The powers of the court in determining the proper distribution of assets in accordance with section 511 of the Corporations Act

The powers of the court in determining the proper distribution of assets in accordance with section 511 of the Corporations Act

Ian James Purchas as Liquidator of Astarra Asset Management Pty Ltd (in liq) [2011] NSWSC 91, Supreme Court of New South Wales, Ward J, 1 March 2011

(a)     Summary  

The case concerned an application by the liquidator, Purchas (Liquidator) of Astarra Asset Management Pty Ltd (in liq) (Astarra), in relation to disbursement of property comprising both shares (Shares) and monies (Funds) held by Astarra in its capacity as investment manager and agent for entity Trio, and to which other entities may have a beneficial entitlement.  The application was brought pursuant to section 511 of the Corporations Act 2001 (Cth) (Corporations Act), and, in the alternative, sections 63(1) and 81 of the Trustee Act 1925 (NSW) (Trustee Act), in addition to the inherent or implied jurisdiction of the Court.  The Court ultimately determined that the proper Act under which to determine the distribution of the Funds and Shares was section 511 of the Corporations Act, that the Funds should be distributed to Trio having regard to the capacity in which Astarra had received them, and that Astarra was entitled to distribution of the Shares.

(b)     Facts  

Trio Capital Limited (Trio) was an alternative financial services provider, specialising in administration and funds management.  Trio was the responsible entity for various registered managed investment schemes (Schemes) and had appointed Astarra as the investment manager of the Schemes, which included Astarra Strategic Fund (ASF).

Orders were made to wind up the Schemes pursuant to section 601ND(1)(c) of the Corporations Act, due to perceived problems with both the establishment and nature of asset investment of the Schemes.

ASF funds were applied under the terms of a Master Deferred Purchase Agreement (Agreement) to which Astarra, EMA International Ltd (EMA) and ANZ Nominees Ltd (custodian for Trio) were parties.  The Agreement described Astarra as both investment manager of ASF and, importantly, as “agent” for Trio.

Certain rights accrued to Astarra under the Agreement, including the right to receive future Delivery Assets (Delivery Assets), the value of which was based upon the performance of particular offshore funds in which EMA invested the purchase price paid to it (Investment). Each time an Investment was made, the Agreement provided for a supplemental agreement (Supplemental Agreement) to be executed between EMA, Astarra and Trio concerning the nature of the underlying investment (Underlying Investment), date and purchase price, which was payable by Astarra to EMA.  EMA undertook to use all the funds to acquire interests in the Underlying Investment, but was entitled to use a portion of funds necessary to acquire the Delivery Assets, to be held for the benefit of Astarra, and to which EMA acquired a beneficial interest in a portion, holding such interest until investment completion.

The procedure for completion set out in the Agreement was that Astarra was entitled to request completion and that EMA was obliged to complete a corresponding portion of the relevant Underlying Investment within 60 business days.  Upon delivery of the Delivery Assets to Astarra, EMA’s obligations to Astarra were fully satisfied.

According to evidence, the investment completion procedure should have involved:

Investment of funds in ASF by investors;

The custodian for ASF would then pay a portion of those funds to Astarra for placement with EMA;

Trio would then complete a supplemental agreement in accordance with the Agreement, which nominated the amount payable on behalf of the ASF;

EMA would then become entitled to the ASF funds as provided in the Supplemental Agreement and was required to invest those funds in the Underlying Investment; and

Astarra or EMA could request completion of the Supplemental Agreement, requiring EMA to deliver the Delivery Asset Parcel, being the amount of the investment less fees.

However, the investment procedure that eventuated was not carried out in accordance with that specified under the Agreement.  Rather, evidence suggested that Astarra deposited the ASF funds into a US Company brokerage account (Interactive Brokers), who commenced securities trading, including investments in a Cayman Islands-based fund, Tailwind, to which Astarra was appointed investment manager. Records indicated that Astarra had made several substantial investments in Tailwind, and evidence indicted that Investment Brokers had made several payments to Astarra’s account in relation to Tailwind (Fund).

Trio was eventually placed in liquidation.  The liquidator submitted that the assets, comprising both Shares and Fund, belonged either to ASF or EMA, and sought advice from the Court as to how to properly deal with those assets.

(c)      Decision  

The relief sought was to both permit the distribution of property in which Astarra claimed no interest (i.e. the Fund) and to permit sale of the Shares, in which no other entity had an interest, in the ordinary course of winding up.

The Court was required to consider the application of section 511 of the Corporations Act, which provides that:

(1) The Liquidator, or any contributory or creditor, may apply to the Court:
(a)    To determine any question arising in the winding up of a company; or
(b)   To exercise all or any of the powers that the court might exercise if the company were being wound up by the Court.

(2) The Court, if satisfied that the determination of the question or the exercise of power will be just and beneficial, may accede wholly or partially to any such application on such terms and conditions as it thinks fit or may make such other order on the application as it thinks just.

The Court noted that applications made under section 511 in a voluntary winding up are determined in much the same way as a court-ordered winding up under section 479(3) of the Corporations Act. The term “just and beneficial” was considered to be a similar concept to “just and equitable”, allowing the court a discretion whether to make an order by reference to whether the relief sought is “of advantage in the liquidation”.

The Court noted, citing Re Anglican Insurance Ltd [2008] NSWSC 41, [38] that a determination under section 511 could not, of itself, bind anyone except the liquidator and the persons entitled to participate under the winding up, the effect being to merely sanction a course of conduct on the part of the liquidator so that he or she might adopt that course free from risk of personal liability from breach of duty.

The Court also considered whether Astarra was a “bare trustee” of the property and the applicability of section 63(1) of the Trustee Act. Section 63(1) permits a trustee to apply to the court for an opinion, advice or direction on any question regarding administration or management of trust property.  Ward J considered the appropriateness of making the application under section 63.

Ward J noted that the High Court in Macedonian Orthodox Community Church v His Eminence Peter the Diocesan Bishop of the Macedonian Orthodox Diocese (2008) 237 CLR 66 (Macedonian Church Case), had considered that the proper purpose for seeking judicial advice under that section included relief aimed at resolving legitimate doubts held by the trustee as to the proper course of action and protecting the trust and those entitled to it.  However, Ward J also considered the general rule that, where the question concerned respective rights of beneficiaries, it was not considered appropriate for the court to give opinions or advice to a trustee under section 63 of the Trustee Act.  Further, Ward J cited Beazley and Giles JJA of the Court of Appeal in the Macedonian Church Case [2006] NSWCA 277, who stated that an “application for judicial advice is an inappropriate process to resolve disputes between trustees or to settle disputes between parties to a trust”.

Ward J found that the Shares did not involve a consideration of competing beneficial entitlements to trust property, rather it was a question as to whether the liquidator can properly treat the shares as the property of the company.  Accordingly, had the matter not been able to be determined under section 511, it would have been an appropriate exercise of the power under section 63.

In relation to the Fund, there was more doubt as to the appropriateness of an order under section 63.  The competing interests of EMA and Trio as responsible entity for ASF created a potential for dispute and there was an “understandable reluctance” to permit the Fund to be placed outside the immediate reach of investors in Tailwind.  Furthermore, EMA was defunct and would have a contractual obligation to deliver up the Delivery Assets.  Also, Astarra had received the Funds in the capacity of “agent” for Trio and arguably that discharged the obligation to deliver the Delivery Asset parcel.

Ward J therefore determined that it was proper to make the determination under section 511 of the Corporations Act and it was just and beneficial for advice to be given as to the entitlement of the liquidator to deal with assets held by it but in respect of which there was legitimate doubt, because it was to the clear advantage of the liquidation.

Ward J accepted therefore that the Fund did not belong to Astarra, because it represented the “net proceeds of the investment of funds of the ASF under the investment management of Astarra”.  Ward J considered that the proper question was whether the Fund should be distributed to the liquidators of Trio, as responsible entity for ASF, or should be distributed to Trio as agent for EMA.  Orders were made to distribute the Fund to Trio, in its capacity as either responsible entity for the ASF or agent for EMA.

The Shares were regarded by Ward J as the property of the company and, in “the absence of any identified claimant” were determined to be dealt with in the ordinary course of the administration of the company. A declaration was therefore made which entitled Astarra to the Shares.


Co-authored by Daisy Darvall.

Published by SAI Global on behalf of Centre for Corporate Law and Securities Regulation, Faculty of Law, the University of Melbourne with the support of the Australian Securities and Investments Commission, the Australian Securities Exchange and the leading law firms.