Home Insights TGIF 3 February 2023 – A matter of trust: Court backs the use of trust assets to pay liquidators

TGIF 3 February 2023 – A matter of trust: Court backs the use of trust assets to pay liquidators

In Lawrence, Ozifin Tech Pty Ltd (in liq) v AGM Markets Pty Ltd (in liq) [2022] FCA 1478, liquidators of multiple companies were successful in obtaining the declarations and directions they sought regarding the distribution of statutory trust funds, and obtaining payment of their fees from trust assets.

Key takeaways

  • In complex, multi-company liquidations, courts will seek to facilitate the most cost-effective method of distributing funds between multiple liquidators and the trustee of those funds.

  • A liquidator may be entitled to payment of fees even where funds are subject to a statutory trust.

  • A constructive trust will not arise automatically as a response to funds obtained through misconduct; their introduction requires judicial discretion. 


AGM Markets Pty Ltd (in liquidation) (AGM), OT Markets Pty Ltd (in liquidation) (OT) and Ozifin Tech Pty Ltd (in liquidation) (Ozifin) (together, the Companies) were service providers offering web-based trading platforms to retail clients for the purpose of opening and closing margin foreign exchange contracts and ‘contracts for differences’ positions.

Between the Companies, AGM was the only entity to hold an Australian Financial Services Licence (AFSL). Through separate agreements, OT and Ozifin were authorised to provide certain financial services on behalf of AGM. AGM’s role was primarily as the custodian of the client funds of OT and Ozifin, and as an issuer of financial products. Despite these arrangements, there was not a significant degree of overlap between the clients of the Companies.

Between February 2018 and October 2020, ASIC led Federal Court proceedings against the Companies for various breaches of the Corporations Act 2001 (Cth) (Act), including unconscionability and profiting from conflicts of interest. As a result of those proceedings, AGM’s AFSL was cancelled and pecuniary penalties of $75 million ordered. The Federal Court also held that the Companies be wound up, with separate liquidators appointed to each entity.

The Companies’ liquidators (Liquidators) subsequently sought declarations and directions regarding the distribution of statutory and non-statutory trust funds held by the Companies.

Proposed distribution of trust funds

The accounts held by AGM, including those held for the benefit of clients of OT (OT Fund) and Ozifin (Ozifin Fund), were considered by Beach J to be ‘client money accounts’. Accordingly, AGM’s accounts were subject to the restrictions under Part 7.8 Division 2 of the Act and its Regulations, which included the imposition of a statutory trust.

In respect of AGM’s client funds, His Honour held that:

  • determining clients’ entitlements through a claims-based approach was the most cost-effective method in the circumstances (i.e. calculating the amount that would have been in the account had the breach not occurred);

  • his orders would follow AGM’s proposed mode and method of distributing the balance of the accounts, including making client distributions pari passu where there was a shortfall in funds;

  • in the circumstances, it was appropriate for AGM to transfer funds to OT and Ozifin where those funds were held for the benefit of their respective clients and where AGM did not have contact details for those clients;

  • remuneration and expenses for AGM’s liquidators were payable from the AGM accounts, ahead of any distributions to former clients; and

  • AGM’s liquidators were entitled to proportional remuneration for work completed for the benefit of each of the Companies’ clients, not just AGM’s clients.

Intervention by ASIC

ASIC intervened in the proceedings to oppose the Liquidators’ proposed distributions from the Companies’ non-statutory trust funds, which included deductions for general liquidation costs and expenses.

Both the Liquidators and ASIC accepted that the Companies obtained profits in circumstances where a conflict of interest existed with their clients. Similarly, each of the parties accepted that the Companies held their respective profits as constructive trustees for the benefit of their clients.

ASIC’s opposition to the Liquidators’ proposed distributions turned on two related issues:

  • whether the relevant constructive trusts that were imposed on the non-statutory trust funds were institutional (i.e. arising automatically at the time of the misconduct) or remedial (i.e. retrospectively applied with judicial discretion); and

  • if the constructive trusts were institutional, whether the Liquidators could use constructive trust funds to pay general liquidation costs and expenses.

Beach J rejected ASIC’s submissions that the constructive trusts should be characterised as institutional, on the basis that:

  • the imposition of a remedial constructive trust is to be preferred where funds are held by the constructive trustee as a result of their own wrongdoing;

  • the client accounts were not static after the Companies’ misconduct occurred (when ASIC submits the institutional constructive trust arose), making the determination of funds payable highly complex;

  • contrary to ASIC’s submissions, both institutional and remedial constructive trusts require an element of judicial discretion; and

  • an institutional constructive trust would not be preferred where it has the effect of preventing a liquidator from recouping their general liquidation costs and expenses.

Beach J also held that even if an institutional constructive trust were to be imposed, the Liquidators would still be entitled to deduct from it their general liquidation costs and expenses.

In reaching this conclusion, his Honour considered the Court’s “expansive jurisdiction to allow a liquidator’s remuneration to be paid out of assets of a trust” (as outlined in Re M & J Super Fund Pty Limited (in liq) [2021] NSWSC 279, [13]–[17]). Beach J also held that the Liquidators’ general liquidation work (which occurred prior to the determination of client entitlements) had the effect of indirectly benefitting the trust and its beneficiaries.

His Honour made two clarifying remarks of interest regarding the disposition of trust funds:

  • trust assets, including those held by an institutional constructive trust, can be utilised to satisfy a liquidator’s general liquidation costs and expenses where no other assets are available; and

  • a liquidator will be limited in the costs it can recoup from a trust where it attempts to utilise a trustee’s right of indemnity, however, a liquidator will not be so limited where it relies on a court’s authorisation for the reimbursements of its costs.


This decision considers the appropriate characterisation of funds subject to constructive trusts, a discussion which, at face value, seems academic. However, that ultimate outcome serves as a reminder that courts will seek to use the tools at their disposal to prevent a liquidator from being exposed for their costs and expenses.

It also highlights that, where separate liquidators are involved, courts will generally support and facilitate arrangements that result in cost-effective and efficient distributions to beneficiaries.



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