The recent case of Re Dalewon Pty Ltd  QSC 311 has served as a useful reminder of the circumstances in which a liquidator of a corporate trustee can recover their remuneration and expenses from trust assets. The decision also considers what a liquidator must establish where the liquidator is winding up a corporate trustee who administers multiple trusts.
Dalewon Pty Ltd (the company) was wound up in insolvency. The company was the trustee of two trusts. In each case, the company was the legal owner of the trust assets.
The company’s liquidators applied for declarations that they were entitled to a charge over any and all assets of the company and that they were entitled to realise those assets, in order to meet their fees and outlays of approximately $200,000 (including legal fees).
McMurdo J of the Queensland Supreme Court stated the principles of the trustee’s indemnity, namely that a trustee is entitled to be indemnified against those liabilities that arise in the course of the discharge of its trust. The trustee holds an equitable charge or lien over the assets of the trust for this purpose. In the event that the trustee is wound up, the company’s creditors “subrogate to the beneficial interest enjoyed by the trustee” and the right to the trustee’s indemnity vests in the trustee’s liquidator.
Justice McMurdo made it clear that a liquidator’s entitlement to have his/her fees and expenses paid from trust moneys was dependent on the fees and expenses being incurred for the purpose of performing or administering the trust. McMurdo J referred to the requirement of a “clear nexus” between the work for which payment is sought and the performance of the trust or the administration of certain property of the trust. Therefore it may be difficult to recover costs incurred for general work associated with the winding up, from the assets of a trust.
In the event of a trustee administering multiple trusts, McMurdo J stated that in order to recover costs from the assets of a trust, the liquidator must show a clear connection between the work performed and the administration of that particular trust.
His Honour assessed that most of the liquidators’ work related to one of the two trusts and in particular participation in litigation in the administration of that trust.
However, the court was not willing to make the declarations sought for the reasons that the amounts claimed by the liquidators had not yet been approved by creditors and there was the potential for a costs order being made in related proceedings which may impact on the costs sought by the liquidators. And McMurdo J held that irrespective of these two reasons, it would not be appropriate to make the declarations sought as the liquidators’ application had failed to recognise the distinct interests of the respective trusts and the required connection between the liquidators’ fees and expenses and the administration of one trust or the other.
This decision confirms that when liquidators of corporate trustees who administer multiple trusts are applying for their remuneration and expenses, the liquidators must clearly delineate which trust the costs were incurred in relation to. Where there is not a clear link between the work completed and the administration or performance of a specific trust, it may be difficult for the liquidators to recover their costs for that work from the assets of either trust.