In the matter of MINMXT Holdings Pty Ltd (In liquidation) (No 2)

BARRETT AJA: In the course of a brief hearing on 10 March 2017 to settle the form of orders to give effect to my decision of 28 February 2017 (In the matter of MINMXT Holdings Pty Ltd [2017] NSWSC 156), a point of some importance was debated. It concerns treatment of costs ordered against a liquidator or receiver.

The proceeding determined by the judgment of 28 February 2017 concerned the right of Mr Preiner, as liquidator of MINMXT Holdings Pty Ltd and receiver of the trust assets of the MINMXT Holdings Trust, to be indemnified out of those assets for his remuneration and expenses and the priority of that right as against the rights of secured creditors of the trustee. The decision was, in essence, that Mr Preiner is entitled to full indemnity out of the trust assets for his remuneration and expenses but that priority over secured creditors is enjoyed only in respect of remuneration and expenses for recovery, care and preservation of trust property within the principle in Re Universal Distributing Co Ltd (In Liq) (1933) 48 CLR 171; [1933] HCA 2. As to the balance of the remuneration and expenses, the right of recovery out of trust assets ranks after such rights as secured creditors might establish but in priority to the rights of the trust beneficiaries.

The case is one in which a person holding dual offices as liquidator and receiver initiated a proceeding in order to obtain quantification of his remuneration and a determination that he was justified in drawing that remuneration and his expenses from the trust property in his hands. He achieved those aims, as well as a determination that part of the remuneration and expenses enjoyed first priority in accordance with the Universal Distributing principle. A separate aspect of the proceeding involved a contention by the office-holder that his right to resort to trust assets beyond the amount within the Universal Distributing principle was superior, in point of priority, to the rights of secured creditors. Persons claiming to be secured creditors (and joined by the office-holder as respondents) did not oppose the first aspect of the application; but they successfully opposed the second.

Given that outcome, Mr Preiner does not seek to resist an order that he pay the costs of the respondents who successfully argued that his first-ranking priority is limited to the Universal Distributing component. He maintains, however, that his liability for the costs of the respondents should be limited to the extent of the trust assets and that, if those costs exceed the assets remaining after priority claims have been met in full, he should not be personally liable for the excess.

In submitting that Mr Preiner’s liability to the respondents for their costs of the proceeding should be limited to trust assets available after satisfaction of both his own first ranking right under the Universal Distributing principle and the rights of secured creditors as eventually established, Mr Narayan pointed to the following passage in the judgment of Emmett J in Wilson v Official Trustee in Bankruptcy [2000] FCA 1251 (at [56]-[57]):

In contending that the court should not impose the limitation Mr Preiner seeks (and that he should be fully liable for costs but entitled to indemnity from the assets, as far as they extend, according to the priority already mentioned), Mr Young SC referred to a number of cases. One is the decision of the Court of Appeal in Silvia v Brodyn Pty Ltd [2007] NSWCA 55; (2007) 25 ACLC 385, a case concerning a liquidator. It is appropriate to quote the following passage at [50] – [54] in the judgment of Hodgson JA (with whom Ipp and Basten JJA agreed):

Mr Preiner’s application for quantification of remuneration and the dispute about priority arose in the due course of administration. His own costs and expenses of the application are properly payable out of the estate – and it is not disputed that the costs awarded against him are likewise properly to be borne by the estate. The question is who should suffer financially if the estate is insufficient to pay the costs awarded against Mr Preiner: the persons entitled to have him pay those costs or Mr Preiner himself?

The answer, to my mind, lies in something said by Oliver J in the passage from Re Wilson Lovatt & Sons Ltd [1977] 1 All ER 274, at 285 quoted by Hodgson JA in Silvia v Brodyn Pty Ltd (above):

The same thinking, as it applies to a case obviously more extreme than the present, emerges from the judgment of Chadwick LJ in Walker v Walker [2006] 1 WLR 2194; [2005] EWCA Civ 247 at [23]:

Mr Preiner took it upon himself to institute proceedings against the putative secured creditors by making them respondents to his application in relation to remuneration and expenses. Issue was joined on the question of the priority attracted by Mr Preiner’s claim for the balance of remuneration and expenses. The court determined the competing claims of Mr Preiner and the respondents in relation to application of the fund. Mr Preiner’s claim that his personal right to remuneration and expenses beyond the Universal Distributing component was superior to the respondents’ secured creditor rights (as ultimately established) was determined adversely to him. Whatever may be the import of the statement in Wilson v Official Trustee in Bankruptcy about a trustee in bankruptcy quoted above, there is no reason why Mr Preiner should be shielded in the way he seeks from the full force of the adverse costs order related to determination of his personal right.

The orders in consequence of the decision of 28 February 2017 are as follows: