Federal Court of Australia Australian Securities and Investments Commission v Realestate Equity Investment Trust (No 2) [2020] FCA 1578 File number: VID 820 of 2017 Judgment of: MURPHY J Date of judgment: 16 October 2020 Date of publication of reasons: 29 October 2020 Catchwords: CORPORATIONS – winding up of a managed investment scheme and related company – receivers and liquidators appointed – whether receivers are justified in distributing property of the scheme and related company on a pooled basis – principles applicable to deficient mixed trust accounts – power of the Court to make the directions sought by the receivers – consideration of the claims of various creditors, claimants and unit holders – principles relevant to ASIC recovering the cost of its investigations – receivers' and liquidators' remuneration and expenses Legislation: Australian Securities and Investments Commission Act 2001 (Cth) s 91 Corporations Act 2001 (Cth) ss 461(k), 472(1), 479(3), 511, 601ND, 1617(4) Federal Court of Australia Act 1976 (Cth) s 23 Insolvency Law Reform Act 2016 (Cth) Federal Court Rules 2011 (Cth) r 14.23 Cases cited: 13 Coromandel Place Pty Ltd v CL Custodians Pty Ltd (in liq) [1999] FCA 144; (1999) 30 ACSR 377 Australian Securities and Investments Commission v Letten (No 7) [2010] FCA 1231; (2010) 190 FCR 59 Australian Securities and Investments Commission v Realestate Equity Investment Trust [2018] FCA 50 Dean-Willcocks v Soluble Solution Hydroponics Pty Ltd (1997) 42 NSWLR 209 Georges v Seaborn International (Trustee), in the matter of Sonray Capital Markets Pty Ltd (in liq) [2012] FCA 75; (2012) 288 ALR 240 Guy v Churchill (1887) 35 Ch D 489 In re Universal Distributing Co Ltd (in liq) (1933) 48 CLR 171 Lehman Brothers International (Europe) (in administration) v CRC Credit Fund Limited & Others [2010] EWCA Civ 917 Sanderson as Liquidator of Sakr Nominees Pty Ltd (in liquidation) v Sakr [2017] NSWCA 38; (2017) 343 ALR 524 Stewart v Atco Controls Pty Ltd (in liq) (2014) 252 CLR 307 Stewart v Atco Controls Pty Ltd (in liq) (2014) 252 CLR 307 Division: General Division Registry: Victoria National Practice Area: Commercial and Corporations Sub-area: Regulator and Consumer Protection Number of paragraphs: 160 Date of last submission/s: 15 October 2020 Date of hearing: 13 March 2019 and 1 August 2019 Counsel for the Plaintiff: Mr C T Moller Solicitor for the Plaintiff: Australian Securities and Investments Commission Counsel for the Receivers and Liquidators: Mr T R Boston QC Solicitor for the Receivers and Liquidators: Norton Rose Fulbright Counsel for Lotus Capital Group Pty Ltd and Maura McCabe Ms A R Wilson Solicitor for Lotus Capital Group Pty Ltd and Maura McCabe: Sladen Legal Counsel for Ahmed Saadeldin: Mr T Kay and Mr D J Hancock Solicitor for Ahmed Saadeldin: Pasha Legal Counsel for Starnet Legal Pty Ltd: Mr K Boden Counsel for Sharmarke Ahmed and Natalie McKeown: Mr T R Alexander ORDERS VID 820 of 2017 BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION Plaintiff AND: REALESTATE EQUITY INVESTMENT TRUST (ARSN 094 623 515) First Defendant TIMELINE PROJECT MANAGEMENT PTY LTD (ACN 145 830 851) Second Defendant order made by: MURPHY J DATE OF ORDER: 16 OCTOBER 2020 other matters: The Court has considered the Reports filed with the Court on 9 March 2018, 15 June 2018, 5 March 2019, 25 July 2019 and 26 September 2019 and the letter from the Receivers dated 15 October 2020. THE COURT ORDERS AND DIRECTS THAT: 1. Nicholas John Martin and Andrew Thomas Sallway, having realised and distributed the assets of the Realestate Equity Investment Trust (REIT) may retire as receivers of the REIT, with the retirement effective upon the making of this order. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT MURPHY J: INTRODUCTION 1 In this proceeding the Australian Securities and Investments Commission (ASIC) sought orders to wind up Realestate Equity Investment Trust (REIT or the Scheme), a registered managed investment scheme, together with an associated entity of REIT, Timeline Project Management Pty Ltd (Timeline). REIT had acquired 63.34 hectares of real property zoned for farming use situated at 490 Flinders Avenue, Lara, Victoria (the Lara Property), and the Scheme involved the property being rezoned for residential use and then subdivided into residential lots. Members of the public were invited to acquire a unit in the Scheme by paying an initial subscription of $7,000 and then making monthly payments of a minimum of $300 per month over a five year period. At the end of the five year period, in the first stage of the proposed subdivision, 250 residential property lots would be delivered to the unit holders. The evidence indicated that the majority of the investors/unit holders were unsophisticated persons of limited means and of Islamic faith. 2 On 19 December 2017 I made orders: (a) to direct Lotus Securities Pty Ltd (in liq.) (Lotus Securities), the responsible entity of the Scheme, to wind up REIT under s 601ND of the Corporations Act 2001 (Cth) (the Corporations Act or the Act) and to appoint Nicholas John Martin and Andrew Thomas Sallway of BDO Australia (the Receivers) as the persons responsible for ensuring REIT is wound up in accordance with its constitution and the orders, and as the receivers of REIT's property; (b) to wind up Timeline under s 461(k) of the Act on the ground that it is just and equitable to do so and to appoint Mr Martin and Mr Sallway as joint and several liquidators under s 472(1) (the Liquidators); (c) for the Receivers to conduct investigations aimed at, amongst other things: (i) identifying the assets in REIT and Timeline; (ii) identifying the unit holders in the Scheme and verifying the quantum of their investments; (iii) identifying the creditors of REIT and Timeline and the monies owed; (iv) ascertaining the status of an agreement between Lotus Securities and Equitable Financial Solutions Pty Ltd (EFSOL) dated 16 May 2016 entitled the "Musharakah Agreement" under which EFSOL purported to acquire a 52% interest in REIT's only substantial asset, being the Lara Property, in return for payment of $400,000 and a promise to pay a further $107,000; and (v) calculating the payments to be made to any creditors of the Scheme and the distributions that can be made to unit holders in the Scheme and obtaining appropriate legal advice in that regard; (d) that until further order, the defendants by themselves their agents, employees or associates be restrained from selling, charging, mortgaging or otherwise dealing with the Lara Property and from withdrawing, transferring or otherwise dealing with any of Timeline's funds; : see Australian Securities and Investments Commission v Realestate Equity Investment Trust [2018] FCA 50. 3 In summary, I ordered the Scheme to be wound up because, amongst other things; (a) it was insolvent; (b) it had not had a responsible entity since September 2016 and it was unlikely that a suitable entity could be found to take over; (c) the purpose of the Scheme had failed; (d) REIT and its management had persistently failed to comply with their obligations under the Act including by operating without a responsible entity; (e) many of the important books and records of REIT were either never created or were missing; (f) unit holders funds had not been properly accounted for and there were grounds for concern that they may have been misused; (g) there were reasonable grounds for concern that the Product Disclosure Statement in relation to the Scheme was misleading or deceptive; (h) ASIC had a justifiable lack of confidence in the control and management of the Scheme; and (i) the affairs and management of the Scheme were being conducted in a manner that was prejudicial to unit holders' interests and unit holders' funds were therefore at risk. 4 Over the course of the following year I received reports from the Receivers in relation to the investigations, and made orders dealing with a variety of issues that arose, including orders to pool the assets of REIT and Timeline into a fund; for payment from the fund to persons who established an entitlement in relation to claims against the fund or the Lara Property, to refuse some claims, and to pay the costs and disbursements of ASIC, the Receivers and the Liquidators. Happily, the amount achieved on the sale of the Lara Property substantially exceeded the valuations that had been received and as a result all creditors and claimants who established their claims were paid in full, and the unit holders received more than they had invested, although not the blocks of land that they had hoped to acquire. 5 On 3 October 2019 I made orders for the rateable distribution of the balance of the fund to those unit holders who were entitled to a distribution, and once those distributions were made for the Receivers to resign. On 15 October 2020 I received a final report from the Receivers in which they said they had realised and distributed REIT's assets. They sought orders that they be allowed to retire, effective immediately. The Receivers reported that the unit holders had received a return of 107.85 cents in the dollar for their investment. On 16 October 2020 I made the order sought. 6 I now provide reasons for the various orders. THE 19 MARCH 2018 ORDERS 7 On 9 March 2018 the Receivers filed a detailed report regarding their preliminary investigations that had been ordered. The Receivers had corresponded with the following parties seeking information and documentation: (a) EFSOL and its lawyers; (b) Timeline's directors, Sharmarke Ahmed and Natalie McKeown, as well as John Isaacs, a promoter of the Scheme and former director of Lotus Securities; (c) GSM Lawyers, lawyers for the original vendors of the Land; (d) Nicholas James Lawyers, former lawyers for Lotus; (e) Hall & Wilcox, lawyers for Studley Financial Services Pty Ltd (Studley Financial); (f) Starnet Legal Pty Ltd (Starnet Legal), former lawyers for REIT, Mr Isaacs and Timeline; (g) Daniel Juratowitch of Cor Cordis, one of the joint and several liquidators of Lotus Securities; (h) the investors in the Scheme identified by ASIC; and (i) various banks and financial institutions. There had however been a general lack of co-operation from many of the parties from whom the Receivers had sought information or documentation which had impeded the Receiver's ability to fully investigate and evaluate the financial position and conduct of Timeline and the Scheme. 8 The Receivers summarised the results of their initial investigation as follows: (1) Assets: (a) Cash at bank held in the name Timeline totalling $61,810.67; and (b) The Land located at 490 Flinders Avenue, Lara that is held on trust for the Scheme. (2) Unit holders - we understand there are 100 potential unit holders in the Scheme whom invested a total of around $964,862. (3) Creditors – Only two creditors of REIT have been identified totalling $96,408. (4) EFSOL - We have been unable to determine the validity of the EFSOL mortgage asserted as it has not co-operated with our requests for information. (5) Claims – We have sought to contact the Scheme investors to determine the extent of their claims. The information received from investors has not been useful nor extensive enough to make any determination of their claims. (6) Distributions – At this time, we are unable determine if there will be any surplus assets to enable a dividend as we are unable to determine the validity of the mortgage by EFSOL over the Land and the investors' entitlement to it or any proceeds from its realisation. 9 The Receivers considered that the key issue that required resolution was the validity of the mortgage which EFSOL asserted that it held over the Lara Property. They proposed that the Receivers continue to seek details of the alleged mortgage from EFSOL and that the Court issue a subpoena to require EFSOL to deliver the requested documentation which would allow sufficient information to be obtained for the Court to determine the validity of EFSOL'S claimed interest in the Lara Property. The Receivers further proposed that in the meantime they offer the Lara Property for sale, thereby realising the major (and probably only) asset of the Scheme in a way that was transparent and would represent market value. It was implicit in the proposal that the proceeds of sale would be held on trust pending determination of the status of EFSOL's asserted mortgage. 10 I considered the Receivers' proposed orders to be appropriate. On 19 March 2018 I made orders for the Receivers: (a) to take all reasonable steps to sell the Lara Property; (b) to use the funds in Timeline's bank account to pay any out of pocket expenses, (excluding agent's commission) incurred in the sale of the Lara Property; and conduct money and other reasonable costs incurred by any subpoenaed parties; (c) to release the Receivers from any obligation to further investigate the matters the subject of Orders 6 and 7 of the 19 December 2017 orders, except in relation to the status of the Musharakah Agreement and such further matters that the Receivers consider are reasonable and necessary to protect the claims of the REIT investors; (d) to release the Liquidators of Timeline from any obligation to further investigate the matters the subject of Orders 6 and 7 of the 19 December 2017 orders; (e) to grant leave to the Receivers to issue a subpoena to EFSOL requiring it to produce the following documents: Any bank statements, financial records or correspondence relating to any payments made (or received) by Equitable Financial Solutions Pty Ltd (EFSOL) pursuant to the Musharakah Agreement dated 16 May 2016 between (among others) EFSOL and Lotus Securities Pty Ltd or in relation to the discharge of any mortgage over the land at 490 Flinders Avenue, Lara (Volume 9660 Folio 387). (f) to file and serve a further report by 15 June 2018 in respect of the matters in (a), (b) and (c) above. THE 5 JULY 2018 ORDERS 11 On 15 June 2018 the Receivers filed a second detailed report. 12 In large part the report concerned the advertising campaign and sale process to sell the Lara Property. That was a standard process which involved obtaining tenders from three real estate agents servicing the Lara area; selecting and engaging one of the tenderers, Richardson Real Estate, to undertake the marketing campaign and to sell the property; performing works on the property to enhance its presentation, seeking a revised valuation of the property from registered valuers, Herron Todd White (HTW), and then selling the property by public auction. 13 The Lara Property had been purchased for REIT on 14 July 2010 for the sum of $975,000. In December 2017 HTW valued the property at $1.05 million. In the tender process for appointment as the selling agent the competing real estate agents gave price estimates ranging from $1.25 million-$2 million. In the sale process Richardson Real Estate received four pre-auction offers to purchase the property, each for $1.4 million but with different settlement periods. The Receivers rejected each of the offers on the basis that the market was at that time untested, and Richardson Real Estate advised that the offers reflected a minimum pricing level. EFSOL made an offer to purchase the land based on the HTW valuation, which the Receiver rejected. On 9 June 2018 the property was sold under the auctioneer's hammer for $4.015 million, being substantially more than expected. 14 The report also concerned the Receiver's continued investigations into the status of the Musharakah Agreement and claims made by third parties with respect to the Lara Property. Their communications were primarily with the following parties: (a) Starnet Legal, the solicitors formerly engaged by Timeline; (b) EFSOL via its solicitors, Kemp Strang. EFSOL is a party to the Musharakah Agreement and claimed an interest in the Lara Property, although it had not cogently articulated the nature of that interest; (c) Nicholas James Lawyers, the solicitors formerly engaged by the responsible entity of the Scheme, Lotus Securities; (d) NJ Capital Investment Fund Pty Ltd (NJ Capital) via its sole director and secretary, Nikola Terziovski, the director and secretary of Nicholas James Lawyers). NJ Capital asserted that it advanced money to Lotus Securities pursuant to a loan, which was secured by a mortgage over the Lara Property; and (e) various parties to whom EFSOL claimed to have made payments on behalf of Lotus, pursuant to the terms of the Musharakah Agreement. These include David Carlile, a barrister formerly briefed to act on behalf of Timeline in the proceeding and Roumald Andrew, a barrister formerly engaged to provide advice to REIT and Timeline. 15 The Receivers identified the following two claims against the Scheme or against the Lara Property: (a) EFSOL claimed both an "ownership" interest of 52% in the Lara Property pursuant to the Musharakah Agreement and an interest under an unregistered mortgage provided by Lotus Securities to EFSOL. EFSOL had not however cogently articulated its claimed interest, despite several requests to do so. The mortgage document that EFSOL provided to the Receivers had not been signed by the registered proprietor of the property, Perpetual Nominees Limited (Perpetual); and (b) NJ Capital sought recovery of $250,000 allegedly owing by Lotus Securities to NJ Capital pursuant to a loan agreement entered into on around 27 May 2015. NJ Capital said that a caveat had been lodged against the title to the Lara Property to secure its investment. However, as at the date of the Receivers' report, no such caveat had been lodged. 16 The Receivers considered that the appropriate next steps included: (a) obtaining the certificate of title of the Lara Property. It was unclear who held the title and it appeared to have been lost; (b) to await settlement of the sale of the Lara Property which was scheduled to occur on 8 October 2018; (c) to pay the proceeds of the sale into an interest-bearing trust account until the Court made directions as to how the proceeds were to be disbursed; (d) to continue to make inquiries and investigate the claims against the Scheme or the Lara Property to assist the Court in making directions as to the distribution of the funds from the sale, including: (i) seeking orders requiring the claimants to present their evidence about the interests that they claim; and (ii) seeking orders to undertake investigations to determine the extent and nature of investors' claims against the Scheme and the Lara Property, including the amount to which investors claim to be entitled. 17 I considered the proposed further steps to be appropriate. On 5 July 2018 I made orders including the following: (a) by 17 August 2018, each of EFSOL, NJ Capital, Ahmed Saadeldin and Starnet Legal file and serve on the Receivers an affidavit setting out the basis upon which they asserted any claims in relation to the property of REIT including the Lara Property, and exhibiting all documents in support of their claim; (b) by 20 July 2018 the Receivers give notice of the REIT's receivership in an appropriate newspaper or other publication(s), requesting that any party who asserts a claim against REIT and/or the Lara Property provide particulars of the party's claim to the Receivers by a date not less than 14 days after the publication of the notice; (c) by 26 October 2018 the Receivers undertake an assessment of the claims made against REIT and/or the Lara Property and notify each of the claimants and the Court in writing of their preliminary determination in respect of each of the claimants' claims; and (d) by 23 November 2018, each of the claimants notify the Receivers and the Court in writing whether they agree with and accept the determination made by the and if not, to file and serve an affidavit which sets out the basis of the disagreement; and (e) substantially similar orders in relation to the liquidation of Timeline and claims by creditors against it. 18 I also varied the 19 December 2017 orders so as to allow the Receivers to undertake investigations in relation to identifying unit holders in REIT and verifying the quantum of investments made by those unit holders and the nature of those investments. I took that course because it was apparent by then that there would be sufficient funds to allow a substantial distribution to be made to them. The orders provided that the Receivers/Liquidators could investigate such further matters that the Receivers/Liquidators considered to be reasonable and necessary to investigate, assess and/or protect the claims of the unit holders in relation to the property of REIT and/or Timeline. 19 I listed the proceeding for hearing on 13 March 2019 for the Court to determine any claims made against REIT, Timeline or the Lara Property, and to make orders for the distribution of the proceeds of the sale of the property. 20 Subsequently there was some slippage by the parties in compliance with the timetable for the claimants to provide material and for the Receivers to assess that material. On 25 October 2018 I made orders to extend the timetable but to maintain the 13 March 2019 hearing date. THE 13 MARCH 2019 ORDERS 21 On 5 March 2019 the Receivers filed a third detailed report. 22 The Receivers reported that they had received claims from eight separate claimants, but that many of the claims were not well articulated and the evidence in support of those claims was not straightforward. Some of the claimants had more than one claim and some claims appeared to be made in the alternative, although it was not always clearly said to be so. A number of claimants failed to provide additional information which was requested of them. 23 The Receivers said they had nonetheless taken a pragmatic approach, had made an assessment of the claims and recommended that several claimants be paid out from the proceeds of the sale of the Lara Property. A number of other claimants had objected to the Receivers' preliminary assessment and therefore their claims required to be determined by the Court. 24 The Receivers also reported that the books and records of the Scheme which they had obtained were inconsistent with third party records and incomplete. They noted that the directors and promoters of the Scheme had not been forthcoming or cooperative in providing information to them and accordingly they were not satisfied they had a complete record of all payments by investors into the Scheme. Nevertheless they had conducted an analysis of the records on the information that was available to them and concluded as follows: (a) at least 102 investors had purchased units in the Scheme. There may have been up to 110 investors, but the Receivers only had adequate records for 102 of them; (b) the records did not readily allow the Receivers to ascertain which unit holders had redeemed their investment in part or in full; (c) between $1,704,275 and $2,180,554 was paid by individual investors to the promoters of the Scheme. Individual investors made two main types of payments: (i) initial deposits totalling between $643,600 (the amount identified as being deposited into bank accounts) and $758,100 (the amount provided by Mr Isaacs); and (ii) ongoing instalment payments totalling between $1,060,675 and $1,422,454; (d) at least $409,301 of the of the funds paid to acquire the Lara Property came from investors, although the amount could be as high as $505,578; and (e) of the $758,100 which was likely paid by the investors as deposits for their unit holdings, the Receivers were only able to verify about 85% of those deposits as being paid into a bank account. The Receivers were unable to identify what happened to deposit monies that were not paid into a bank account, being approximately $114,500, and about 15% of the total initial deposits recorded in the Isaacs Unit Register. Nor were they able to identify where the rest of the money collected from investors went. 25 Although the total amount payable to the various claimants had not yet been determined by the Court, the Receivers considered it likely that after all claimants' and creditors' entitlements had been paid, as well as the Receivers and Liquidators costs and disbursements, there would remain a balance of the proceeds which, if distributed on a pro rata basis to investors, would return to them more than they had invested. The Receivers proposed that to address the entitlements of investors in the Scheme that they: (a) write to all investors at their last known address stating that there will likely be a return on their investment; stating the likely quantum as indicated by records in the Receiver's position; and seeking their response; (b) informing the investors that if they did not respond within 21 days the assessment will be taken to be correct and the distribution will proceed on that basis; (c) should any investor disagree with the assessment they would be given 21 days to respond and provide supporting information; (d) assess any supporting documentation that is provided in dispute of the initial assessment and adjudicate accordingly, and then proceed to distribute the remaining funds. The hearing on 13 March 2019 26 At the hearing on 13 March 2019 the following parties were legally represented: the Receivers and Liquidators; ASIC; Lotus Capital Group Pty Ltd (Lotus Capital), Maura McCabe, a director and shareholder of Lotus Capital and a representative of the Ludekens family Trust; Mr Saadeldin, an investor/unit holder; and Starnet Legal, a creditor of Timeline. ASIC; the Receivers and Liquidators; Sharmarke Ahmed, a director of Timeline and a claimant against REIT; and Mr Saadeldin each put on written submissions. 27 The evidence before the Court included: (a) affidavits filed by the Receivers and Liquidators including by: (i) Fiona Murray-Palmer, a solicitor employed by Norton Rose Fulbright Australia (Norton Rose), the solicitors for the Receivers and Liquidators dated 19 November 2018, 28 February 2019 and 12 March 2019; (ii) Mr Martin, one of the Receivers and Liquidators, dated 5 March 2019; (b) an affidavit of John Newby of Perpetual dated 21 July 2017; (c) affidavits of Mr Ahmed dated 9 August 2018 and 12 March 2019; (d) an affidavit of Abdoulkader Ahmed sworn 5 March 2019; (e) an affidavit of Mr Terziovski of Nicholas James Lawyers dated 20 August 2018; (f) an affidavit of Usam Siddiqui, a director of EFSOL, dated 18 September 2018; (g) affidavits of Ms McCabe, on her own behalf and on behalf of Lotus Capital, Lotus Securities, the Ludekens Family Trust and the Chestnut Street Unit Trust dated 12 March 2019. Lotus Capital was described as the management services company for Lotus Securities; (h) an affidavit of Ms McCabe's son, Andrew Ludekens, a former director of both Lotus Securities and of Lotus Capital dated 12 March 2019; and (i) an affidavit of Kimani Boden of Starnet Legal dated 30 July 2018. The pooling order 28 The Receivers and Liquidators sought an order that it was appropriate in the circumstances to pool the assets and liabilities of REIT and Timeline into a single fund (Fund) so that the Fund was available for distribution to claimants who establish claims against REIT, investors/unit holders in REIT, creditors of Timeline, and payment of the Receivers' and Liquidators' remuneration and disbursements. It sought orders to treat all investor/unit holder claims based on having paid contributions to REIT and /or to Timeline as a claim against REIT and that such persons have no claim against Timeline in respect of the same contributions. 29 In relation to REIT the Receivers submitted that the Court had power to make such directions under s 23 of the Federal Court of Australia Act 1976 (Cth) (the FCA), and r 14.23 of the Federal Court Rules 2011 (Cth) (the Rules). Section 23 of the FCA provides: The Court has power, in relation to matters in which it has jurisdiction, to make orders of such kinds….as the Court thinks appropriate. Rule 14.23 provides: A receiver may apply to the Court for authority to do any act or thing in a proceeding in the receiver's name or in the name of another party. 30 In Australian Securities and Investments Commission v Letten (No 7) [2010] FCA 1231; (2010) 190 FCR 59 at [270]-[271] Gordon J explained that the Court has power to make a pooling order under s 23 of the FCA. In relation to the predecessor rule to r 14.23 her Honour noted that it provided power to authorise a receiver do any act or thing which the parties might do. Her Honour concluded that the power was "broad" and extended to making a pooling order in that case. I take the same view in relation to the pooling order sought in the present case. 31 In relation to Timeline, the Liquidators submitted that the Court has power to make such directions under s 23 of the FCA, s 479(3) of the Corporations Act or alternatively, s.90-15(1) of Schedule 2 of the Insolvency Practice Schedule (Corporations). Section 479(3) of the Act provides: The liquidator may apply to the Court for directions in relation to any particular matter arising under the winding up. 32 As the Liquidators submitted, s 479 of the Act was repealed by the Insolvency Law Reform Act 2016 (Cth), effective 1 September 2017, but under s 1617(4) of the Act, because this proceeding was commenced prior to 1 September 2017, the "old" Act continued to apply. Thus s 479(3) was available to the Court to grant the relief sought by the Liquidators. The Liquidators argued that any event, if s 479(3) no longer applied, s 90-15 of Schedule 2 to the Insolvency Practice Schedule of the Act empowered the Court to make orders determining any question arising in the external administration of the company. The Liquidators submitted that s 90-15 should be interpreted as broadly as were former ss 479(3) and 511, as per the approach adopted by the Court in Re PrimeSpace Property Investment Limited (in liq.) [2018] NSWSC 919 at [18] (Black J). Further, in Dean-Willcocks v Soluble Solution Hydroponics Pty Ltd (1997) 42 NSWLR 209 (Young J) held that the bankruptcy rule – being that where it is impracticable to keep the assets and liabilities of different companies in a group separate they may be consolidated if the consolidation is for the benefit of creditors generally, and if no creditor objects - also applies in a corporate winding up. 33 I was satisfied that the Court has power to make the pooling order sought. The assets of REIT comprise the $4.015 million proceeds of the sale of the Lara Property (less expenses) and a cash sum of approximately $18,000. The only identified asset of Timeline is cash of approximately $60,000 held in a bank account in Timeline's name. 34 In relation to whether it was appropriate to make such an order in the circumstances of the case it was significant to my view that the investors in the Scheme were told by its promoters to make their investment by paying an initial deposit of $7,000 and then a series of subsequent instalment payments usually in monthly amounts of $300 or $600. Some investors paid their initial deposit in cash, some drew a cheque to Perpetual as custodian for REIT, and others deposited funds directly into the trust accounts of Wantrup & Associates, the solicitors for the Scheme. Some unit holders arranged for their instalment payments to be paid by direct debit drawn from their accounts, but in the period from 1 December 2011 a company named Paygate was engaged to collect instalment payments from unit holders. Those payments were deposited into accounts held in the name of Timeline Project Management, rather than with the custodian of the Scheme or with REIT itself. In the PDS for the Scheme, issued in August 2010, Timeline is referred to as the "Service Provider" and as able to provide "a comprehensive, integrated property management service". It was not the custodian and was not authorised to receive instalment payments under the Scheme constitution. 35 The Receivers and Liquidators submitted, and it is plain having regard to the materials, that when unit holders agreed to instalment payments being collected by direct debit and through Paygate, and paid to Timeline, it was on the understanding that they were to be applied to their investment in REIT (with the ultimate aim of each unit holder eventually owning a lot of land in the proposed subdivision of the Lara Property). They contended that the payments made by investors/unit holders were held on trust by Timeline for them as a form of Quistclose trust where the purpose of the payment to Timeline was for Timeline to apply the funds towards the development of the Lara Property. However, the funds paid into the Timeline accounts were paid out to a number of other accounts and mixed with other funds and Timeline had insufficient assets to repay to unit holders the amounts they had paid on trust. 36 The Receivers and Liquidators submitted that the principles applicable to deficient mixed trust accounts applied, including that all contributors to a deficient mixed fund hold an equitable charge over the entire fund and its traceable proceeds to the value of their contributions, subject to any dealings and costs or are equitable tenants in common of the mixed fund as a whole, including its traceable proceeds and subject to such deductions: Georges v Seaborn International (Trustee), in the matter of Sonray Capital Markets Pty Ltd (in liq) [2012] FCA 75; (2012) 288 ALR 240 at [82]-[86] (Gordon J). 37 The Receivers and Liquidators were able to trace approximately $400,000 of investors' monies being applied towards the acquisition of the Lara Property, but had been unable to trace specific payments made by individual investors into the monies that were applied to that acquisition. They contended that the cost of conducting a tracing exercise to determine whether each investor/unit holder's initial deposits and instalment payments were paid into the accounts in the name of Timeline, Perpetual, Lotus Securities or some other account would not only be prohibitive, but difficult if not impossible to undertake given the state of Lotus Securities' financial records. The Receivers accepted that it might be possible to conduct such a tracing exercise by obtaining the bank records of each investor but said that the cost would be considerable; it would be borne from the assets of the Scheme; and it would therefore reduce the funds available for distribution such that the exercise was of doubtful benefit. 38 In the circumstances I was satisfied that a pooling order was appropriate. It is plain on the materials that unit holders making instalment payments understood they were contributing to their investment in the Scheme. In the absence of a pooling order the claims by unit holders for the return of their monies would be split into two, one claim against the Scheme in respect of the initial deposit which would be readily met from the proceeds of sale of the Lara Property, and another claim against Timeline in respect of instalment payments which could not be met from the assets of Timeline. That would occur in circumstances where there was no proper basis for distinguishing between investors' claims in that way, because: (a) the assets of Timeline are properly the assets of REIT because some of the instalment payments were ultimately received by Timeline; and (b) the investors' claims were the same, whether the initial deposits and instalment payments were paid into Timeline's account or some other account, and each investor suffered from a "common misfortune": Letten at [335] citing Lehman Brothers International (Europe) (in administration) v CRC Credit Fund Limited & Others [2010] EWCA Civ 917. 39 It was significant to my view that, absent a pooling order, Timeline would have insufficient funds to repay unit holders the amounts it had received on trust, and insufficient funds to repay creditors, while the Scheme to which the unit holders intended their instalment monies to be directed did have assets and was likely to be able to pay a pro rata distribution to unit holders that exceeded the total value of their investment. I could see no principled basis upon which it was appropriate to treat unit holders differently on the basis of the bank account to which they were directed to make their instalment payments. 40 Further, and importantly, it was unlikely that any creditor or claimant would be disadvantaged by a pooling order. REIT itself was unable to incur debts, so had no creditors in its own name. The unit holders whose claims might otherwise have to be split into two claims would be advantaged by their claims being satisfied from the combined assets of REIT and Timeline, and the creditors of Timeline would be similarly advantaged by the pooling as they would recover their monies from the pooled fund whereas they were unlikely to be able to do so from Timeline's assets. 41 However, while it was unlikely that any creditor would object to the pooling order, they had not been given notice in that regard. Accordingly I made orders requiring the Liquidators to publish a notice requiring that any creditor of Timeline who objected to the proposed pooling of the assets of Timeline and REIT notify the Liquidators in the Court within 14 days. If no objection was received by the Liquidators within that timeframe, the orders provided for: (a) the assets and liabilities of REIT and Timeline to be pooled into a single Fund available for distribution to claimants who establish claims against REIT, investors/unit holders in REIT, creditors of Timeline, and to pay the Receivers' and Liquidators' remuneration and disbursements; and (b) all unit holders' claims based on having paid contributions to REIT and/or Timeline to be treated as a claim against REIT and for such unit holders to have no claim against Timeline in respect of the same contributions. No objection was received from any creditor or other party and the pooling order accordingly came into effect. The payment to ASIC 42 ASIC filed evidence and submissions in support of it being reimbursed the investigation costs and winding up costs it had incurred. The Receivers and Liquidators did not dispute ASIC's entitlement to such costs nor their quantum. 43 ASIC sought its costs of bringing the winding up proceeding against REIT, pursuant to the orders made on 19 December 2017, which had been taxed in the amount of $75,000. It also sought its costs of bringing the winding up proceeding against Timeline, pursuant to the orders made on 19 December 2017, which had been taxed in the amount of $76,000. These costs were the subject of earlier orders and they had been taxed, and it was therefore appropriate to make that order. 44 ASIC also sought the costs of its investigation into REIT and Lotus which preceded the winding up application in the amount of $22,000, which costs had also been taxed. Under s 91 of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) ASIC is entitled to recover its investigation costs from (amongst others) a person who suffers a judgment or order as a result of an investigation under Div 1 of the ASIC Act. Section 91(1)(e) allows ASIC to make a written order that: …the person pay, or reimburse ASIC in respect of, the whole, or a specified part, of the cost to ASIC of making the investigation, including the remuneration of a member or staff member concerned in the investigation. On 16 August 2018, ASIC provided a written order under s 91 to Lotus Securities, through the Receivers and Liquidators, and claimed reimbursement of its investigation costs. 45 It was plain that ASIC was entitled to provide an order under s 91 to the Receivers and Liquidators in relation to its investigation costs, but there remained a question as to whether those costs could be set against the proceeds of the sale of the Lara Property. ASIC submitted that it was entitled to claim those costs from either the proceeds of sale of the Lara Property or from the Fund, first, under the general principle that costs incurred for the benefit of those interested in the fund or estate should be borne by that fund or estate. It relied upon authorities which provide that where a liquidator has incurred expenses and rendered services in the realisation of an asset, his or her costs and expenses including remuneration may be met from the fund: see, for example, In re Universal Distributing Co Ltd (in liq) (1933) 48 CLR 171, as explained by the High Court in Stewart v Atco Controls Pty Ltd (in liq) (2014) 252 CLR 307 at [22] and [23]. It also relied upon authorities which show that where a solicitor's efforts have enabled property be recovered or judgment obtained, the solicitor will be entitled to the costs and expenses of that work from the recovery. That is because "[i]t is right that they who get the benefit of the recovery of money should bear the expense of recovering it": Guy v Churchill (1887) 35 Ch D 489 at 492 per Lindley LJ, cited with approval by the High Court in Stewart v Atco Controls Pty Ltd (in liq) (2014) 252 CLR 307 at [16]. It also relied upon Chancery practice where, when an action was instituted for the general administration of an estate, the costs of the plaintiffs and all necessary parties were considered as expenses in administering the estate, and are the first charge upon the estate: Daniell's Chancery Practice (7th edition, 1901), pp 998-9. 46 I accepted ASIC's submissions that it had incurred costs and expenses in its investigations to bring about a just result in the interests of investors/unit holders as a whole. As a result of ASIC's investigations and action the Court found that REIT was insolvent, that the affairs and management of REIT were being conducted in a manner that was prejudicial to unit holders' interests and that unit holders' funds were at risk. As a result of ASIC's actions it was likely that the investors/unit holders would recover a substantial part of their investment and its actions were plainly to the benefit of the unit holders. In accordance with the principles cited I considered ASIC's costs should be borne from the Fund. While ASIC has a public function as a regulator and a statutory obligation to conduct such investigations, in circumstances where the investors will enjoy a substantial benefit from its work, and possibly recover more than they had invested, I could see no good reason for the public purse to bear the costs of ASIC's work. 47 It was also relevant that ASIC's order under s 91 was made against Lotus Securities as the responsible entity and trustee of REIT. Lotus Securities was liable to pay those investigation costs and under the terms of the REIT's constitution it is entitled to be indemnified from Scheme property in relation to its expenses and liabilities (see cl 18.1(a); cl 28.3). The Scheme property was now part of the Fund and it was appropriate for ASIC to be reimbursed from the Fund. 48 I made orders for the payment of ASIC's costs in the amount sought. The payment to EFSOL 49 EFSOL made claims against REIT which totalled $462,672.08. It claimed that its interest in the Lara Property was secured by an equitable mortgage, and claimed an interest in the property alleged to arise under the Musharakah Agreement between EFSOL and Lotus Securities. 50 The Receivers submitted that the mortgage that EFSOL sought to rely on was ineffective to create a legal mortgage over the Lara Property as it was not signed by Perpetual as custodian for the Scheme and the registered proprietor of the property. Initially, EFSOL also pressed a claim that pursuant to the Musharakah Agreement it was an owner of 52% of the Lara Property. Later EFSOL reframed its position and turned to argue that the effect of the Musharakah Agreement was to create a security interest in the Lara Property being an equitable mortgage or alternatively an equitable charge. EFSOL contended, and the Receivers accepted, that in either case upon the sale of the Lara Property that security interest became an equitable charge attached to the proceeds of the sale. 51 The Receivers accepted that, on the evidence, EFSOL had a security interest in the proceeds of sale of the Lara Property. The question therefore arose as to the quantum of that interest. 52 The Receivers accepted that EFSOL had advanced $400,000 under the Musharakah Agreement and therefore had an equitable charge in that amount. The Receivers also accepted, with two minor exceptions, that in the period from August 2017 EFSOL made further payments totalling approximately $62,672.08. But having regard to the nature of those payments the Receivers made various submissions including that: (a) the payments could not be properly characterised as "future financial costs associated with owning the land" under the Musharakah Agreement; (b) did not fall within the purpose contemplated under the Musharakah Agreement, being the joint acquisition of the Lara Property; (c) were not payments made to or for the benefit of the investors, REIT or the Lara Property; (d) were not requested by anyone with the authority to bind the REIT; (e) were for services provided to Timeline Consulting Pty Ltd which was a financial advising entity operated by Mr Isaacs, being a different company to Timeline; and/or (f) concerned call centre services in relation to which it was not established whether the costs were attributable to a service provided by EFSOL to Lotus Securities. 53 Shortly prior to the hearing, EFSOL agreed to accept a payment of $400,000 in full and final satisfaction of any claim EFSOL had against REIT or the Lara Property. I accepted the Receivers' submissions that it was appropriate to pay EFSOL that amount and made an order accordingly. The payment to Perpetual 54 Perpetual was appointed as the custodian of REIT on 19 July 2000. It had been the custodian since that date, although it had been inactive because of non-payment of fees. Mr Newby's affidavit set out the fees owed to Perpetual as at July 2017, and by an email to the solicitors for the Receivers on 14 November 2018 he provided an updated summary of the amounts owed, which totalled $98,283.43. The Receivers accepted that the evidence showed that Perpetual was a creditor of REIT and was entitled to be paid its fees in full before the unit holders receive any distribution from the proceeds of sale of the Lara Property. I accepted the Receivers' recommendation that it was appropriate to pay Perpetual that amount and made an order accordingly. The payment to Starnet Legal 55 Mr Boden's affidavit showed that Starnet Legal were the solicitors for Timeline in its unsuccessful opposition to the winding up application, and it claimed an amount of $13,625 plus interest for unpaid legal fees. It exhibited an undated and unsigned costs agreement between "Starnet Legal Pty Ltd" and "John Isaacs, Realestate Equity Investment Trust and Usman Siddiqui" and an invoice addressed to Mr Isaacs. Although the costs agreement was undated the work set out in the invoice showed that the firm was engaged commenced shortly after the winding up proceeding was issued in late July 2017. 56 In the course of the hearing the Receivers accepted that Starnet Legal was a creditor of Timeline, and on that basis was entitled to be paid from the Fund. The Receiver argued, however, that before the claim could be paid it was necessary for Starnet Legal to have the costs assessed. Ultimately the Receivers and Starnet Legal reached a commercial agreement for Starnet Legal to receive $7,000 from the Fund in in full satisfaction of the firm's claims against REIT and Timeline for payment of its costs. I accepted the Receivers' recommendation that it was appropriate to pay Starnet Legal that amount and made an order accordingly. The Receiver's remuneration and disbursements 57 The Receivers also sought an order to determine and fix the remuneration for their work in the sum of $280,493.40 (incl. GST), and $333,552.71 (incl. GST) for disbursements incurred between 17 December 2017 and 28 February 2019, relying on Mr Martin's affidavit of 5 March 2019. 58 The Receivers noted that the 19 December 2017 orders provided that their reasonable remuneration and costs and expenses in relation to the investigations and other matters were to be paid from the property of REIT, and submitted that the orders should be expanded to cover all of the work performed by the Receivers. 59 It is uncontentious that provided a liquidator acts reasonably he or she is "entitled to be indemnified out of trust assets for the costs and expenses incurred in carrying out activities such as identifying or attempting to identify trust assets; recovering or attempting to recover trust assets; realising or attempting to realise trust assets; protecting or attempting to protect trust assets; and distributing trust assets to the persons beneficially entitled to them": 13 Coromandel Place Pty Ltd v CL Custodians Pty Ltd (in liq) [1999] FCA 144; (1999) 30 ACSR 377 at [21]-[23], [34] (Finkelstein J). 60 The investigations the Receivers and Liquidators completed, in accordance with the orders of the Court included: (a) investigating the status of the Musharakah Agreement; (b) ascertaining the validity and value of any interest of EFSOL in the Lara Property; (c) identifying unit holders in REIT and verifying the quantum of investments made by those unit holders and the nature of those investments; (d) such matters that the Receivers and Liquidators considered reasonable or necessary to investigate, calculate or protect the claims of the unit holders of REIT and to assess claims made in respect of the property of REIT and/or Timeline; (e) determining whether investors have a claim against Timeline or against REIT or against both; and (f) identifying any other creditors of REIT and Timeline. The Receivers and Liquidators are entitled to be indemnified out of the assets of REIT or the Fund, but there remained a question as to the appropriate quantum. 61 I accepted the Receivers' submission that the authorities support a time-based approach to calculating remuneration as one appropriate method to calculate and fix a liquidator's remuneration: Sanderson as Liquidator of Sakr Nominees Pty Ltd (in liquidation) v Sakr [2017] NSWCA 38; (2017) 343 ALR 524 at [51] (Bathurst CJ, with whom Beazley P, Gleeson JA and Barrett and Beach AJJA agreed). They contended that the work performed was reasonable and necessary, particularly taking into account the following matters which arose in the period for which remuneration was claimed: (a) the work for which retrospective remuneration was sought was reasonably necessary; confined by orders of the Court to certain subject matters; and did not stray from the parameters set by the orders; (b) Mr Martin was required to deal with some complex issues when investigating the status of the Musharakah Agreement and the relationship between EFSOL and REIT, the claims made against the proceeds of sale of the Lara Property, and the other investigations relating to claims made against the property of REIT or Timeline, including: (i) the law of Islamic finance; (ii) the law on subrogation in respect of one party paying out a secured creditor; (iii) questions of equitable interests in land or other property and the rights and remedies that arise upon payments of sums for a specific purpose; (iv) the question of whether claimants had provided sufficient proof to establish a claim; (v) the extent to which a trustee is entitled to indemnification out of a trust fund for its services; (vi) questions of the validity of documents provided to Mr Martin; (vii) issues in respect of the law of auctions and the sale of land; and (c) the claimants and other parties who asserted rights against REIT and Timeline provided the Receivers with inconsistent and incomplete information which both confused and protracted the investigations. 62 The Receivers and Liquidators described their work as being at "a high level" including: (a) sale of the Scheme's principal asset, the Lara Property, at public auction which resulted in a sale price of $4.015 million, being approximately $2.9 million greater than the midpoint of the valuation range ascribed by HTW in its June 2018 valuation; (b) instructing and liaising with Norton Rose to enquire into and investigate various matters necessary to comply with orders of the Court, including to sell the Lara Property while preserving the investors' interest in the Land, in particular: the validity of various claims against the Land; the validity of the Musharakeh Agreement; and sought, obtained and reviewed information from parties with knowledge of the prior conduct of the REIT and Timeline; from investors, to review and interrogate the integrity of their claims; and from financial institutions, responsible entities and custodians associated with the Company and the Trust, to assess and report on the source and application of funds; (c) dealing with hundreds of enquiries and correspondence from investors; and (d) liaising extensively with a range of third parties to assist in providing data for the purposes of their investigations. 63 The exhibits to Mr Martin's affidavit include detailed billing summaries which contain the name, position, hourly rate and billing information of the practitioners who worked on the matter and broke the billing down into task areas, including: (a) preservation and realisation of assets, $83,087.00 (excl GST) charged for 136 hours of work; (b) dealing with secured claims to property, $28,815.00 00 (excl GST) charged for 49.5 hours of work; (c) managing compliance with the terms of the appointments, $24,140.00 (excl GST) charged for 44.5 hours of work; (d) dealing with investor/unit holder claims, $63,983.00 (excl GST) charged for 138.8 hours of work; (e) investigations, $31,160.00 (excl GST) charged for 56.5 hours of work; and (f) administration, $23,809.00 (excl GST) charged for 56.5 hours of work. Mr Martin deposed, and I accepted, that the work was done efficiently by staff members with an appropriate level of seniority, whose hourly rate reflected that seniority. 64 In addition to their remuneration the Receivers and Liquidators sought payment of internal and external disbursements which had been incurred during the process. The internal disbursements were not material in quantum but the external disbursements totalled $301,882.69 (excl GST) for: (a) the legal fees and disbursements of Norton Rose and counsel: $286,660.45 (b) insurance costs: $2,149.87; (c) bank charges: $220.50; (d) tax advice regarding GST on the sale of land: $3,135.00; (e) valuation: $3,560.40; and (f) marketing and advertising: $6,156.47. 65 Although the Court did not have the benefit of a contradictor on the issue of the Receivers' and Liquidators' remuneration and disbursements, I accepted that the work was often complex and difficult, and certainly time-consuming. In my view the Receivers and Norton Rose worked diligently and effectively to bring this proceeding to a good conclusion for the creditors and investors/unit holders and their work was of a high standard. Having reviewed the various materials I was satisfied that the remuneration and disbursements were appropriately evidenced and were fair and reasonable in quantum having regard to the work involved. I made orders for payment of the amounts sought from the proceeds of the sale of the Lara Property. The remaining issues 66 The Receivers submitted that they had not been provided with full material in respect of the claims of certain claimants and said that given the apparent lack of legal sophistication of some of the claimants they should be given further time as a matter of fairness (the Deferred Claimants, being NJ Capital, Mr Saadeldin and Mr Ahmed). There were also some claimants who had only provided the Receivers with materials in respect of their claims in the last three or four days and the Receivers had not been able to reach a view in relation to those claims in the time available (the Late Claimants, being Lotus Capital, Lotus Securities, Ms McCabe on her own behalf and as trustee for the Ludekens Family Trust and the Chestnut Street Unit Trust (the McCabe Parties), Ms McKeown, and Yvette and Martin Wain on behalf of Eyandee Super SMSF Pty Ltd (Eyandee Super)). 67 The Receivers proposed that the hearing and determination of the claims made by the Deferred Claimants and the Late Claimants be adjourned to another date. None of the claimants opposed that course. 68 I adjourned the hearing in relation to the claims of the Deferred Claimants, and made orders providing for them to file any further material in support of their claims so that the Receivers could undertake a final assessment and notify them in writing of the Receivers' determination. If any of the Deferred Claimants did not accept the Receivers' determination, then their claim was to be listed for hearing and determination by the Court on 1 August 2019. 69 In relation to the Late Claimants, I made orders for them and any other party who asserted it had a claim against the property of REIT to file and serve on the Receivers an affidavit which set out the basis on which they assert any claims in relation to the property of REIT. The orders provided for the Receivers to then assess any such claims, and notify the Late Claimants of their determination in writing. If any Late Claimant did not accept the Receivers' determination, then the Late Claimant was required to notify the Receivers of that fact and the basis of the non-acceptance, and such claim was to be listed for hearing and determination by the Court on 1 August 2019. THE 1 AUGUST 2019 HEARING AND ORDERS MADE 12 AUGUST 2019 70 On 25 July 2019 the Receivers filed a fourth detailed report. 71 The Receivers reported that the pooling orders came into effect in April 2019 and the Liquidators had called for creditors of Timeline to submit final proofs of debt. The Receivers had paid, from the proceeds of the sale of the Lara Property, the various amounts directed pursuant to the orders made on 13 March 2019. 72 The Receivers had continued to investigate the unit holders' claims and had amended their summary of the value of the unit holders' investment in the Scheme. They said 33 of the investors/unit holders had not responded to communications the Receivers sent to them and, of those investors, REIT's records disclosed that 10 of them had earlier redeemed their investment and were therefore not entitled to a distribution from the Fund. The Receivers proposed to deal with any unit holders from whom they had not heard and who were entitled to a distribution by paying any distribution that would ultimately be payable to those unit holders to ASIC's "unclaimed money fund". The Receivers reported that they were, however, unable to calculate or finalise a distribution to unit holders until the amounts payable to all of the various claimants against REIT and Timeline had been conclusively determined. 73 Following the hearing on 13 March 2019, the Receivers received further material in support of claims from seven sets of claimants, which the Receivers had assessed. Six of the seven claimants had disagreed with the Receivers' assessment either in part or entirely, and no response had been forthcoming form the seventh claimant. The Receivers were continuing to engage with the legal firm acting for Lotus Capital and Ms McCabe in her own right and as trustee for the Ludekens Family Trust and the Chestnut Street Unit Trust. 74 At the hearing on 1 August 2019 the Receivers and Liquidators, ASIC, the McCabe Parties, Mr Saadeldin, Mr Ahmed and Ms McKeown were legally represented. The Receivers relied on affidavits by Ms Murray-Palmer dated 12 June 2019 and 25 July 2019; Mr Martin dated 25 July 2019 and Sarah Gard dated 31 July 2019, and filed detailed written submissions. The various claimants relied on affidavits to which I will refer when dealing with their respective claims. Lion Advantage Pty Ltd 75 Lion Advantage relied on an affidavit of David Michael Hickie sworn 30 April 2019, in which he claimed that Lion Advantage incurred $185,660.58 in costs in establishing REIT, of which it had been paid $50,000, and thus that Lion Advantage was owed $135,660.58 which remained outstanding, together with trust management fees in an unstated amount. Mr Hickie deposed that he is a director of Lion Advantage Pty, which was the responsible entity of REIT when it was first established on or about 13 October 2000. He said that Lion Advantage acted as the responsible entity from its registration until it was replaced by Lotus Securities at a general meeting on 18 March 2013. 76 By letter to Lion Advantage's solicitors dated 29 May 2019 the Receivers disputed that claim. They noted that in the period between 30 June 2012 and March 2013 when Lion Advantage was replaced as REIT's responsible entity, ASIC cancelled the Lion Advantage's AFSL and banned Mr Hickie from providing any financial services for two years from 8 August 2012. One of the grounds upon which ASIC cancelled the AFSL was that Lion Advantage had repeatedly failed to lodge audited financial reports on time for itself or for the managed investment schemes it operated. The Receivers concluded that it was unlikely that Lion Advantage was providing adequate management services (if any) to REIT and that Mr Hickie had not in any event quantified any management fees to which he said Lion Advantage was entitled. On that basis the Receivers determined that Lion Advantage was not entitled to recover any sum from REIT in respect of management fees. 77 In respect of the claim of $135,660.58 for establishment costs of the Receivers noted that that Mr Hickie had not provided any evidence showing what the sum was comprised of. Importantly, the PDS dated 25 August 2010 stated "Lion Advantage as the Responsible Entity is entitled to reimbursement of $35,000 establishment costs of the Trust. These establishment costs include the preparation costs of the Constitution and the Compliance Plans for this Trust." Mr Hickie deposed that Lion Advantage had been paid this amount. Further, while Lion Advantage's 2012 accounts indicated that another responsible entity, Austpac Funds Management Limited, had agreed to pay establishment costs of $135,660.58 over time, there was no evidence that Lotus Securities (the eventual replacement responsible entity) agreed to that arrangement. Lotus Securities' accounts for the financial year ended 30 June 2014 did not disclose any contingent (or any) liability to Lion Advantage, and the liquidators of Lotus were not in possession any information in relation to a claim made by Lion Advantage against Lotus. 78 The Receivers concluded that Lion Advantage did not have a legitimate claim for more than the $50,000 that had already been paid in respect of the establishment costs of REIT. The Receivers informed Lion Advantage that if it disagreed with that recommendation, pursuant to the orders of the Court it was to notify both the Court and the Receivers by 26 June 2019 setting out the basis upon which it disagreed with the recommendation, in which case the Court would hear and determine the validity of Lion Advantage's claim on 1 August 2019. 79 Lion Advantage did not notify the Receivers or the Court that it disagreed with the Receivers' recommendation by the due date, or at all. I accepted the Receivers' recommendation that it was appropriate to dismiss this claim and made an order accordingly. Yvette and Martin Wain on behalf of Eyandee Super 80 Mr and Mrs Wain made claims on behalf of their self-managed superannuation fund Eyandee Super SMSF Pty Ltd which related to: (a) a $100,000 loan to Lotus Securities by Eyandee Super via Nicholas James Lawyers or the NJ Capital Investment Trust; and (b) an investment of $14,000 in A class units of REIT. 81 Although there were some deficiencies in the evidence the Receivers' were satisfied that Eyandee Super paid $100,000 into the Nicholas James Lawyers trust account and that it was likely that those funds were then advanced to repay Maria Thong part of the loan of $300,000 she had made to Lotus Securities, which was used in September 2014 to pay out Studley Financial, the then registered mortgagee of the Lara Property. The assertion that NJ Capital loaned $100,000 to Lotus Securities was not borne out by the trust account records. 82 The Receivers considered that Eyandee Super should be subrogated into the secured position of Ms Thong under equitable principles, and be taken to have an equitable lien over the proceeds of the sale of the Lara Property to secure a return of its $100,000. Alternatively, Eyandee Super was a creditor of Lotus Securities and therefore should be repaid $100,000 from the Fund. 83 The Receivers recommended that they be directed to pay the sum of $100,000 directly to Eyandee Super as repayment of the sum it had advanced in February 2015. As I later explain, this recommendation had a corollary in relation to the claim made by NJ Capital itself. 84 The materials before the Receivers also showed that Eyandee Super was allocated two lots of 7,000 units in REIT at a unit price of $1. The Receivers recommended that Eyandee Super be entitled to a pro rata share of the distribution to unit holders based upon it having "A" class units in the Scheme to a value of $14,000. 85 Eyandee Super did not notify the Court or the Receivers that it disagreed with the Receivers' recommendation by the due date, or at all. I accepted the Receivers' recommendations and made orders for the payment of $100,000 to Eyandee Super from the Fund, in full satisfaction of all claims it had against Timeline and REIT (other than its entitlements as a unit holder holding "A" class units in the REIT which would be met by rateable distribution). NJ Capital 86 NJ Capital claimed the sum of $281,784 plus interest from REIT, which liability was said to arise under a loan agreement between Lotus Securities and NJ Capital (the NJ Capital Loan Agreement). NJ Capital relied on affidavits sworn by Mr Terziovski dated 20 August 2018 and 1 May 2019. Paragraphs 45-50 of Ms McCabe's affidavit sworn 12 March 2019 and paragraphs 53-55 of Mr Ludekens' affidavit sworn 12 March 2019 were also relevant. 87 Mr Terziovski deposed that under the NJ Capital Loan Agreement, NJ Capital paid Lotus Securities $250,000 on execution of the loan agreement and a further $265,000 on 26 August 2015. Of that total amount of $515,000, an amount of $284,715.66 was subsequently repaid. 88 The Receivers did not accept that REIT or Timeline owed NJ Capital such an amount, including because, in summary: (a) deposits of $250,000 or $265,000 were not recorded in Lotus Securities' bank statements; (b) the Receivers were not satisfied that $284,715.66 was repaid by Lotus Securities to NJ Capital whether as a repayment under the N J Capital Loan Agreement or otherwise, because the amount of $284,715.76 was, in fact, a repayment made to Ms Thong who advanced $300,000 that was used to partly repay the loan from Studley Financial; (c) Mr Terziovski deposed that a caveat was lodged on the Lara Property to secure the monies advanced under the alleged loan agreement, but there is no record of such a caveat ; (d) according to Ms McCabe the NJ Capital Loan Agreement arose as a result of a formalisation of the $150,000 advanced by Lotus Securities to REIT, and the Receivers were not satisfied that amount was in fact advanced ; and (e) there is no evidence of any payment made by NJ Capital of the second instalment of the alleged loan under the NJ Capital Loan Agreement. 89 The Receivers did not accept that any payment should be made to NJ Capital from the Fund. They expressed concern as to the validity and efficacy of the purported NJ Capital Loan Agreement and concern that the trust account records of Nicholas James Lawyers did not support Mr Terziovski's assertions. They said that despite numerous requests Nicholas James Lawyers had not provided a proper accounting of the funds that passed through its trust account on behalf of Lotus Securities. 90 As I have said the Receivers recommended that, instead of making a payment NJ Capital, it was appropriate to directly pay any individual contributors who could establish an entitlement (as with Eyandee Super referred to above). The Receivers informed NJ Capital that if it disagreed with that recommendation, pursuant to the orders of the Court, it was to notify both the Court and the Receivers by 26 June 2019 setting out the basis upon which it disagreed with the recommendation, in which case the Court would hear and determine the validity of NJ Capital's claim on 1 August 2019. 91 NJ Capital did not notify the Court or the Receivers by the due date, or at all, that it disagreed with the Receivers' recommendation. I accepted the Receivers' recommendation that it was appropriate to dismiss this claim and made an order accordingly. Ahmed Saadeldin 92 Mr Saadeldin relied upon the following material: (a) two affidavits affirmed by Mr Saadeldin dated 9 April 2019 and 29 July 2019; (b) an affidavit of Aisha El-Hag dated 29 July 2019; (c) an affidavit of Salem Al Baidhani dated 30 July 2019; (d) an affidavit of Jamal Nor dated 29 July 2019; and (e) an affidavit of Sharmarke Ahmed dated 12 March 2019. 93 Mr Saadeldin is a marketing executive. In his first affidavit he deposed that in or about May 2010 he paid $180,000 to Timeline, made up as follows; $70,000 in cash paid to Mr Isaacs in person, $40,000 by cheque to Timeline; $20,000 by cheque to Timeline; $40,000 by cheque to Timeline; and $10,000 by bank transfer to Timeline. He said that he did so pursuant to an agreement with Timeline that it would repay those sums plus a fixed return profit of $31,000 by the end of May 2011. 94 He said that by 25 August 2011 Timeline had repaid only $16,000 of the loan. Mr Saadeldin deposed that Timeline acknowledged that debt in a document dated 25 August 2011, which is exhibited to his affidavit (the 2011 Statement) signed by the then directors and company secretary of Timeline, Mr Ahmed and Mr Isaacs. He submitted that the 2011 Statement created an equitable charge over the assets of Timeline and over any rights or entitlement it may have had in respect of the Lara Property. 95 On his evidence Timeline still did not repay the loan (except for $16,000) and he therefore sought legal advice and notified Timeline of his intention to take legal action. He said that Mr Ahmed and Mr Isaacs met with him in 2013 and agreed that $195,000 was still owing to him. At the meeting Mr Ahmed and Mr Isaacs said that Timeline owned blocks of land in the Lara Property and that a new agreement could be made to guarantee that he would be repaid the money he was owed plus the agreed profit. He deposed that the parties entered into an agreement dated 25 July 2013, which is exhibited to his affidavit (the 2013 Agreement). 96 The recitals to the 2013 Agreement state that Timeline agreed to repay the sum of $180,000 to Mr Saadeldin and that it had failed to do so. In particular, recitals D and E provide: D. [Timeline] is involved in a property development project at Lara, more particularly described as Lara Property Development at 490 Flinders Avenue, Lara. As a result of this involvement in the said property project, [Timeline] is entitled to a number of blocks of land. E. [Timeline] has agreed to transfer to Saadeldin four blocks of land on an approximate size of 680m2 each in consideration of the investment of $180,000 having been made by Saadeldin to [Timeline]. 97 The 2013 Agreement provides that Timeline would transfer to Saadeldin four blocks of land in consideration of Mr Saadeldin releasing Timeline from his claim for $180,000, and that if Timeline could not transfer the four lots by 2021, it would instead pay Mr Saadeldin the sum of $320,000. The 2013 Agreement was executed between Mr Saadeldin on the one hand and Ms McKeown (director of Timeline), Mr Ahmed and Mr Isaacs on the other. Under the 2013 Agreement, each of the directors of Timeline personally guaranteed the performance by Timeline of its obligations under the 2013 Agreement. 98 In his second affidavit Mr Saadeldin explained that the $180,000 he paid to Timeline was paid to him by others, namely; (a) $50,000 from his mother, Aisha El-Hag, on behalf of his sister Marwa Saad El-din; (b) $70,000 from his brother-in-law Salem Al Baidhani on behalf of his wife Zenap Al Sabri; and (c) $60,000 from Jamal Siraj Nor. He said that once he received those funds he paid $180,000 to Timeline and he pointed to the 2013 Agreement which said that the costs associated with having each of the four blocks of land registered in the names of the owner would be borne by him, Marwa Saad El-din, Ms Al Sabri and Mr Nor. 99 In her affidavit Mrs El-Hag deposed that in 2010 she paid $50,000 in cash to Mr Saadeldin to be applied towards an investment in Timeline, with the intention that the return on the investment would be given to her daughter, Marwa Saad El-din. She deposed that she withdrew $32,300 from her Muslim Community Co-operative (Australia) Pty Ltd bank account on 9 October 2009 and exhibited a copy bank statement showing that withdrawal. She said that the balance of the money came from her Commonwealth Bank account, but she had been unable to obtain bank statements from the Commonwealth Bank which dated back to 2009-2010. To show that she had the financial capacity to advance that amount she said that she had been employed at the Doutta Galla Community Centre for almost 20 years as a permanent/part-time community worker. She exhibited Commonwealth Bank statements to show the deposits of her employment income and also to show what she said was a regular practice of withdrawing cash and keeping it for savings and potential investments, such as the one made with Mr Saadeldin in May 2010. 100 Mr Al Bahaini deposed that in early May 2010 he paid $70,000 in cash to Mr Saadeldin to be applied towards an investment in Timeline, with the intention that the return from the investment would be given to his wife, Ms Al Sadri. He said that he personally gave the money to Mr Saadeldin in the presence of a witness, Mr Saadeldin's friend Mr Nor. Mr Al Bahaini was employed as a taxi driver, but he said that he obtained the funds for the investment from an inheritance upon the death of his father in early 2009, which money had been passed to him over a period of time by overseas relatives. 101 Mr Nor's affidavit corroborated Mr Al Bahaini's account that he gave $70,000 in cash to Mr Saadeldin in about May 2010. In relation the advance that he made he said that he was a close friend of Mr Saadeldin and he gave him $60,000 in cash to be applied towards an investment in Timeline. He said that $40,000 of that amount was drawn from his savings and the balance was made through a $20,000 personal loan, but he had not been able to obtain any documentation or bank statements going back to 2010 to show that loan. To show that he had the financial capacity to make such an advance he put on evidence to show that he had worked as a confectioner on a full-time basis for more than 10 years at Mondelezs Australia, earning more than $1,500 per week after tax, of which he saved a large portion. He exhibited a letter from his employer confirming his employment. He said that he and his wife owned a property at 4 Somersby Road, Craigieburn, that he was up-to-date on the mortgage payments, and he exhibited a copy ANZ Bank statement evidencing the mortgage. He also exhibited copy Commonwealth Bank statements from 2011 which showed deposits of his wages and what he said was a regular practice of withdrawing cash and keeping it for savings and potential investments, such as the one made through Mr Saadeldin in May 2010. 102 Mr Saadeldin gave oral evidence in the hearing. He testified that he provided the $180,000 to Timeline as a property investment, pursuant to an agreement with Mr Ahmed and Mr Isaacs whereby he would have that amount returned plus a fixed profit of $31,000 within one year. He said that when Timeline failed to repay the monies he sought legal advice and then drafted the 2011 Statement which set out how much he had paid and how much he was still owed, which acknowledgement Mr Ahmed and Mr Isaacs signed. Then when Timeline still failed to repay the monies owed he went to see Mr Ahmed and Mr Isaacs and said that he intended to take them to court because he needed to get back the monies he had advanced. He said that Mr Ahmed and Mr Isaacs told him that they had a land project in Lara which would be very lucrative, and rather than paying him in cash they would prefer to give him four blocks of land from that project. He went to see a solicitor who drafted the 2013 Agreement and after some "back-and-forth" Timeline, its directors and he signed the agreement. 103 He reiterated that none of the $180,000 that he paid was his own money, and it had all been provided to him by his close relatives or by his best friend Mr Nor for the purpose of making a property investment. He said that at the time he made the investment the Lara Property scheme was on foot and Timeline had been holding meetings with people within the Islamic community and he wanted to be sure that he, his mother and his friends would be part of that. He said that, having received monies from his mother, brother-in-law and best friend to make the planned investment, unless he could obtain a return of the monies he would be forced to mortgage his home so that he could repay his relatives and friend. 104 Mr Saadeldin also relied upon the affidavit of Mr Ahmed who said that at the time of the Timeline's incorporation he and Mr Isaacs agreed that Timeline would receive 10 blocks of land from REIT upon the completion of the Scheme. Mr Saadeldin relied upon that evidence as showing that Timeline had an entitlement to receive blocks of land through the Scheme. That was put in support of his contention that Timeline had agreed to give him for blocks in return for his $180,000 investment. 105 The Receivers' recommended that Mr Saadeldin should not be paid any amount. They contended that Mr Saadeldin's account was implausible because: (a) despite repeated requests Mr Saadeldin had not produced any evidence to support the payment of $180,000 other than his own affidavit and the written acknowledgements of the Directors of Timeline in the 2011 Statement and the 2013 Agreement. The Receivers said that there was no primary documentation to support the contention that Mr Saadeldin had paid those monies, such as a cheque butt, bank statement or a transfer statement; (b) Mr Saadeldin said he paid the money to Timeline in May 2010, when: (i) Timeline was not incorporated until about five months later Timeline in August 2010; (ii) the Liquidators' investigations show that Timeline did not open a bank account with HSBC until 26 October 2010, and the bank statements for that account do not show any deposits that correspond to the individual payments allegedly made by Mr Saadeldin; and (iii) the Lara Property was not purchased until July 2010; (c) on Mr Saadeldin's account the $180,000 was for an investment in property. The evidence shows that Mr Ahmed had difficulties in paying the deposit on the purchase; paying $50,000 towards the purchase but being unable to pay the full $97,000. If, in fact, Mr Ahmed had $180,000 paid by Mr Saadeldin he would not have had that difficulty; and (d) there is no document to show the repayment of $16,000 by Timeline to Mr Saadeldin. 106 In relation to the 2013 Agreement the Receivers contended that if there is no evidence to establish that Mr Saadeldin paid $180,000 to Timeline pursuant to an agreement made in 2010 (evidenced by the 2011 Statement) then the 2013 Agreement fails because it is premised on the $180,000 having been advanced. Further, while the recitals to the 2013 Agreement state that Timeline is entitled to a number of blocks of land from the Lara Property the Receivers found no evidence to support that entitlement; that is, no agreement nor registrable instrument provided for any such entitlement and such an agreement would be contrary to the PDS which provided that Timeline was entitled to management fees and nothing more. On this argument the 2013 Agreement was a nullity because Timeline could not promise to give something to Mr Saadeldin to which it had no entitlement. 107 The Receivers recommended that Mr Saadeldin be paid nothing from the Fund. But in the alternative, in the event the Court was satisfied that Mr Saadeldin had in fact advanced $180,000 to Timeline, the Receivers recommended that he should be paid that amount from the Fund as a creditor of Timeline. 108 Contrary to the Receivers' primary submission, I was satisfied that it was more likely than not that Mr Saadeldin advanced $180,000 to Mr Ahmed and Mr Isaacs to make a property investment through Timeline. 109 Although the absence of any cheque butts, bank statements or transfer documents evidencing the advance of the money was concerning, the absence of such evidence must be seen in context. The evidence tends to show that Mr Saadeldin, his family members and Mr Nor are unsophisticated and, for reasons which the evidence does not explain, they preferred to deal in cash. On the other side of the alleged agreement to provide $180,000 for a property investment through Timeline were Mr Ahmed and Mr Isaacs who promoted and were closely involved in the operation of a managed investment scheme which failed to keep proper records, failed to produce appropriate records when required by ASIC, and in relation to which there are monies unaccounted for and grounds for concerns they were misused. In relation to the failure to produce bank statements Mr Saadeldin testified that he had made attempts to produce further evidence of his payments but was told by the Commonwealth Bank that there were no records available. He exhibited an email from the bank which said that as the requested records dated back more than seven years the request for duplicate statements "could not be actioned". 110 Although Timeline was not, in fact, incorporated until August 2010 and it did not have a bank account until October 2010 that does not show that Mr Ahmed and Mr Isaacs were not gathering monies for their planned investment in the Lara Property prior to that. The evidence shows that Mr Ahmed and/or his nominee entered into a contract for the purchase of the Lara Property for $975,000 on about 14 July 2010 and it is possible that they were gathering monies for such a purchase prior to that time, which they later passed on to Timeline. Mr Saadeldin has the burden to establish his claim, but it is relevant that the records of Timeline and the Scheme do not scotch the possibility that his account is a truthful one. 111 It is relevant too that the 2011 Statement and the 2013 Agreement show that Timeline and its directors acknowledged that the sum of $180,000 was paid to them by Mr Saadeldin. While I have concerns about the truthfulness of aspects of Mr Ahmed's account the Receivers did not cross-examine him either. 112 To decide that Mr Saadeldin did not, in fact, advance $180,000 to Timeline would be to reject his evidence that he did so, when he was not challenged on cross examination, and his evidence was partially corroborated Ms El-Hag, Mr Al Baidhani and Mr Nor who were not cross examined either. I had the benefit of seeing Mr Saadeldin give evidence and, although not without some uncertainty, I concluded on the balance of probabilities that his account should be accepted. 113 However, as the Receivers' submitted, it does not necessarily follow that Mr Saadeldin is entitled to four blocks of land in the Lara Property as provided by the 2013 Agreement or to $320,000 in lieu thereof. The only reference to Timeline being entitled to blocks of land upon the subdivision of the Lara Property was the recitals to the 2013 Agreement itself, and Mr Ahmed's self-serving evidence as to that entitlement. Mr Ahmed did not exhibit any documentation to support his assertion that there was an agreement for Timeline to receive such land, and the existence of such an agreement is inconsistent with the PDS. The law requires that there be a written document to create an interest in land, and there is not. 114 I did not accept Mr Saadeldin's contention that the 2011 Statement created an equitable charge over the assets of Timeline. There is nothing in the 2011 Statement which created a charge or any security over the Lara Property, and at best it is an acknowledgement of indebtedness. In the hearing counsel for Mr Saadeldin withdrew the claim for four blocks of land from the Lara Property or $320,000, but maintained a claim for reimbursement of the $180,000 advanced. 115 Having regard to my conclusion that Mr Saadeldin in fact advanced $180,000 to Timeline I consider he is entitled to a payment of that amount from the Fund. In my view Timeline never had an entitlement to receive lots from the proposed subdivision of the Lara Property and thus the statements made by its representatives to Mr Saadeldin that it had such an entitlement (and which led to the formation of the 2013 Agreement) were either: (a) misrepresentations which gave Mr Saadeldin a right to claim damages from Timeline; or (b) were such that the 2013 Agreement proceeded on a false premise so it was never effective to novate Timeline's obligations in respect of the original $180,000 advance. If they were misrepresentations then Mr Saadeldin acted to his detriment in signing the 2013 Agreement rather than pursuing Timeline for the amount he was owed. Either way he can make a claim for $180,000 as a creditor of Timeline. Under the terms of the pooling orders made on 13 March 2019 Mr Saadeldin's claim as a creditor of Timeline can be paid from the Fund. 116 Having been persuaded on the balance of probabilities that Mr Saadeldin in fact advanced $180,000 to Timeline for a property investment, and having regard to the Receivers' alternative recommendation, I considered it appropriate to order the payment to Mr Saadeldin of $180,000 from the Fund, in full satisfaction of all claims he has against Timeline and REIT. Sharmarke Ahmed 117 Mr Ahmed was represented by counsel in the hearing. He relied upon his affidavits sworn on 9 August 2018, 12 March 2019 and 1 May 2019, the affidavit of Abdoulkader Ahmed sworn 5 March 2019, Mr Hickie sworn 30 April 2019 and Ms McKeown sworn 1 May 2019, and the exhibits thereto. He made four claims which I deal with below. 118 First, Mr Ahmed sought payment of $15,000 being the contribution he said that he made towards the deposit for the purchase of the Lara Property. The Receivers accepted that it was more probable than not that Mr Ahmed did so, and recommended that he be paid that amount as repayment of his contribution to the deposit. 119 Second, Mr Ahmed claimed to have paid $50,000 and $28,000 on 13 December 2012 towards the purchase of the Lara Property and associated legal costs. That he did so is confirmed by his own records and the trust accounts records of Wantrup & Associates, the solicitors to whom the monies were paid. The records however also show that he was repaid $16,400 in February 2013. The Receivers recommended that Mr Ahmed be paid $61,600 being the sum applied to the purchase of the land and associated legal costs, less what have been repaid. 120 Third, Mr Ahmed claimed that he paid a contribution of $3,500 to REIT as an investment into the Scheme on behalf of Bashir Nasir. On that basis he said that Mr Bashir is indebted to him in the sum of $3,500. He contended that the Liquidators were obliged to recognise Mr Ahmed's interest to that extent and any distribution to be made to Mr Bashir should be made to him. The Receivers recommended the rejection of that claim. They contended that any claim Mr Ahmed had was against Mr Bashir and did not translate to a claim against the REIT or the Lara Property. Further, the records held by the Receivers indicate that Mr Bashir had redeemed his investment in REIT in an unspecified date. 121 In relation to each of those claims Mr Ahmed accepted the Receivers' recommendation, and I made orders accordingly. 122 Fourth, Mr Ahmed claimed to be entitled to 32.15% of the balance of the sale proceeds of the Lara Property based on his having 25 B class and 25 C class units in REIT. His affidavit sworn on 9 August 2018 exhibited two unit certificates, both dated 30 June 2012. The first certificate records that Mr Ahmed had been allotted 25 B class units for a unit price of $1.00 each. The second certificate records that Mr Ahmed had been allotted 25 C class units for a unit price of $1.00 each. 123 In his affidavit sworn 1 May 2019 Mr Ahmed deposed as follows: We agreed that the investors will be offered 'A' class units and that Natalie McKeown and I would receive 'B' and 'C' class units, with the intention that any lots out of the proposed 700 lots not offered to the investors would belong to her and I equally. In other words it was our agreement that Natalie McKeown and I would receive 450 residential lots, that is 225 residential lots each. We also agreed that Natalie McKeown and I would be responsible for any cost overruns with respect to achieving the 250 lots for the investors. We had discussed that we would sell some of our entitlements in order to ensure that the investors obtain the 250 lots as agreed. 124 His account was supported by the affidavits of Mr Hickie and Ms McKeown. Mr Hickie deposed as follows: [5] The Product Disclosure Statement (PDS) dated 25 August 2010 was lodged with ASIC on the said date. [6] The PDS was prepared in accordance with discussions between me on behalf of Lion [Advantage] and John Isaacs (John) and Sharmarke Ahmed (Sharmarke). I was instructed by Sharmarke Ahmed and John Isaacs to prepare a PDS for the development of the property at 49 Flinders Lane, Lara (Lara). The intention of the project was that the Lara property, which Sharmarke Ahmed had purchased would be developed. As part of the development project it was agreed that Sharmarke Ahmed and Natalie McKeown, wife of John Isaacs would be issued different units to the other members to whom the project would be offered as an investment opportunity. [7] I arranged for the preparation of a proposed plan of how the Lara property would be divided into lots. Based on the conservative assessment made by me in conjunction with Sharmarke and John, we decided that the Lara land would yield a minimum of 700 residential lots. [8] This decision was reflected by me in the PDS. On pages 3 and 6 of the said PDS, I have relevantly described how the A class unit holders who were proposing to invest in the purchase of the first 250 lots out of the planned 700 lot residential subdivision would ultimately be entitled to one block of land at the end of the development. The A Class unit holders were to invest $85,000 in the trust under a savings plan over a 5 year period in order to each have an economic interest in one block of land out of Stage 1 of the development being the first 250 lots. Each A Class unit holder would then be entitled to redeem their investment in exchange for a clear title to one block of land in Stage 1. B and C Class units were underwriting any cost over runs in the development of Stage 1 (250 lots). The B and C Class units were to be entitled to the residual land being Stages 2 and 3 of the 3-stage developments being the remaining 450 lots based on a planned 700 lot residential subdivision. [9] On Page 7 of the PDS, I went on to explain that the A Class unit holders would be entitled to Stage 1 being the first 250 units out of a 3 stage development for a total of 700 residential lots subject to Development Approval. Accordingly, and in percentage terms, A Class Unit holders would receive an entitlement of 35.7% of the undeveloped property while B and C Class unit holders would have a 64.3% entitlement, being the balance of the land. [10] As stated in the PDS and agreed between Sharmarke Ahmed and John Isaacs and explained to me, B and C class unit holders agreed to underwrite the delivery of 250 blocks to A Class Unit holders in cost and in lot size. If the development approval demanded that the number of lots diminished and the size of lots increased the A class units would receive larger lots in preference to the B and C Class units. [11] Both Sharmarke Ahmed and Natalie McKeown were offered and granted B and C Class units in the project. 125 On that basis Mr Ahmed asserted an entitlement to 32.15% of the proceeds of the sale of the Lara Property after payment of legal fees and liquidation costs. 126 Mr Ahmed relied on cl 28.3(d) of the Scheme constitution, being the Mercator Monthly Income Fund Constitution dated 12 July 2000 (the Scheme Constitution). Under the heading "Winding up the fund" the Scheme Constitution provides: After liquidating the Fund Property the Responsible Entity must: (a) first, pay the expenses incurred by it in winding up the Fund; (b) next, pay outstanding fees, expenses and liabilities incurred in relation to the Fund; (c) next, pay any fixed entitlements of Investors in accordance with the terms of issue of their Units; and (d) next, distribute the balance of the Fund to the Investors and for this purpose, subject to the terms of the issue of Units, all Units rank equally. (Emphasis added.) The PDS provides that the Scheme Constitution "is a legally enforceable document which outlines the relationship between the Responsible Entity and the investors", and states that the constitution is the governing document. 127 On Mr Ahmed's argument the phrase "subject to the terms of the issue of Units" in cl. 28.3(d) is significant because Mr Ahmed and Ms McKeown were issued "B" and "C" class units in the circumstances set out in the affidavits of Mr Ahmed, Ms McKeown and Mr Hickie. He submitted that the terms of the issue of the "B" and "C" class units to Mr Ahmed (and to Ms McKeown) meant that they were each entitled to 32.15% of the proceeds of sale of the Lara Property less any fees expenses and liabilities incurred by the Receivers. 128 I do not accept Mr Ahmed's argument. 129 In the investor registry records provided to the Receivers by ASIC (which were delivered to ASIC by Mr Isaacs and Mr Hickie), there is no reference to "B" and "C" class unit holders. That said, the two unit certificates produced by Mr Ahmed are prima facie evidence that he is the holder of such units and that is supported by the affidavits of Mr Ahmed, Ms McKeown and Mr Hickie. In my view the real question was what rights, entitlements, obligations and liabilities attached to "B" class and "C" class units in the Scheme. 130 First, and importantly, there is nothing in the Scheme Constitution to show that, upon winding up, "B" and "C" class unit holders rank above or are entitled to a greater recovery than "A" class unit holders. It provides that upon winding up, the balance of the fund remaining after payment of all expenses and outstanding fees is to be distributed to all investors and for this purpose all units will rank equally (emphasis added.) That is inconsistent with the assertion made by Mr Ahmed, Ms McKeown and Mr Hickie that "B" and "C" class unit holders are entitled to almost 65% of the Lara Property. 131 Second, the PDS also contains nothing to show that "B" and "C" class unit holders rank are entitled to a greater distribution upon winding up than "A" class unit holders. The PDS said the following in relation to "B" and "C" class units: Investment Structure and Nature of Units to be issued The REIT will issue units in the sub trust Lara Property Development Syndicate under this product disclosure statement, these units will be equity units entitling the investors to purchase land to be owned by the Sub Trust in redemption of their units at the end of the period and a fixed price as described in this product disclosure statement. There will be three series of units issued under the constitution, class B and C units which will underwrite the A class investor units to ensure each investor in A class units who invest [sic] over 5 years an amount of $85,000 under a savings plan, will be able to redeem their unit investments to be made totalling $85,000 over the period in exchange for a title to a completed block of land from the completed land subdivision undertake [sic] by the Sub Trust. Any cost overruns on the delivery of the land entitlement per investor will be met by B and C class unit holders. … Description of the Offer … There are to be no borrowings by the trust and the B and C class unit holders are to subscribe to more units to meet any shortfall in the development costs, they will source their own funds if necessary to meet any cost over runs. 132 Under the heading "Managing Risk", and the risk management strategy in relation to interest rates the PDS said: The investor will receive their fixed return after before [sic] management fees are paid and the fixed cost of the delivery of the encumbered Block of land will be underwritten by the B and C class unit holders. The PDS said the same in relation to the risk management strategy regarding higher development costs. 133 These are the only statements made about the rights, entitlements, obligations or liabilities of "B" and "C" class unit holders. Thus, the PDS provides that such unit holders have an obligation to meet any overruns in the development costs, and to do so by subscribing to "B" and "C" class units. But it says nothing about any rights or entitlement (or any obligations) upon winding up. 134 It will be recalled that Mr Hickie said that he was instructed to prepare the PDS and that: On Page 7 of the PDS, I went on to explain that the A Class unit holders would be entitled to Stage 1 being the first 250 units out of a 3 stage development for a total of 700 residential lots subject to Development Approval. Accordingly, and in percentage terms, A Class Unit holders would receive an entitlement of 35.7% of the undeveloped property while B and C Class unit holders would have a 64.3% entitlement, being the balance of the land. That is not the case. Those words are not to be found anywhere in the PDS, as counsel for Mr Ahmed conceded. If that was to be the case it was necessary for the PDS to expressly inform potential investors of that fact, and it did not. 135 Indeed, the assertion that upon a winding up "B" and "C" class unit holders would be entitled (between them) to 450 residential lots of land, is not supported by any contemporaneous documents, and is essentially inconsistent with the basis upon which investors were invited to enter into the Scheme. 136 Third, in any event, the wording of the PDS suggests that "B" and "C" class unit holders were to underwrite the development of the Lara Property, which development had not occurred. If the "B" and "C" class unit holders were to become entitled to a share of the completed subdivision that entitlement could only have been conditional upon the development being completed, and it was not. The development process was not even commenced. 137 Fourth, it is also significant to my view that Mr Ahmed did not assert any such entitlement until his affidavit of 1 May 2019. In his affidavit of 12 March 2019 he referred to an agreement with Mr Isaacs that Timeline would be receiving 10 blocks of land from REIT but made no mention of any other agreement for he and Ms McKeown (who is Mr Isaacs' wife) to receive 250 lots each. Nor did Timeline (of which Mr Ahmed was a director) refer to any such entitlement in the material it filed in opposing ASIC's application to wind up the company. It is also significant that Mr Isaacs did not refer to any such entitlement in his examination by ASIC under s 19 of the ASIC Act, or when assisting in the defence of ASIC's application to wind up Timeline. 138 The Receivers submitted that Mr Hickie had a history of making statements that were not accurate and that he had previously been banned by ASIC from providing financial services for two years. They choose not to cross-examine Mr Hickie in relation to his evidence about the contents of the PDS, taking the view that his evidence fell a long way short of establishing the claimed entitlement of "B" and "C" class unit holders. They submitted that it was more practical and cost-effective to rely upon the fact that there was no evidence that "B" and "C" class unit holders had any greater entitlement than "A" class unit holders upon a winding up of the Scheme. 139 The Receivers recommended that Mr Ahmed's status as the holder of "B" and "C" class units did not entitle him to 32.15% of the balance of the sale proceeds of the Lara Property. But based on the fact that the units were issued with the unit price of $1.00 the Receivers recommended that he receive a pro rata share of the distribution made to investor/unit holders, based on having a unit holding, with a total value of $50. 140 Having heard full argument I considered it appropriate to accept the Receivers' recommendation. I made an order to pay Mr Ahmed $76,600 from the Fund in full satisfaction of all claims he has against Timeline and REIT (other than his entitlements as an investor holding 25 "B" class (with a value of $25) and 25 "C" class units (with a value of $25) in the REIT). Natalie McKeown 141 Ms McKeown made the following claims in both her personal capacity and as trustee of the McKeown Family Trust: (a) a claim to be entitled to 32.15% of the balance of the sale proceeds of the Lara Property based on her having 25 "B" class and 25 "C" class units in REIT, on the same basis as Mr Ahmed; and (b) a claim in respect of $25,000 she contributed towards the deposit for the acquisition of the Lara Property. 142 In relation to the first claim, the evidence is sufficient to show that Ms McKeown as trustee of the McKeown Family Trust is the holder of 25 "A" class and 25 "B" class units in REIT, issued at a unit price of $1.00 each. But her claim to be entitled to 32.15% of the balance of the sale proceeds of the Lara Property fails for essentially the same reasons as Mr Ahmed's claim in that regard. It is unnecessary to reiterate the reasons. I accepted the Receivers' recommendation to dismiss this claim. 143 In relation to her claim to be entitled to $25,000 in respect of the contribution she made to the deposit for the acquisition of the Lara Property, the Receivers accepted that the evidence tends to show that Ms McKeown did, in fact, make this contribution. I accepted the Receivers' recommendation in this regard and made orders for the payment of $25,000 to Ms McKeown from the Fund, in full satisfaction of all claims she has against Timeline and REIT. The McCabe Parties 144 Ms McCabe made claims on her own behalf, on behalf of Lotus Capital, Lotus Securities, the Ludekens Family Trust, and the Chestnut Street Unit Trust. Each of those entities is associated with her and her son, Andrew Ludekens. She relied upon her two affidavits dated 12 March 2019, and affidavits dated 6 May 2019 and 24 June 2019, together with Mr Ludekens' affidavits dated 12 March 2019 and 6 May 2019. The affidavits are voluminous and advanced claims totalling more than $1.8 million. The Receivers were required to undertake a great deal of work to investigate and assess those claims. 145 In the finish the only claims by the McCabe Parties which the Receivers were prepared to recommend for approval were as follows: (a) a claim by Ms McCabe either in her own capacity or as the trustee of the Ludekens Family Trust, in relation to a $58,500 loan made to Lotus Securities on 24 February 2014, to part pay the loan from Studley Financial; (b) $10,800 out of a total claim of $150,000 by Lotus Capital in relation to advances allegedly made to REIT; and (c) $13,896 out of a total claim of $131,874.48 by Lotus Capital in relation to payments made on behalf of REIT. Shortly prior to the hearing the McCabe Parties accepted the Receivers' recommendations. Given that the McCabe Parties ultimately agreed the position with the Receivers, and having regard to the complexity and sometimes the lack of clarity in relation to those claims, I will not detail them. It suffices to briefly set out the basis of those claims where, by agreement, an amount is to be paid to the McCabe Parties from the Fund. 146 In relation to the first claim, Ms McCabe and the Ludekens Family Trust each claimed that they were the source of a $58,500 loan to Lotus Securities made on 24 February 2014. The Receivers were satisfied that amount was transferred from the McCabe Account 81923 and deposited with Lotus Securities, and also satisfied that amount was used for the purposes of the Scheme as it formed part of the funds that we used to pay out the loan by Studley Financial, the initial mortgagee of the Lara Property. 147 In relation to the second claim, it was alleged that Lotus Capital advanced a total of $150,000 to REIT between 16 September 2014 and 26 May 2015. The Receivers were not satisfied that there was sufficient evidence to support this claim, but they accepted that $10,800 was advanced by Lotus Capital to Lotus Securities, which Lotus Securities mixed with other funds to fund the two bank cheques used to pay out the loan by Studley Financial. 148 In relation to the third claim, it was alleged that between August 2013 and February 2016 Lotus Capital made various payments on behalf of REIT such that it was owed a debt of $131,874. For various reasons it is unnecessary to set out the Receivers were not satisfied that there was sufficient evidence to support the claim and they only recommended payment in the amount of $13,896. 149 As I have said, the McCabe Parties accepted the Receivers' recommendations. It was appropriate to make orders for the payment of $28,379 from the Fund to Lotus Capital in full satisfaction of all claims it has against Timeline and REIT, and for payment of $58,500 to Ms McCabe as trustee for the Ludekens Family Trust in full satisfaction of all claims the trust has against Timeline and REIT. I also made orders to dismiss the claims of Ms McCabe in a personal capacity and as trustee of the Chestnut Street Unit Trust against REIT and/or Timeline as the case may be. Ms Ramzia Arshad 150 Ms Arshad is a unit holder in the Scheme. The Receiver accepted that she was therefore entitled to a rateable distribution from the Fund, but she also claimed an entitlement to monies for lost opportunity. I accepted the Receivers' recommendation that it was appropriate to dismiss that claim and made an order accordingly. The Receivers' remuneration and disbursements 151 In reliance on the affidavit of Mr Martin sworn 25 July 2019 the Receivers and Liquidators applied for an order to determine and fix their remuneration in the sum of $179,354.89 (incl. GST) for their work between 1 March 2019 and 31 July 2019, and their disbursements incurred in the period from 18 February 2019 to 30 July 2019 (and to 1 August 2009 in the case of Mr Boston of counsel) in the sum of $474,053.22. 152 Mr Martin accepted that the Receivers and Liquidators' remuneration exceeded the range that he had earlier estimated would be necessary to pay the creditors and other claimants and to finalise a distribution to unit holders. He said however, and I accepted, that this was due to a number of new claimants making claims after 5 March 2019, and some of the existing claimants filing further material in respect of their claims including the affidavit material filed on behalf of the McCabe Parties which was nearly 800 pages. The materials in support of the application included billing summaries which contain the name, position, hourly rate and billing information of the practitioners who worked on the matter and broke the billing down into task areas. Mr Martin deposed, and I accepted, that the work was done efficiently by staff members with an appropriate level of seniority, whose hourly rate reflected that seniority. The claimed disbursements almost entirely comprised Norton Rose's fees and disbursements other than counsel's fees and GST ($209,427.94) and counsel's fees ($193,930). 153 Having reviewed the materials I was satisfied that the Receivers and Liquidators' remuneration and disbursements were appropriately evidenced and were fair and reasonable in quantum having regard to the work involved. I made orders accordingly. Further orders 154 I made further orders, including the following: (a) to vary Order 14 of the orders made on 13 March 2019 such that the deadline for the Liquidators to advertise for the creditors of Timeline (other than those claimants who have already lodged a claim with the Liquidators in accordance with either the orders to submit a formal proof of debt be extended to 23 July 2019. (b) to require the Receivers to lodge with ASIC a report in respect of any possible misconduct arising in relation to REIT by 19 September 2019, and for the Receivers to also report to the relevant regulatory bodies any other malfeasance or misconduct they have identified or suspect; (c) to vary Orders 6 and 7 of the orders made on 19 December 2017 (as varied) to allow the Receivers to continue to undertake investigations in relation to identifying unit-holders in REIT and verifying the quantum of investments made by those unit-holders and the nature of those investments, to investigate such further matters that the Receivers/Liquidators consider are reasonable and necessary to adjudicate on the proofs of debt submitted by creditors of Timeline and to investigate or identify any misconduct to be reported to ASIC or other bodies in the reports referred to above; (d) to pay ASIC $3,321 in reimbursement for Court fees; (e) for the Receivers and Liquidators to pay from the Fund a sum not exceeding $90,000 (incl GST) to BDO Australia for the Receivers' and Liquidators' remuneration and expenses of preparing the reports referred to above and subsequent, related communications with the recipients of the reports; and (f) for the Receivers and Liquidators to file with the Court by 26 September 2019 a summary of the total number of creditor claims and the total amount paid to creditors of Timeline, the Receivers' remuneration and disbursements for the period from 1 August 2019, the total amount available for distribution to unit-holders and a calculation of the amount to be paid to unit-holders. THE RECEIVERS' REPORT OF 26 SEPTEMBER 2019 155 On 26 September 2019 the Receivers filed a fifth detailed report. They reported that they had: (a) paid from the Fund the various amounts ordered to be paid by orders made on 12 August 2019; (b) lodged a report with ASIC in respect of possible misconduct arising in relation to REIT, as directed by the orders of 12 August 2019; (c) published a notice requiring any creditors of Timeline to submit a formal proof of debt by 15 August 2019. No additional creditors made claims against Timeline; and (d) continued to communicate with investor/unit holders, but no additional investors/unit holders had come forward since their previous report. 156 After payments of all expenses, payment of all creditors and payment of all claimants, the Receivers estimated that an amount of $1,356,783.44 was available for distribution to investors/unit holders, and that the total value of all unredeemed units was $1,297,908. On that basis the Receivers estimated that upon distribution of the remainder of the Fund unit holders would achieve a recovery of 104.5% of their investments. 157 On 3 October 2019 I made orders: (a) fixing the Receivers' remuneration for the period from 1 August 2019 to 26 September 2019 in the sum of $51,679.50 plus GST; (b) approving the Receivers and Liquidators' future remuneration to the finalisation of the Receivership and Liquidation fixed in the amount of $44,000 (incl GST); and (c) approving various payments from the Fund in respect of the Receivers and Liquidators' remuneration and disbursements for the period from 1 August 2019 to 26 September 2019, and from 27 September 2019 to the end of the Receivership and Liquidation. After payment or withholding of those amounts, I directed the Receivers to make a rateable distribution to those unit holders who were entitled to a distribution from the Fund in respect of their unit holding, in full satisfaction of all unit holders' claims against REIT. Once the Receivers had made all payments to unit holders and completed all steps in the receivership that were required by the orders of the Court, they were directed to write to the Court seeking to resign as receivers of REIT and the Court would make such orders as it sees fit. THE RECEIVERS' FINAL REPORT 158 On 15 October 2020 the Receivers provided a final report to the Court, by letter from Norton Rose of that date. The report confirmed that the Receivers had: (a) made the payments to BDO Australia for their remuneration in respect of disbursements as contemplated by orders 3(a)-(e) of the orders made 3 October 2019 (the October 2019 orders); (b) paid a distribution to those unit holders who were entitled to a distribution from the Fund as contemplated by order 3(f) of the October 2019 orders, doing so on 27 December 2019 and 27 July 2020; and (c) paid to ASIC's "unclaimed moneys" fund the distributions relating to 12 unit holders as those unit holders did not confirm their account details or respond at all to the Receivers' correspondence to them, as contemplated by order 4 of the October 2019 orders. The Receivers provided to ASIC the details of those investors so that if they contact ASIC in the future, ASIC will be able to pay to them there distribution; (d) finalised and lodged reports with relevant regulatory bodies, including ASIC, pursuant to order 6 of the orders made on 12 August 2019; (e) notified the ATO of the finalisation of the liquidation of Timeline; (f) close the Fund's bank account; (g) attended to final lodgement with ASIC; and (h) applied for deregistration of Timeline. 159 On 16 October 2020 I made an order to allow the retirement of Mr Sallway and Mr Martin as Receivers. 160 As previously indicated, notwithstanding the mismanagement that characterised the operation of REIT and Timeline, including the failure to properly account for unit holders' funds and the grounds for concern that their funds were misused, through the intervention of ASIC and the appointment of the Receivers and Liquidators, all established creditors and claimants were paid in full and the unit holders achieved a good outcome in the circumstances,. The distributions to unit holders meant that they received a return of 107.85 cents in the dollar for their investments. I certify that the preceding one hundred and sixty (160) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Murphy. Associate: Dated: 29 October 2020