, without allowing for potential claims by other parties against them.

I am satisfied that the appropriate course, in these circumstances, is for the Liquidators to pay the relevant funds into Court, so that they can complete the distribution of investors’ funds, and potentially proceed to complete the liquidation of the Companies while minimising the future costs incurred in that respect. Those with claims against those funds may then bring any appropriate proceedings in order to seek to have them paid out of Court. I am satisfied that the Liquidators should be given notice of any such application, where they at least have an interest in that application by reason of their claim for costs against Kyle Sheridan.

The Liquidators seek a direction under s 90-15 of the IPSC that they would be justified in proceeding with distributions in accordance with these orders, even if they do not comply with the timetable set out in Part 5.6 of the Corporations Regulations, so far as that part prescribes time periods in which the Liquidators are required to deal with proofs of debt, provided the Liquidators act in accordance with these directions and orders of the Court.

Ms Hulmes notes that, on 26 October 2020, the Liquidators issued a Notice of Intention to Declare a Dividend pursuant to reg 5.6.65(1) of the Corporations Regulations, which indicated that a final dividend was proposed to be declared on or about 18 December 2020, subject to an order of the Court, and required creditors whose debts had not already been admitted to prove their debts by 20 November 2020. The notice was issued in circumstances where the Liquidators wished to put the investors on notice that a final distribution was imminent and provide notice to the wider public of the intention to distribute the funds to creditors (First Jahani Affidavit [106]). Ms Hulmes also points out that Part 5.6 of the Corporations Regulations prescribes the manner in which liquidators are required to deal with proofs of debts and imposes various timeframes in respect of the steps that must be taken.

Ms Hulmes submits that compliance with those statutory timeframes will prove difficult where the Liquidators are seeking the Court’s directions in respect of the final distribution to investors in this case. She submits that, where the final distribution is the subject of this application to the Court, and investors have been notified of this application and of the various steps in the liquidation which have preceded this application, and where the court has held the funds in question are trust funds, a direction should be made that the Liquidators are justified in respect of any non-compliance with Part 5.6 of the Corporations Regulations, in so far as that Part prescribes the manner in which liquidators are required to deal with proofs of debts, if they act in accordance with the Court’s directions relating to the distributions.

I am satisfied that the complexity of this matter has had the consequence that it may be impossible for the Liquidators to comply with those timetables, and that the interests of the liquidation of the Companies and of investors would not be served by recommencing the distribution process, where there is no particular reason to think that the prospects of complying with those time limits would be improved by that approach and where additional costs would be incurred in doing so. In these circumstances, I am satisfied that the Liquidators would be justified in proceeding in the manner they propose and that a direction should be made to give them appropriate protection in doing so.

Accordingly, I make the following orders: