Background
Royal National Capital Alliance Ltd acted solely as trustee of the Royal JC Fund, an investment scheme whose members invested in mortgages connected with developments at Southport, Hope Island and Surfers Paradise. The liquidators realised the Southport security for about $5.2 million, but no other mortgage investment had produced a return.
The liquidators had commenced proceedings to enforce Hope Island guarantees, but one guarantor became bankrupt and another appeared likely to become bankrupt. They sought directions under s 90-15 of the Insolvency Practice Schedule not to conduct public examinations or continue those proceedings, and sought recourse to the Southport proceeds for costs, expenses and remuneration. Southport investors argued that general costs should be divided equally among the three mortgage investments.
The Court’s Holding
Derrington J granted the directions. Given the likely insolvency of the guarantors, the absence of funds apart from the Southport proceeds, and the limited utility of further examinations or litigation, the liquidators were justified in discontinuing the Hope Island proceedings, not pursuing examinations, and distributing the remaining trust property under the earlier 2021 orders.
The Court held that the 2021 orders limited recovery of costs specifically attributable to a particular mortgage investment, but did not address general administration, liquidation and receivership costs. Because the company acted only as trustee and its winding up was inseparable from administering and winding up the trust, the liquidators could recover those general costs from trust property. The Court authorised payment from the Southport proceeds of $234,798.59 plus GST in legal costs and expenses and $135,322.50 plus GST in remuneration, without a one-third apportionment.
Key Takeaways
- A s 90-15 direction may protect liquidators who reasonably decide that further examinations or recovery litigation would be futile.
- Orders allocating investment-specific expenses do not necessarily prevent recovery of general trust-administration costs from trust property.
- Where an insolvent company acted solely as trustee, liquidation and receivership costs may be treated as costs of administering the trust.
Why It Matters
The decision distinguishes between costs traceable to a particular investment and general costs of bringing a trustee company and its trust affairs to an end. It rejects an implied requirement to spread the latter equally across separate investments where neither the trust deed nor prior orders imposed that result.
For insolvency practitioners, the case confirms that directions can be obtained before abandoning uneconomic recoveries and before using remaining trust proceeds to meet properly incurred general administration costs.