Morgan, in the matter of Brighton Hall Pty Ltd (in liq)  FCA 970 considered whether a liquidator can claim remuneration in preference to third parties who would otherwise be given priority under s 562 of the Corporations Act 2001 (Cth) (CA).
Brighton Hall Securities Pty Ltd (in liquidation) (Company) provided financial services to investors. Between 2001 and 2005, the Company advised clients to invest in property development schemes marketed by the Westpoint Group of companies (Westpoint). However, by late 2005 Westpoint had gone into external administration. In May 2005, the Company began receiving claims from clients who had invested in Westpoint. In accordance with their insurance policy, the Company notified Allianz (Insurer) about these claims. As a result, the Company was unable to renew their insurance policy and, as of May 2007, was unable to operate as a financial services provider. In September 2007, three liquidators were appointed as joint and several liquidators of the Company - Mr McMaster, Mr James and Mr Morgan. Both Mr McMaster and Mr James subsequently retired from their positions in 2011.
There were several companies in the Westpoint Group including Market Street Mezzanine Ltd (Market Street). The Company advised clients to invest in ‘Market Street Mezzanine Notes’ issued by Market Street. In 2002, Market Street entered into a Deed of Trust with State Trustees Limited (State Trustees). State Trustees acted as the trustee for holders of the Mezzanine Notes.
In March 2008, ASIC commenced proceedings against State Trustees on behalf of Mr and Mrs Casey, former Westpoint investors (Casey proceedings). On 16 March 2009, the Court granted leave to State Trustees to commence a cross claim against the Company seeking indemnity and/or contribution. State Trustees commenced the cross claim on 19 March 2009.
In December 2009, ASIC and State Trustees settled the matter and executed a deed of settlement. In February 2010, the Court made orders; however the cross claim remained on foot.
On 7 October 2009, ASIC commenced proceedings against the Company on behalf of Mrs Lawrence, a Westpoint investor (Lawrence proceedings). In November 2009, the Court granted ASIC leave to commence proceedings under s 50 of the ASIC Act 2001 (Cth). The Company did not enter an appearance or file a defence in this proceeding.
The liquidator for the Company, Mr Morgan (Liquidator), applied to the Court for orders about how to distribute $2 million in settlement monies received from the Insurer in satisfaction of a claim under the Company’s insurance policy towards the Company’s liability to third parties.
The Court addressed several key questions when reaching a decision about the distribution of the insurance proceeds. This article will focus on the questions relating to remuneration of the liquidators.
Should the costs of the Liquidator’s application be paid from the insurance proceeds?
The Court referred to the case of Butterell v Douglas Group, where Young J observed that the ‘court traditionally has the power to order that the costs of people bona fide disputing as to the distribution of a fund be paid out of that fund’. The Court agreed with this interpretation and held that Mr Morgan should have costs of and incidental to the application awarded to him.
Was the Liquidator entitled to deduct his fees and expenses from the insurance proceeds?
The Court noted that the main area of dispute was whether Mr Morgan was allowed to deduct his remuneration from the insurance proceeds. The Court considered the term ‘expenses’ in the context of ss 562 and 556(1) of the CA. The held that the word ‘expenses’ as in s 562 of the CA should be given the same expansive meaning as in s 566 CA. As a matter of general law, Mr Morgan should be ‘entitled to fair remuneration in the circumstances of the case’.
In reviewing the statutory interpretation of the term ‘expenses’ the Court noted that it would be unlikely that the legislature would expect a liquidator to ‘work to achieve a benefit for creditors without being remunerated’. The Court also held that Mr Morgan was entitled to secure his right to an indemnity for costs and expenses by asserting an equitable lien over the proceeds.
This case reinforces the importance of a liquidator’s role in the winding up of a company and pursuing claims. Notably, creditors will have difficulty asserting a right to a settlement sum without acknowledging the costs the liquidator incurred in obtaining the result for the creditors.