In the recent decision of Re Sports Alive Pty Ltd (in liquidation)  VSC 69, the Supreme Court of Victoria dealt with questions referred to it by a liquidator in respect of segregated bank accounts which might either be available for costs and the general body of creditors or alternatively only for beneficiaries on whose behalf the trustee should have held funds. It was accepted that the determination was essentially a question of fact, and in the face of ambiguous facts, the Court determined that the onus was on the beneficiaries and not the liquidator.
The liquidators of Sports Alive Pty Ltd (in liquidation) (Liquidators) brought an application under section 511(1) of the Corporations Act seeking a determination from the Court as to whether three term deposits held by Sports Alive:
- constituted “segregated bank accounts” holding moneys received from betting clients of Sports Alive, pursuant to the Race and Sports Bookmaking (Rules for Sports Bookmaking) Determination 2005 (No 4) of the ACT (Rules), and therefore the subject of a statutory trust; or
- while not sourced from moneys received from betting clients, were intended by Sports Alive to be held on trust for the benefit of its betting clients.
The ACT Gambling and Racing Commission (GRC) appeared at the hearing to represent the interests of the betting clients of Sports Alive. It claimed that the moneys in the term deposit were trust moneys held on behalf of betting clients.
It was not disputed that the company held a statutory obligation to hold its betting clients’ funds on trust. However, the Liquidators submitted that the evidence did not show that the term deposits were held on trust, and as such were available to the creditors of Sports Alive.
The Court confirmed that the relevant test was for the Court to be satisfied on the evidence that the source of the moneys in the term deposits are trust moneys, in this case, moneys received from or for betting clients. The Liquidators need not prove that the moneys were not trust moneys.
The Court considered the following as evidence that the moneys in the term deposits were not trust moneys:
- the Liquidators were unable to identify from the accounts of Sports Alive where the funds of the term deposits were originally sourced from;
- the term deposits did not bear any indicia of being a trust account;
- one account was available for set off against non-trust debts, and the other accounts were used as a guarantee and as security, which was inconsistent with the accounts being subject to at trust;
- the audited accounts of Sports Alive described the term deposits as an asset of the company, not as moneys held on trust;
- as at liquidation, Sports Alive should have held some $3.9 million in segregated trust accounts, which it did not, establishing its failure to comply with its statutory obligations; and
- in practice, Sports Alive drew no distinction between moneys that should have been held on trust and its own moneys.
In light of the above, the Court was not prepared to rely on representations of Sports Alive officers that they had complied with their statutory obligations and maintained the required segregated funds on trust, or that there was a clear intention of Sports Alive that the term deposits were held on trust, despite such representations being continually made to the GRC.
The outcome in this decision should encourage liquidators to consider the manner in which segregated bank accounts which purport to hold trust moneys are used, as well as the source of such funds.
This decision provides clear guidance that despite segregated bank accounts purporting to comply with statutory trust regimes, the Court will look to the source of the funds and the intention of the company in determining whether the moneys are in fact trust moneys. This means that such accounts may be available to creditors, and should be tested as such by liquidators, especially since the liquidators do not carry the burden of proof.