Federal Court of Australia

Preston, in the matter of the Forum Group of Companies Pty Ltd (in liq) [2025] FCA 883

ORDERS

THE COURT ORDERS THAT:

Joinder

1. Tesoriero Investment Group Pty Ltd ACN 161 088 115 (in liquidation) be joined to the proceeding as Thirty First Plaintiff.

2. Palante Pty Ltd ACN 135 344 151 (in liquidation) be joined to the proceeding as Thirty Second Plaintiff.

3. The Applicants be joined to the proceeding as plaintiffs in their capacities as:

(a) Joint and several liquidators of the First, Second, Third, Fourth, Fifth, Tenth, Fourteenth, Sixteenth, Seventeenth, Eighteenth, Twenty Third, Twenty Fifth, Twenty Sixth, Twenty Seventh, Twenty Ninth, Thirtieth, Thirty First and Thirty Second Plaintiffs; and

(b) Receivers and managers of the properties named in Annexure A to these orders.

Judicial advice

4. The Plaintiffs are justified, and would otherwise be acting reasonably, in distributing the assets (including monies) which they hold in the manner set out in Annexure B to these orders.

Costs

5. The Applicants’ costs of and incidental to this application be costs in the winding up or the receivership (as applicable) of the Plaintiffs.

6. Order 5 is to operate on a several basis, with the costs divided in proportion to the amount of money of each Plaintiff available for distribution.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Annexure A: List of properties to which the applicants have been appointed as receivers and managers

Annexure B: Order of distribution

Table 1:    FG Summary of Proposed Distribution

Table 2:     FGFS Summary of Proposed Distribution

Table 3:     Forum Finance Summary of Proposed Distribution

Table 4:     FGOC Summary of Proposed Distribution

Table 5:     14 James Street Summary of Proposed Distribution

Table 6:     5 Bulkara Street Summary of Proposed Distribution

Table 7:     6 Bulkara Street Summary of Proposed Distribution

Table 8:     26 Edmonstone Road Summary of Proposed Distribution

Table 9:     Iugis Summary of Proposed Distribution

Table 10:     Iugis Investments Summary of Proposed Distribution

Table 11:     Forum Enviro Summary of Proposed Distribution

Table 12:     Smartprint Summary of Proposed Distribution

Table 13:    Imagetec Solutions Summary of Proposed Distribution

Table 14:     Palante Summary of Proposed Distribution

Table 15:     Intrashield Summary of Proposed Distribution

Table 16:     Mangusta Summary of Proposed Distribution

Table 17:     9 Gregory Street Summary of Proposed Distribution

Table 18:     64-66 Berkeley Street Summary of Proposed Distribution

Table 19:     TIG Summary of Proposed Distribution

REASONS FOR JUDGMENT

CHEESEMAN J:

PART A – INTRODUCTION

1 In this Distribution Application Mr Jason Preston and Mr Jason Ireland, the applicants, seek judicial advice and directions in relation to the distribution of an array of assets realised following the collapse of various companies directly or indirectly involved in, affected by or benefitting from the Forum Finance fraud. That fraud is the subject of the liability judgment delivered in proceedings NSD616 of 2021, NSD681 of 2021 and NSD642 of 2021 (the Financier Proceedings): Westpac Banking Corporation v Forum Finance Pty Limited (in liq) (Liability) [2024] FCA 1176 (Liability Judgment or LJ).

2 These reasons assume familiarity, and should be read together, with the Liability Judgment. In the main I have adopted the defined terms used in the Liability Judgment.

3 In the Financier Proceedings, the Financiers established that Mr Basile Papadimitriou (also known as Bill Papas), Mr Vince Tesoriero, their respective and jointly owned related companies and others were involved in a fraud principally perpetrated against Westpac Banking Corporation (WBC), Westpac New Zealand Ltd (WNZL) (together, Westpac), SMBC Leasing and Finance Inc (SMBC) and Societe Generale (together, the Financiers). Final orders granting relief were made on 21 May 2025 with further orders being made on 23 May 2025 and 4 June 2025 with reasons being delivered contemporaneously with these reasons: Westpac Banking Corporation v Forum Finance Pty Limited (in liq) (Relief) [2025] FCA 882.

4 In the present proceeding, the applicants apply in their various capacities as either the joint and several liquidators of the relevant asset-holding corporate plaintiffs or as Court-appointed receivers and managers of trust property that is or has been affected in one way or another by the fraud. I will refer to Mr Preston and Mr Ireland as the applicants unless it is necessary to differentiate as to the particular capacity in which they are acting in a given context, in which case I will refer to them as either the liquidators or the receivers, as the context requires.

5 The applicants seek judicial advice, or direction, that they are justified in distributing the assets of each entity (which comprise mainly the net proceeds of the realisation of assets) in the order of priority which they have proposed. The application is supported by extensive evidence, some of which was addressed in the Liability Judgment, and expounded by written submissions which were further refined by the oral submissions made on this application.

6 In bringing the application, the applicants principally rely on s 90-15(1) of the Insolvency Practice Schedule (Corporations) (IPS) in Schedule 2 to the Corporations Act 2001 (Cth). They also rely as necessary on various other sources of power, which I will address in Part G of these reasons.

7 The function of a liquidator’s application for directions is to give the liquidator advice as to the proper course of action to take in the liquidation: Re Force Corp Pty Ltd (in liq) [2020] NSWSC 1842; 149 ACSR 451 at [18] (Gleeson J). Provided that the liquidator has made full and fair disclosure to the Court of the material facts, the liquidator will be protected from liability for any alleged breach of duty as liquidator to a creditor or contributory or to the company in respect of anything done by him or her in accordance with the direction: Re Force Corp at [19].

8 The circumstances of each of the corporate plaintiffs differ. That said, the following broad observations may be made. First, the assets (including those in which the corporate plaintiffs’ claim derives from the right of indemnity of a corporate trustee) are subject to complex competing claims by various parties. Secondly, there are insufficient assets to meet all of the relevant claims. Thirdly, in relation to each of the corporate plaintiffs that acted as a corporate trustee, the claimants may include, among others, the Financiers (including in respect of claims of a proprietary nature and claims based on statutory priority arising in respect of funding arrangements), secured and unsecured creditor claims (including claims based on rights of subrogation), claims by former external administrators, and claims of the Commonwealth of Australia as a “subrogated” employee creditor in respect of advances made pursuant to the Fair Entitlements Guarantee Act 2012 (Cth) (FEG). Fourthly, the claims in relation to each of the corporate plaintiffs often involve discrete asset pools where the identified claimants and the order of distribution may differ depending on the circumstances relating to the asset pool from which the distribution will be made. Finally, the order of distribution in respect of each asset pool of each of the corporate plaintiffs will have a material effect on the amount received by the individual creditors.

9 The applicants seek directions in order to enable them to properly distribute the available assets having regard to the nature of the competing claims in respect of those assets. This application requires the identification and consideration of complicated factual and legal issues. The Court has been considerably assisted by the thorough and careful work undertaken by the applicants and their legal representatives in the preparation and presentation of this application.

10 The applicants have framed this application in a way that is both practical and efficient by limiting the scope of the advice sought to points of legal principle and the proper order of distribution. They do not attempt at this stage to quantify any distribution amounts because the precise amounts will be contingent on the advice given and will necessarily be updated to take into account changes since the plaintiffs’ evidence was finalised to account for things such as interest accruing on cash at bank. Upon receiving and considering the advice given in these reasons, the applicants will undertake further work to calculate the precise amounts to be distributed to claimants, and will then proceed to make payments (unless at that point it becomes apparent that further directions of the Court are necessary).

11 The applicants’ approach is considered. It is consistent with the overarching purpose embodied in s 37M of the Federal Court of Australia Act 1976 (Cth) (FCA Act).

12 In a similar vein, the issues which the Court is asked to consider in this application have been considerably refined as a result of the substantial engagement between the applicants, the creditors and potential claimants. The focus of that engagement has been to arrive at a distribution that is proper in all the circumstances, and which is appropriately focussed on the imperative of maximising the return to creditors. An aspect of the advice sought by the applicants is to confirm that they would be justified to avoid incurring further costs in undertaking a more extensive tracing analysis in circumstances where the likelihood is that further investigation would take time and result in additional expense but would be unlikely to change the ultimate distribution of the net assets available. The applicants have thoroughly exposed the legal and factual premises on which they rely to justify their proposed order of distribution and have taken appropriate steps to ensure that notice of their application has been given to all interested parties that they have identified.

13 The present application has been timetabled to provide all interested parties adequate time to consider, interrogate and take advice on the proposed order of distribution advanced by the applicants. There has been active engagement in that process with the result that there was very little controversy about the proposed order of distribution as finally articulated by the applicants. The fruit borne of the substantial engagement that occurred prior to the hearing is that there was no substantive opposition to this application. Although each of the Financiers sought and obtained leave to appear on the application, their involvement ultimately proved to be limited.

14 Again, the approach taken by the applicants and those notified of the application, including the Financiers, was consistent with, and promoted the objects intended to be served by the proper conduct of litigation in this Court.

PART B – STRUCTURE OF THESE REASONS

15 These reasons broadly follow the structure of the applicants’ submissions:

(1) Part C addresses the issue of notice of the present application to all interested parties;

(2) Part D lists the evidence led on this application;

(3) Part E addresses the joinder of various parties to this application;

(4) Part F provides an overview of the factual background, including in relation to the related proceedings, the corporate plaintiffs (including those that were appointed as corporate trustees), the applicants’ evidence of the tracing analysis and relevant key findings in the Liability Judgment;

(5) Part G addresses the sources of power relied upon by the applicants;

(6) Part H sets out the legal principles generally applicable to the proposed distribution order of the assets of the entities. The principles examined include those relating to:

(a) the nature of the relief sought;

(b) the Universal Distributing principle;

(c) statutory indemnity and lien of an administrator and former administrator;

(d) a former trustee’s right of indemnity;

(e) claims made based on the interests arising under a Black v Freedman constructive trust;

(f) subrogation;

(g) claims of employee creditors under the Corporations Act;

(h) competing priorities; and

(i) tracing;

(7) Part I addresses the proposed order of distribution on an entity by entity, asset pool by asset pool basis and gives advice and direction in respect of:

(a) issues arising in respect of each corporate plaintiff and the asset pool(s) of each corporate plaintiff; and

(b) the proposed order of distribution of the assets of each corporate plaintiff broken down by reference to separate asset pools for each corporate plaintiff as relevant;

(8) Part J is a brief conclusion.

PART C – NOTICE OF APPLICATION

16 On 4 December 2024, the applicants served a copy of the Interlocutory Process and the supporting evidence on the solicitors for:

(1) each of the Financiers;

(2) the Commonwealth in respect of the FEG claim;

(3) Westlawn Finance Limited;

(4) Mr Tesoriero;

(5) Octet Finance Pty Ltd;

(6) Mr Antony Resnick and Mr Mark Robinson of dVT Group, the current and former receivers and managers of certain entities within the Forum Group (noting that Mr Robinson retired as receiver on 21 July 2023);

(7) Mr Domenic Calabretta, Mr Grahame Ward and Mr Thyge Trafford-Jones of Mackay Goodwin, as former administrators of certain entities within the Forum Group;

(8) Mr Paul Allen and Mr Glenn Franklin, as liquidators of the Tesoriero Entities (as defined at LJ [160]-[170]);

(9) the director of Aksara Holdings Pty Ltd; and

(10) the Commonwealth Bank of Australia (CBA).

17 On 5 December 2024, the applicants served a copy of the Interlocutory Process and the supporting evidence on the Australian Taxation Office (ATO).

18 On 6 May 2025, the applicants served a copy of the Interlocutory Process and the supporting evidence on the Australian Securities and Investments Commission (ASIC). Pursuant to r 2.8 of the Federal Court (Corporations) Rules 2000 (Cth), a person who makes an application for an order under s 90-15 of the IPS is required to serve on ASIC, a reasonable time before the hearing of the application, a copy of the initiating process, and supporting affidavit in respect of the application.

19 No response was received from the Financiers, Westlawn, Octet, Mr Tesoriero or the ATO.

20 Responses were received from Aksara, Mr Robinson (a former receiver of relevant property), CBA, Mackay Goodwin (former administrators of some of the Jointly Owned Entities, as defined at LJ [154]-[159]), some of the Consolidated Group Entities (as defined at LJ [147]-[153]), some of the Other Papas-Related Entities (as defined at LJ [171]-[195]), Iugis Investments Pty Ltd ACN 647 627 745 (in liquidation), and Smartprint Fleet Management Pty Ltd ACN 132 807 080 (in liquidation) and ASIC. Each indicated that they did not wish to be heard in relation to this application.

21 Mr Resnick and the solicitors for Mr Allen and Mr Franklin initially indicated that they intended to seek leave to be heard in relation to this application, but neither of them ultimately pressed to be heard.

22 On 6 December 2024, Mr Resnick indicated to the applicants that he was considering whether he intended to be heard on this application. On 27 March 2025, Mr Resnick notified the Court that he intended to be heard on the application. No submissions or evidence were subsequently filed or served by Mr Resnick in accordance with the orders requiring any third party intervener to do so made on 9 December 2024. When the matter was called on for hearing, it was called outside. Mr Resnick did not appear. The hearing proceeded on the basis that Mr Resnick no longer intended to be heard.

23 A claim was made by the liquidators of the Tesoriero Entities in respect of funds held in relation to 64-66 Berkeley St Hawthorn Pty Ltd ACN 643 838 662 (in liquidation) (receivers and managers appointed) (64-66 Berkeley Street), a Jointly Owned Entity, which was one of the property SPVs: LJ [156]. In most cases, the only business of the property SPV was to hold real property located at the address for which the SPV was named: LJ [167] and [169]. The Tesoriero Entities’ claim was not ultimately pressed. That claim was predicated on an assertion that the relevant Tesoriero Entities had contributed to the maintenance of, or mortgage repayments in respect of, the Berkeley Street Property (as defined in paragraph [517] below). I infer that at the time it was pressed, this claim was advanced on the basis of an entitlement to be subrogated to the mortgagee. It appears that subrogation is the only available mechanism by which the liquidators of the Tesoriero Entities could potentially obtain priority over the Financiers’ equitable interests. That claim was first ventilated in correspondence dating from October 2023. The applicants requested additional information in relation to the claim, which was not provided. On 2 May 2025, the liquidators of the Tesoriero Entities informed the Court that they no longer sought to be heard on this application. On 19 May 2025, the liquidators of the Tesoriero Entities informed the applicants that they would not appear at the hearing of the application. The correspondence sent from the liquidators of the Tesoriero Entities was tendered on this application.

24 The Commonwealth, being interested as a result of the FEG claim, indicated that it would observe the application, but did not seek to be heard.

25 As mentioned, at the hearing of the application, each of the Financiers were granted leave to appear as an interested party in the proceeding. Apart from the Financiers, upon the matter being called outside the courtroom, no other persons came forward seeking leave to appear.

PART D – EVIDENCE

26 The applicants rely on a court book (marked as Exhibit B on this application) comprising 4,526 pages in which the following evidence in support of the Distribution Application is included:

(1) an affidavit of Mr Preston affirmed 3 December 2024 filed in this proceeding (Preston Affidavit), and its Exhibits JP-19, JP-20 and Confidential Exhibit JP-21, which was the primary affidavit relied on in support of the plaintiffs’ application;

(2) an affidavit of Mr Preston affirmed 7 February 2022 filed in proceeding NSD616 of 2021 (Westpac Proceeding) and its Exhibits JP-1 to JP-10;

(3) an affidavit of Mr Preston affirmed 10 June 2022 filed in the Westpac Proceeding and its Exhibits JP-11 to JP-18;

(4) an affidavit of Mr Preston affirmed 19 August 2021 filed in this proceeding and Exhibit JP-1 to that affidavit;

(5) an affidavit of Mr Ireland affirmed 28 August 2021 filed in this proceeding and Exhibit JI-3 to that affidavit; and

(6) an affidavit of Christoper Prestwich of Allens, solicitor for the applicants, sworn on 3 April 2025 filed in this proceeding and Exhibit CP-1 to that affidavit.

27 In addition, the applicants tendered a 9-page bundle of correspondence between 27 March 2025 and 19 May 2025 relating to the provision of notice (marked as Exhibit A on this application) and read an additional affidavit of Mr Prestwich sworn 16 May 2025 in relation to service on ASIC.

PART E – JOINDER

28 In light of the relief sought by the applicants, they also seek orders in relation to the joinder as plaintiffs in these proceedings the following entities and persons:

(1) TIG as thirty first plaintiff;

(2) Palante Pty Ltd ACN 135 344 151 (in liquidation) as thirty second plaintiff;

(3) 23 Margaret Street Pty Ltd ACN 623 715 373 (in liquidation) as thirty third plaintiff;

(4) the applicants in their capacities as joint and several liquidators of the following subset of the existing corporate plaintiffs:

(a) The Forum Group of Companies Limited ACN 151 964 626 (in liquidation) (FGOC);

(b) 14 James Street Pty Ltd ACN 638 449 206 (in liquidation);

(c) 26 Edmonstone Road Pty Ltd ACN 622 944 129 (in liquidation);

(d) 5 Bulkara Street Pty Ltd ACN 630 982 160 (in liquidation);

(e) 6 Bulkara Street Pty Ltd ACN 639 734 473 (in liquidation);

(f) Forum Group Pty Ltd ACN 153 336 997 (in liquidation) (FG);

(g) Imagetec Solutions Australia Pty Ltd ACN 074 715 718 (in liquidation);

(h) Intrashield Pty Ltd ACN 133 426 534 (in liquidation);

(i) Iugis Investments;

(j) Iugis Pty Ltd ACN 632 882 243 (in liquidation);

(k) Iugis Waste Solutions Pty Ltd ACN 647 212 299 (in liquidation);

(l) Forum Finance Pty Ltd ACN 153 301 172 (in liquidation);

(m) Forum Group Financial Services Pty Ltd ACN 623 033 705 (in liquidation) (FGFS);

(n) Forum Enviro Pty Ltd ACN 168 709 840 (in liquidation); and

(o) Forum Enviro (Aust) Pty Ltd ACN 607 484 364 (in liquidation);

(5) the applicants in their capacities as joint and several liquidators of:

(a) TIG;

(b) Palante; and

(c) 23 Margaret Street; and

(6) the applicants in their capacities as receivers and managers of the properties identified in Annexure A to the orders made on this application.

29 Taking into account the findings I have made in the Liability Judgment as to the entities’ respective participation in or receipt from the fraudulent scheme and the fact that the proposed additional plaintiffs are either in liquidation or under administration or the relevant external administrators of those entities, and are in the same interest as the parties seeking their joinder, I am satisfied that it is appropriate to make orders as sought under r 9.05 of the Federal Court Rules 2011 (Cth) to facilitate the form of relief now sought by the applicants in these orders.

30 Given that I will make the joinder orders sought by the applicants, references to the corporate plaintiffs in these reasons should be understood to include each of the companies joined as plaintiffs as a result of the orders I will make on this application. Similarly, although I have referred to Mr Preston and Mr Ireland as applicants, as a result of the orders I will make they are now also plaintiffs in their discrete capacities as liquidators of the corporate plaintiffs referred to in order 3 made on this application and as receivers of the properties identified in Annexure A to the orders made on this application.

PART F – OVERVIEW OF THE FACTUAL BACKGROUND

The related proceedings

31 As mentioned, this Distribution Application follows the Financier Proceedings. The Liability Judgment concerned the fraud perpetrated against the Financiers between September 2018 and June 2021 to obtain about half a billion dollars on the basis of falsified and fictitious equipment finance contracts: LJ [1]. The following findings made in the Liability Judgment are of present relevance.

32 The principal perpetrator and architect of the fraud was Mr Papas: LJ [4], [323], [1149], [1185].

33 An overview of the fraud is set out in Part C of the Liability Judgment. Relevantly, the fraud involved:

(1) Mr Papas creating, or causing the creation of, falsified equipment finance contracts and related documents, which were provided to the Financiers. Those contracts described fictional transactions and included forged signatures of counterparties and witnesses: LJ [327].

(2) On the basis of those documents, the Financers loaned funds to Forum Finance, Iugis NZ, Forum Enviro and Forum Enviro (Aust): LJ [41]-[45].

(3) The funds would then be transferred to FGFS which was used as the vehicle through which the fraudulently obtained funds were disbursed to a number of companies and persons associated with, and related to, Forum-related entities, Mr Papas and Mr Tesoriero. These funds were often disbursed by way of a loan as recorded on the FGFS balance sheet: LJ [43]-[48], [119], [327].

34 Mr Papas was found to be liable to the Financers for the fraud. From the time the funds were received from the Financiers, he held the money received on an imposed Black v Freedman trust: LJ [1149]. He was liable to account for those funds, and further liable to pay equitable compensation on the basis of breach of trust, knowing assistance and for knowing receipt: LJ [1150]-[1151], [1188], [1206].

35 Mr Tesoriero, Mr Papas’ business associate and very close friend, was found to have had actual knowledge of the fraud from the inception of the arrangements with Westpac and SMBC: LJ [437], [755], [918], [1155]. Accordingly, he held the money received on an imposed Black v Freedman trust: LJ [1156]. He was liable to pay equitable compensation on the basis of breach of trust, knowing assistance and for knowing receipt: LJ [1155]-[1158].

Capacity of applicants

36 The applicants are the joint and several liquidators of the corporate plaintiffs. The corporate plaintiffs (including those joined as a result of this application) are:

(1) FGOC;

(2) 14 James Street;

(3) 26 Edmonstone Road;

(4) 5 Bulkara Street;

(5) 6 Bulkara Street;

(6) Aramia Holdings Pty Ltd ACN 114 958 717 (in liquidation);

(7) Eros Management Pty Ltd ACN 622 298 346 (in liquidation);

(8) Forum Direct Pty Ltd ACN 054 890 710 (in liquidation);

(9) Forum Fleet Pty Ltd ACN 155 440 994 (in liquidation);

(10) FG;

(11) Forum Group (QLD) Pty Ltd ACN 103 609 678 (in liquidation);

(12) Forum Group (VIC) Pty Ltd ACN 153 062 018 (in liquidation)

(13) Imagetec Financial Services Pty Ltd ACN 111 978 182 (in liquidation) (Imagetec FS);

(14) Imagetec Solutions;

(15) Intrashield Investment Group Pty Ltd ACN 645 578 829 (in liquidation);

(16) Intrashield;

(17) Iugis Investments;

(18) Iugis;

(19) Iugis Waste;

(20) OneSource Australia Holdings Pty Ltd ACN 120 463 541 (in liquidation);

(21) Orca Enviro Solutions Pty Ltd ACN 626 552 645 (in liquidation);

(22) Orca Enviro Systems Pty Ltd ACN 627 597 782 (in liquidation);

(23) Smartprint;

(24) Spartan Consulting Group Pty Ltd ACN 168 989 544 (in liquidation);

(25) Forum Finance;

(26) FGFS;

(27) Forum Enviro;

(28) Forum Enviro (Aust);

(29) 64-66 Berkeley Street;

(30) 9 Gregory Street Ouyen Pty Ltd ACN 641 392 707 (in liquidation) (receivers and managers appointed);

(31) TIG;

(32) Palante; and

(33) 23 Margaret Street.

37 The following subset of the corporate plaintiffs acted as trustees of trading trusts or otherwise held assets on trust:

(1) 14 James Street;

(2) 5 Bulkara Street;

(3) 6 Bulkara Street;

(4) 26 Edmonstone Road;

(5) Intrashield (noting that Intrashield was removed as trustee of the relevant trust on 14 February 2019 and was replaced by Mangusta);

(6) 9 Gregory Street;

(7) 64-66 Berkeley Street;

(8) TIG; and

(9) 23 Margaret Street

(together, the trustee plaintiffs).

38 The deeds by which these trusts were established were tendered by the applicants. The governing law provided for in these deeds is either the law of New South Wales or the law of Victoria. For completeness, I note that although 26 Edmonstone Road’s primary asset was real estate situated in Queensland, the relevant trust deed nonetheless provided for the law of Victoria to be the governing law.

39 With the exception of TIG, upon the appointment of administrators or liquidators to the trustee plaintiffs, the relevant corporate plaintiff was removed as trustee by operation of the terms of the relevant trust deed. They each became bare trustees: Caterpillar Financial Australia Ltd v Ovens Nominees Pty Ltd [2011] FCA 677 at [7] (Gordon J); Fletcher, in the matter of Starrit Pty Ltd (in liq) [2012] FCA 803 at [34] (Collier J); Re Neeeat Holdings (in liq) [2013] FCA 61; 299 ALR 744 at [19] (Kenny J). For this reason, the applicants sought and obtained orders from this Court in this proceeding on 3 September 2021 and 15 December 2022 whereby they were appointed as receivers and managers of the relevant trust assets under s 57 of the FCA Act. In that capacity, the applicants realised the trust assets and now hold the net proceeds of those sales.

40 For this reason, in addition to being joint and several liquidators of the corporate plaintiffs, the applicants also act in their capacity as Court-appointed receivers and managers of trust assets (or the proceeds of the sale of trust assets) where those assets were held by one or other of the trustee plaintiffs as the current or former (bare) trustees.

The corporate plaintiffs

41 The liquidators of the companies involved in (or otherwise, the beneficiaries of) the fraud have traced the distribution of the funds derived from the fraud and identified the property acquired and/or serviced using the stolen funds. The applicants’ evidence in relation to the specific tracing of the Financiers’ funds to the available asset pools is addressed in Part I of these reasons. The key findings in relation to the knowledge of each of the relevant entities is addressed in broad form below.

The corporate trustees

42 The liquidators of the corporate trustees involved in (or otherwise, the beneficiaries of) the fraud and/or receivers appointed to trust property or the proceeds of that property have traced the distribution of the funds derived from the fraud and identified the property acquired and/or serviced using the stolen funds. Again, the applicants’ evidence in relation to the specific tracing of the Financiers’ funds to the available asset pools is addressed in Part I of these reasons and the key findings in relation to the knowledge of each of the relevant entities is addressed in broad form below.

The tracing analysis

43 The factual evidence in relation to the tracing analysis provided by Mr Preston was essentially unchallenged: LJ [942]. The tracing analysis is addressed in Part I.25 of the Liability Judgment. Mr Ireland’s evidence regarding the SMBC arrangements is addressed in Part I.30 of the Liability Judgment. I accepted this evidence: LJ [1079]-[1080]. For convenience and given its importance to the issues that arise for consideration in the present application, I will briefly summarise the approach taken in the tracing analysis.

44 The liquidators identified two alternative methods for the tracing of funds through the Forum entities. In the Liability Judgment, I addressed the evidence in relation to tracing and the two tracing models in detail: LJ [937]-[965]. Both of the models used categories to identify the source of the funds identified in the tracing exercise. Funds sourced from the Financiers were categorised according to the Financier from which they were sourced. The category labelled as “Other” comprised funds which the liquidators were not able to attribute as having been sourced from any Financier. The “Other” category includes, for example, third party loans in respect of which there are no proprietary claims, such as constructive trust claims.

45 The First Tracing Model (as that term is used in the Liability Judgment: LJ [960]) analysed debits in the relevant accounts of Forum group entities by first expending funds in the Other category before allocating any payments as having been made from the funds traced from the Financiers (or any of them). Once the Other category was depleted, the analysis proceeded on the basis that funding from the Financiers was drawn down on a pro rata basis from the specific tracing categories according to the proportion of funds each of the Financiers had contributed to their designated tracing category: LJ [960(12)].

46 The Second Tracing Model (as that term is used in the Liability Judgment: LJ [960], referred to by the liquidators as the Alternate Tracing Model) adopted the inverse approach, by expending Financier funding first on a pro-rata basis according to the proportion of funds each Financier had contributed to their designated tracing category, prior to any payments being allocated to the Other category. Once Financier funding was depleted, the analysis proceeded on the basis that the Other category was then drawn down: LJ [960(13)].

47 In undertaking the tracing exercise, the liquidators have in respect of some of the entities identified that a proportion of the assets held by, or for, the particular entities may be attributable to funds traced from the Financiers (and in this respect, be supported by a proprietary claim) and also from the Other category.

48 Mr Preston deposes that in the majority of cases where he has identified funds falling within the Other category, the proportion of Other funds is very small (zero or less than 1% of the amounts traced to that particular entity with the result that the remaining 99% or more has been traced to the Financiers).

49 Mr Preston acknowledges that in some instances the proportion of Other funds is higher. He points to the following examples:

(1) Palante: 10.29%;

(2) TIG: 12.73%;

(3) 23 Margaret Street: 3.71%;

(4) FG: for the “2934 Account” (as defined in paragraph [259(1)] below), 30.88%; and

(5) Iugis Investments: 9.56%.

50 In those cases where the proportion of Other funds is above about 1%, the amount of funds available for distribution to the Financiers is below the amount traced from them into the particular asset pool in the tracing exercise.

51 To presage the proposed approach to distribution in respect of which the applicants seek direction, the applicants seek to simplify the distribution process by treating the transactions deriving from the relevant bank accounts on the basis that Other funds have been spent before funds traceable to the Financiers. In this way the applicants seek to ensure that the relevant assets are distributed in a way that affords priority to the proprietary claims recognised in the Liability Judgment and which reduces the time and costs involved in the distribution process with a view to cauterising any unnecessary erosion of the distribution fund. I will address this further in Part I of these reasons.

Key knowledge findings

52 The key findings in respect of the knowledge of the corporate plaintiffs for present purposes include:

(1) Each entity within the Consolidated Group (which includes FGOC, Forum Finance, FG, Forum Enviro, and Forum Enviro (Aust)) was attributed Mr Papas’ knowledge of the fraud: LJ [1168]. Accordingly, a Black v Freedman trust was imposed on Financier funds that were received by the Consolidated Group entities: LJ [1148], [1169]-[1170], [1194], [1205].

(2) Each entity which fell within the description of the Jointly Owned Entities (which includes FGFS, 64-66 Berkeley Street, 14 James Street, 26 Edmonstone Road, 5 Bulkara Street and 6 Bulkara Street) was attributed Mr Papas’ knowledge of the fraud: LJ [1171]. Accordingly, a Black v Freedman trust was imposed on Financier funds that were received by the Jointly Owned Entities: LJ [1152], [1171]-[1172], [1197], [1207].

(3) Each entity which fell within the description of the Tesoriero Entities (which includes TIG, Mangusta, 23 Margaret Street and 9 Gregory Street: LJ [161])) was attributed Mr Tesoriero’s knowledge of the fraud: LJ [1174]. Accordingly, a Black v Freedman trust was imposed on Financier funds that were received by the Tesoriero Entities: LJ [1175], [1201]-[1202].

(4) Each entity which fell within the description of the Other Papas Entities (which includes Palante, Intrashield, Iugis – which was wholly owned by Iugis Holdings Limited – and Imagetec Solutions) was attributed Mr Papas’ knowledge of the fraud: LJ [172]-[174], [185]-[186], [1177] and Annexure M.

PART G – SOURCES OF POWER

53 The applicants originally framed the substantive relief they seek solely by reference to s 90-15(1) of the IPS. At the hearing, the plaintiffs (as I will refer to them given the orders I will make as to joinder) relied on a more expansive list of sources of the Court’s power to grant the relief sought. That was done in some respects out of an abundance of caution but importantly it was done to ensure that the powers relied upon correlated to the various capacities in which the plaintiffs were acting in seeking the relief. Thus, at the hearing, the plaintiffs relied on the following additional heads of power:

(1) in so far as the plaintiffs are acting as liquidators, they continue to rely on s 90-15(1) of the IPS as they have from the outset; and

(2) in so far as the plaintiffs are acting as the Court-appointed receivers and managers of assets, including the proceeds of sale of trust assets, they rely on s 90-15(1) of the IPS, the Court’s general jurisdiction, s 19 of the FCA Act, r 14.23 of the Rules, s 63 of the Trustee Act 1925 (NSW) and rule 54.02 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (Supreme Court of Victoria Rules).

54 For the reasons which follow, I am satisfied that it is appropriate and prudent for the relief sought to be granted to the extent that it is necessary to do so under these additional heads of power having regard to the various capacities in which the applicants act: see paragraphs [36] and [37] above.

Section 90-15(1) of the IPS

55 Section 90-15(1) of the IPS permits the Court to make such orders as it thinks fit “in relation to the external administration” of a company. While the words “in relation to” may arguably extend to the multiple capacities in which the applicants act in this case (since the receiverships were necessitated by the relevant plaintiffs entering administration and liquidation), that position is potentially uncertain where the definition of “external administration” in s 5-15 of the IPS lists administration and liquidation but does not list receivership.

56 In the present circumstances, I am satisfied that it is appropriate for the applicants to seek guidance or advice from the Court regarding the proposed order of distribution. The distribution raises issues of legal substance, as well as of propriety or reasonableness. The advice sought does not involve decision-making based on purely commercial value judgements. The Court’s task in providing directions in this proceeding arises in a setting where there are limitations on the available evidence and the relief must be fashioned in a way that takes into account what is reasonably and practically economical and likely to have utility.

57 Prudently, the applicants rely on the Court’s general jurisdiction and the additional heads of power which I have referred to above. In identifying the relevant additional heads of power upon which they rely, the applicants correctly note that s 424 of the Corporations Act, which permits the controller of property of a corporation to apply to the Court for directions relating to matters arising from the performance or exercise of their functions, does not apply in this case because the applicants were appointed as receivers by Court order and not “under a power contained in an instrument” as required by s 424(2).

The Court’s power to provide advice or directions to Court-appointed receivers

58 A court-appointed receiver is an officer of the court. As such, the receiver may resort to the court for necessary guidance concerning matters that are within the scope of their appointment: Australian Securities and Investments Commission v Commercial Nominees of Australia Ltd [2002] NSWSC 576; 42 ACSR 240 at [11] (Barrett J). This Court has jurisdiction to provide judicial advice to the receivers that it has appointed: Francis (Trustee), in the matter of Fotios (Bankrupt) v Helios Corporation Pty Ltd [2022] FCA 199 at [16] (Colvin J).

59 Where receivers are appointed by the court, the court has jurisdiction to give its opinion, advice or direction to a receiver it has appointed. The jurisdiction to do so arises under s 39B(1A)(c) of the Judiciary Act 1903 (Cth) and is reflected in s 19(1) of the FCA Act. The power to do so is an incident of the statutory power to appoint a receiver under the Corporations Act. The power is one aspect of r 14.23 of the Rules. The relevant principles are canvassed in Australian Securities and Investments Commission v Caddick (No 2) [2023] FCA 1196 at [44]-[50] (Markovic J) and the authorities canvassed therein.

60 The principles relevant to determining whether the court should exercise this jurisdiction on an application by a court-appointed receiver are similar to those governing s 424 of the Corporations Act. In Re Sandalwood Properties Ltd; Ex parte Preston [2018] FCA 547 at [47] and [108], Colvin J set out the principles as to the nature and scope of available directions under s 424, as summarised by Vaughan J in Re Mirabela Nickel Ltd (receivers and managers appointed) (in liq); ex parte Madden [2018] WASC 335 at [89(1)] as follows:

The directions that may be provided are a form of personal guidance or advice; they articulate the approach the controller is justified in taking having regard to the known circumstances and relevant legal principles.

61 In Fotios at [17], Colvin J confirmed the Court’s jurisdiction to provide judicial advice to a private receiver in the manner that his Honour outlined in Sandalwood Properties and to a receiver appointed by Court order is relevantly co-extensive.

62 As with judicial advice given to a liquidator, there must be an issue calling for the exercise of legal judgment, that is, a legal issue of substance or procedure or an issue of power, propriety or reasonableness. The advice must relate to more than a business or commercial decision. However, the fact that a legal question may have significant commercial consequences does not make the giving of directions inappropriate. The Court does not give advice as to how the controller should act, but rather whether there is legal justification to so act having regard to known circumstances and applicable legal principles: Sandalwood Properties at [51]-[54] and [67].

63 The applicants have demonstrated that the issues they are confronted with as Court-appointed receivers in relation to distribution are complex and warrant the Court providing judicial advice under this head of power. The applicants, relevantly in their capacity as receivers, seek guidance or advice from the Court regarding the proposed order of distribution. As I have mentioned in the context of the part of the application that relies on the applicants’ status as liquidators, the distribution raises issues of legal substance, as well as propriety or reasonableness, and does not involve decision-making based upon purely commercial value judgements.

Section 63 of the Trustee Act and r 54.02 of the Supreme Court of Victoria Rules

64 To the extent that the applicants, in their capacity as Court-appointed receivers, propose to distribute monies that are the proceeds of sales of assets imprinted with trusts of which the corporate plaintiffs are bare trustees, s 63(1) of the Trustee Act and r 54.02(2) of the Supreme Court of Victoria Rules are enlivened. The applicants seek to invoke these provisions in the name of the relevant corporate trustees, now bare trustees, and not in their own capacity as Court-appointed receivers of trust property: cf. In the matter of Anglican Development Fund Diocese of Bathurst (receivers & managers appointed) [2015] NSWSC 440 at [11] (Brereton J, as his Honour then was).

65 Section 63(1) of the Trustee Act provides:

Advice

(1)    A trustee may apply to the Court for an opinion advice or direction on any question respecting the management or administration of the trust property, or respecting the interpretation of the trust instrument.

66 Rule 54.02 of the Supreme Court of Victoria Rules relevantly provides:

Relief without general administration

(1)    A proceeding may be brought for any relief which could be granted in an administration proceeding and a claim need not be made for the administration or execution under the direction of the Court of the estate or trust in respect of which the relief is sought.

(2)    Without limiting paragraph (1), a proceeding may be brought for—

(a)    the determination of any question which could be determined in an administration proceeding, including any question—

(i)    arising in the administration of an estate or in the execution of a trust;

…

(c)    an order—

(i)    approving any sale, purchase, compromise or other transaction by an executor, administrator or trustee; or

(ii)    directing any act to be done in the administration of an estate or in the execution of a trust which the Court could order to be done if the estate or trust were being administered or executed under the direction of the Court.

67 Rule 54.02 confers “very broad powers” on the court: Ballard v Attorney-General (Vic) [2010] VSC 525; 30 VR 413 at [41] (Kyrou J).

68 For completeness, I note that it is generally not necessary for an application under s 63 of the Trustee Act or under r 54.02 of the Supreme Court of Victoria Rules to be served on any person: Trustee Act, s 63(4); Supreme Court Victoria Rules, r 54.04(1).

69 The plaintiffs submit that the relief they seek on this application falls squarely within the ambit of these provisions. I agree.

70 This Court has jurisdiction to hear an application and make orders under s 63 of the Trustee Act in certain circumstances where the federal claim forms part of the entire litigious or justiciable controversy between the parties: Hodges v Waters (No 7) [2015] FCA 264; 232 FCR 97 at [40]-[48] (Perram J). Relevantly, where a party invokes federal jurisdiction under the Corporations Act, it is “a question of practical judgment and impression” as to whether the various claims all arise from a substantially similar common substratum of fact to accrue jurisdiction: Hodges at [43]. In Hodges, Perram J accepted that a claim for judicial advice necessarily arises from the same substratum of facts as its actual claim: [45].

71 Having regard to these principles, Perram J held that s 79(1) of the Judiciary Act was enlivened, with the effect that s 63 of the Trustee Act was made binding on the Court: Hodges at [49]-[51]. Rule 54.02 of the Supreme Court of Victoria Rules did not form part of the analysis in Hodges. The applicants submit, and I accept, that the same analysis as to the enlivening of s 79(1) of the Judiciary Act applies in this application.

72 While the present application before the Court does not involve litigious controversy between adversarial parties, similar considerations arise as were relevant in Hodges. The applicants, as liquidators and Court-appointed receivers, have invoked federal jurisdiction. The same substratum of facts gives rise to justiciable matters under the Trustee Act in so far as some of the applicants are bare trustees and relevant assets to be distributed by the applicants are imprinted with those trusts. I am satisfied that to the extent the relief sought by the applicants is predicated on the Court’s accrued jurisdiction they have established a sound basis upon which that accrued jurisdiction is enlivened.

73 Turning to whether the Court should exercise its jurisdiction, I am satisfied that it is appropriate to do so in circumstances where the applicants have established the utility in the Court providing directions under s 63 of the Trustee Act and r 54.02 of the Supreme Court of Victoria Rules, which if acted on, will afford them a degree of protection from suit: Trustee Act, s 63(2); Ballard at [41]. Granting relief in reliance on these additional heads of power will facilitate the closely interrelated matters arising in relation to the distribution of assets following the Liability Judgment being determined in a manner that is efficient and effective and which reduces the risk of longtail claims or controversies. I am satisfied that adopting this approach serves the overarching purpose of proceedings in this Court.

PART H – GENERAL PRINCIPLES RELEVANT TO DISTRIBUTION

74 I will address the applicable legal principles under the following headings:

(1) the nature of the relief sought;

(2) the principles in Re Universal Distributing Co Ltd (in liq) [1933] HCA 2; 48 CLR 171;

(3) statutory indemnity and lien of an administrator and former administrator;

(4) a former trustee’s right of indemnity

(5) the claims made based on interests arising under a Black v Freedman constructive trust;

(6) subrogation;

(7) claims of employee creditors under the Corporations Act;

(8) competing priorities; and

(9) tracing.

Nature of the relief sought

75 The applicants apply in their various capacities for advice, or direction, that they are justified in distributing the assets of the relevant entities. As mentioned, the function of a liquidator’s application for directions is to give the liquidator advice as to the proper course of action for him or her to take in the liquidation: Re Force Corp at [18] (Gleeson J). By analogy, so too in relation to the function of the applications for directions made by the applicants in their other relevant capacities.

76 The Court’s power to give directions under s 90-15 of the IPS includes the power to give a liquidator advice as to the proper course of action to take in a liquidation, and may give directions that provide guidance on matters of law and the reasonableness of a contemplated exercise of discretion, although it typically will not do so where a matter relates to the making and implementation of a business or commercial decision, where no particular legal issue is raised and there is no attack on the propriety or reasonableness of the decision: Re Force Corp at [19] (Gleeson J); Re Spitfire Corporation Ltd (in liq) and Aspirio Pty Ltd (in liq) [2022] NSWSC 340; 160 ACSR 394 at [16] (Black J), citing his Honour’s earlier decisions in Re Octaviar Administration Pty Ltd (in liq) [2017] NSWSC 1556 and Re RCR Tomlinson Ltd (admins apptd) [2020] NSWSC 735 at [6].

77 In Kelly (Liquidator), Halifax Investment Services Pty Ltd (In Liq) v Loo [2021] FCA 531; 390 ALR 669 at [15]-[20], Markovic J comprehensively reviewed the principles applicable to an application for directions pursuant to s 90-15 of the IPS and to an application for judicial advice pursuant to s 63 of the Trustee Act, citing in turn the summary given by Gleeson J in Re Kelly, in the matter of Halifax Investments Services Pty Ltd (in liq) (No 8) [2020] FCA 533; 144 ACSR 292 at [50]-[59]. I gratefully adopt and apply those principles in determining this application.

78 The following observations made by Markovic J in Halifax in relation to the nature of the liquidators’ application for directions are apposite (at [247]):

Such an application does not determine equitable proprietary rights; the effect of directions made by the Court is to immunise a liquidator from personal liability provided he or she acts in accordance with those directions: Courtenay House at [151]. As was recognised by Brereton J in Re BBY (No 2) [[2018] NSWSC 346; 363 ALR 492] (at [40]) in “a liquidator’s application for directions courts often have to do ‘rough justice’ because of the limitations of the available evidence” and in light of what is reasonably and practically economical.

79 In Re GB Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674, McLelland J said as to the effect of directions given in relation to an application for directions by a liquidator under the now repealed s 479(3) of the Corporations Act (at 680-681):

The primary matters of significance in the present application arising from the above considerations are that any directions which may be given to the liquidator (a) will not give rise to any conclusive determination as between GBN and its clients as to (i) whether particular assets held by GBN are held in trust for those clients or (ii) whether any such trust assets may properly be applied by the liquidator in payment of his remuneration and expenses; and (b) will not protect the liquidator against the claims of clients asserting that assets held by GBN are held in trust for those clients. …

80 In Anglican Development Fund at [14], Brereton J (as his Honour then was) noted that the jurisdiction to give an opinion, advice and direction of the court – whether to a trustee, a liquidator or a receiver – is not unlimited:

Generally speaking, it is concerned with advice or direction as to how the person seeking it should act in conformity with the law. It is not a jurisdiction to authorise departures from the strict legal position, nor one to alter legal rights.

81 Here, the applicants seek directions in order to enable them to properly distribute the available assets having regard to the nature of the competing claims in respect of those assets. This application has required the identification and consideration of complicated factual and legal issues, as well as issues of power, propriety and reasonableness.

82 Provided that the applicants have made full and fair disclosure to the Court of the material facts, they will be protected from liability for any alleged breach of duty in their relevant capacity to a creditor or contributory or to the company in respect of anything done by them in accordance with the direction: Re Force Corp at [19].

83 It is, however, not right to see a trustee’s application for judicial advice about whether to sue or defend proceedings as directed only to the personal protection of the trustee. Proceedings for judicial advice have another and no less important purpose of protecting the interests of the trust: Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar the Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42; 237 CLR 66 at [72] (Gummow ACJ, Kirby, Hayne and Heydon JJ).

84 A court is not bound to provide judicial advice merely because a trustee has a right to apply for it. Once the jurisdictional requirement is satisfied, the court has a discretion whether to provide the judicial advice or direction sought: Re Rosewood Research Pty Ltd [2014] NSWSC 449 at [30] (Darke J).

85 The giving of judicial advice or directions is not an adjudication, the effect of which determines the parties’ rights: Macedonian Orthodox Community Church at [195] (Kiefel J). The Court has no power to provide directions that would have that consequence. The fact that advice or directions are sought in the context of an adversarial dispute does not mean that it is inappropriate to provide directions, but the existence of such a dispute, and the circumstance that the subject matter for advice is an issue in adversarial proceedings, may be relevant to whether the court is willing to give advice or directions and if so, in what terms: Macedonian Orthodox Community Church at [54]-[76] (Gummow ACJ, Kirby, Hayne and Heydon JJ).

86 Judicial advice or direction is given in the context of the circumstances presented to the court at the time it is given. Judicial advice or direction will not extend to materially different circumstances that arise at a future point in time.

87 The relief granted in an application such as this should be expressed in a form that is consistent with it being provided by way of judicial advice or direction.

88 The applicants have framed this application in a way that is both practical and efficient by limiting the scope of the advice sought to points of legal principle and the proper order of distribution. They do not attempt at this stage to quantify any distribution amounts because the precise amounts will be contingent on the advice given and will necessarily be updated to take into account changes since the applicants’ evidence was finalised to account for things such as interest accruing on cash at bank. Upon receiving and considering the advice given in these reasons, the applicants will undertake further work to calculate the precise amounts to be distributed to the claimants, and will then proceed to make payments (unless at that point they consider that further directions of the Court are necessary).

Universal Distributing Principle

89 It is well established that the costs, expenses and remuneration of an external administrator which relate to the work done to generate a fund take priority over the claims of secured creditors to that fund. The secured creditor cannot have the benefit of that fund without the fund first bearing the costs, expenses and remuneration that the external administrator incurred in creating that fund. The external administrator’s entitlement in this regard has the benefit of an equitable charge or lien over the fund to secure it: Universal Distributing at 174 (Dixon J); Stewart v Atco Controls Pty Ltd (in liq) [2014] HCA 15; 252 CLR 307 at [22]-[23] (Crennan, Kiefel, Bell, Gageler and Keane JJ).

90 The costs, expenses and remuneration that may be the subject of that recompense, and the charge upon the fund, must be “incurred in the realisation” of the asset which created the fund”: Stewart at [41]. Costs “incidental to the realisation” are not limited to the costs of selling the asset, but extend to costs incurred in the care and preservation of the asset: Universal Distributing at 174 (Dixon J); Primary Securities Ltd v Willmott Forests Ltd (in liq) [2016] VSCA 309; 50 VR 752 at [11] (Maxwell P) and [124]-[125] (Whelan and Santamaria JJA); Thackray v Gunns Plantations Ltd [2011] VSC 380; 85 ACSR 144 at [48] (Davies J).

91 In the context where the external administrator is acting in relation to multiple administrations, it may be necessary to apportion the costs, charges and expenses between the relevant companies and/or assets. Justice Besanko observed in Powell, in the matter of Arafura Pearls Holdings Limited (in liq) [2017] FCA 1159 at [58] that:

The costs, charges and expenses must have been incurred in relation to the property and it is not possible to claim general administration costs or the costs, expenses and remuneration referable for the care, preservation of the property and assets of any other scheme or schemes. Where there are mixed purposes … and more than one Scheme is involved, an apportionment is necessary ([Thackray] at [40]-[51] per Davies J)

92 In Thackray, Davies J gave the following examples of expenses in the nature of caring for and/or preserving property to which the Universal Distributing principle has been applied (at [49]):

(1) the cost of having someone take care of the property;

(2) expenses paid to prevent forfeiture of assets;

(3) the payment by the claimant of a debt which contributes to the pool of assets, for example by securing control of the property;

(4) the expense involved in maintaining and carrying on a business so it could be sold as a going concern;

(5) liability for an amount to a litigation funder in respect of litigation of a cause of action which is itself an asset;

(6) costs and expenses in prosecuting such litigation;

(7) costs and expenses in resisting litigation, in circumstances where the claim arises out of earlier action by a receiver to secure assets.

93 The imposition of a lien or charge for the benefit of the liquidator is not conditional on the liquidator realising a “fund”: Re S & D International Pty Ltd (in liq) (receiver and manager appointed) [2009] VSC 225 at [254]-[276] (Robson J); Thackray at [40]-[41]; Primary Securities at [16] (Maxwell P) and [119]-[120] and [126]-[128] (Whelan and Santamaria JJA). In Primary Securities, Whelan and Santamaria JJA observed (at [124]):

In our view the authorities also make it clear that the [Universal Distributing] principle may apply where the claimant has cared for or preserved an asset, and not simply where the claimant has realised it and created a fund. One circumstance where the principle may apply is where the claimant has acted as a kind of ‘stand in’, undertaking activities which the holder of the proprietary interest would have had to undertake itself had the claimant not done so. In essence, that is what happened in Pattison v Lockwood [[1998] FCA 472]. On the other hand, if the claimant's activities are properly characterised as unrelated to the interests or objectives of the holder of the proprietary interest then the claimant may have no entitlement to priority over that proprietary interest holder. It seems to us that that was the position in Dean-Willcocks [v Nothintoohard Pty Ltd (in liq) [2006] NSWCA 311; 25 ACLC 109].

94 The rationale for equity’s imposition of a lien or charge in support of costs, expenses, and remuneration covered by the Universal Distributing principle is based in the concept of “salvage”. Those taking the benefit of the external administrator’s efforts should not escape the corresponding burden of the cost of those efforts: Shirlaw v Taylor [1991] FCA 531; 31 FCR 222 at 230 [31] (Sheppard, Burchett and Gummow JJ); International Art Holdings Pty Ltd (administrator appointed) v Adams [2011] NSWSC 164; 85 ACSR 1 at [77]-[80] (Ward J, as her Honour then was); Hamilton v Donovan Oates Hannaford Mortgage Corp Ltd [2007] NSWSC 10; 207 FLR 163 at [18] (Barrett J, as his Honour then was).

95 The Universal Distributing principle is not limited to external administrators appointed by a court, but also extends to a person performing the function of an administrator appointed pursuant to the Corporations Act: International Art Holdings at [81]. Thus, voluntary administrators appointed under the Corporations Act are covered by the principle. The safeguard for those on whom the burden of the lien falls is that the costs and expenses of one who has, by his efforts, brought into court a fund for administration must be reasonably and properly incurred: International Art Holdings at [81].

96 Relevant considerations for the application of the Universal Distributing principle include the following:

(1) the lien will only secure costs and expenses (including reasonable remuneration) of the administrator fairly incurred exclusively for the care, preservation, and realisation of the fund;

(2) the lien will not secure costs and expenses otherwise incurred in the general administration of the company;

(3) the lien may arise whether or not the ultimate sale is effected by the administrator, such as where the administrator's care and/or preservation of assets involved undertaking activities that the holder of the proprietary interest would have had to undertake itself had the administrator not done so. In such cases, the lien will entitle the administrator to be paid in priority out of the fund subsequently created; and

(4) the administrator need not be in possession of the fund to the have the benefit of the lien.

(See Re Specialist Australian Security Group Pty Ltd (in liq) [2018] VSC 199; 55 VR 433 at [54]-[57] (Sifris J), citing Commonwealth Bank of Australia v Butterell (1994) 35 NSWLR 64 at 71 (Young J), S & D International at [273]-[276] (Robson J) and Primary Securities at [16] (Maxwell P) and [122]-[125] (Whelan and Santamaria JJA)).

97 Where the principle in Universal Distributing is engaged in relation to a particular asset pool, disbursements in accordance with this principle will take first priority.

Statutory indemnity and lien of an administrator and former administrator

98 An administrator is entitled to be indemnified out of the company’s property for, amongst other things, debts for which he or she is liable under ss 443A to 443F of the Corporations Act: s 443D. That right of indemnity has priority over unsecured debts and, amongst other things, circulating security interests over the property of the company (subject to some exceptions): s 443E. That right of indemnity is secured by a lien, which lien has the same priority as the right of indemnity: s 443E.

99 An administrator’s statutory indemnity under ss 443D and 443E and the supporting lien “on the company’s property” under s 443F of the Corporations Act are distinct from a claim made pursuant to the Universal Distributing principle in that the causal requirement necessary to support a claim relying on the Universal Distributing principle is not required in relation to the statutory lien. In the latter context, the relevant questions are: was the work done? and, is there company property?: Re Specialist at [43]. Former administrators retain the benefit of the statutory lien.

100 An administrator’s statutory lien applies only to assets that are “the company’s property” and that are in the administrator’s or former administrator’s hands: Weston v Carling Constructions Pty Ltd Ltd [2000] NSWSC 693; 175 ALR 202 at [23] (Austin J); Calabretta v Redpen Developments Pty Ltd (in liq) [2010] FCA 81; 183 FCR 47 at [40] (Yates J). What “in the hands” means may, for present purposes, be taken to amount to:

(1) in the case of physical assets such as chattels or land, possession; and

(2) in the case of moneys, control of the relevant bank account.

101 Where there are no assets in the administrator’s or former administrator’s hands in this sense, the administrator or former administrator will not be able to avail themselves of any statutory lien. That is, if there are no assets in the hands of the administrator or former administrator, there is nothing to which the statutory lien may attach, and the administrator or former administrator loses the benefit of the statutory lien: Calabretta at [40].

102 An administrator’s statutory indemnity under s 443D is a right to be indemnified “out of the company’s property”. Property held by a company on trust is not property “of the company”, save to the extent the company as trustee is entitled to be indemnified from trust assets to satisfy claims of trust creditors: Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth [2019] HCA 20; 268 CLR 524 at [26], [28], [44] (Kiefel CJ, Keane and Edelman JJ, Gordon J agreeing), and [90], [95] (Bell, Gageler and Nettle JJ).

103 The administrator’s statutory indemnity under s 443D exists independently of the statutory lien under s 443F and has priority, by operation of s 443E, over unsecured debts and also over most debts that are secured by a circulating security interest (but does not have priority over debts secured by a registered non-circulating security interest).

104 Unlike administrators, liquidators do not have the benefit of any statutory lien. Therefore, liquidators or former liquidators wishing to assert a priority may only have recourse to an equitable lien in accordance with the Universal Distributing principle.

105 The administrator's statutory indemnity and lien does not displace any equitable liens to which an administrator or former administrator may be entitled, including any Universal Distributing lien: Butterell at 71; Weston v Carling at [18]; Coad v Wellness Pursuit Pty Ltd [2009] WASCA 68; 40 WAR 53 at [60]-[64], [89]-[90] (Buss JA, Wheeler and Pullin JJA agreeing).

106 An administrator need not be in possession of the fund to which a Universal Distributing lien attaches to have the benefit of that lien. It can also apply where the claimant has cared for or preserved an asset without realising it: Re Specialist at [54]-[57] (and the authorities cited therein).

Former trustee’s right of indemnity

107 A former trustee retains a right of indemnity as against assets of the trust: Naaman v Jaken Properties Australia Pty Ltd [2025] HCA 1; 421 ALR 227 at [1] (Gageler CJ, Gleeson, Jagot and Beech-Jones JJ). That right of indemnity, and the associated interest of the former trustee in the trust property, takes priority to the interests of the beneficiaries in that the beneficiaries are not entitled to call for a distribution of trust assets which are subject to a charge in favour of the trustee until the charge has been satisfied: Octavo Investments Pty Ltd v Knight [1979] HCA 61; 144 CLR 360 at 367 [14] (Stephen, Mason, Aickin and Wilson JJ).

108 Former trustees also retain the right of indemnity, including the right of exoneration, and the accompanying equitable lien for liabilities incurred whilst acting as trustee: Bruton Holdings Pty Ltd (in liq) v Commissioner of Taxation of the Commonwealth of Australia [2009] HCA 32; 239 CLR 346 at [43] (French CJ, Gummow, Hayne, Heydon and Bell JJ); Jones v Matrix Partners Pty Ltd; Re Killarnee Civil & Concrete Contractors Pty Ltd (in liq) [2018] FCAFC 40; 260 FCR 310 at [142] (Allsop CJ); Cremin, Re Brimson Pty Ltd (in liq) [2019] FCA 1023 at [48] (Moshinsky J).

109 For completeness, proceeds from an exercise of the right of exoneration may be applied only in satisfaction of the trust liabilities to which the right relates: Carter Holt Harvey Woodproducts at [92] (Bell, Gageler and Nettle JJ, Gordon J agreeing at [155]-[156]); see also [40], [44] (Kiefel CJ, Keane and Edelman JJ).

Claims made based on interests arising under a Black v Freedman constructive trust

110 In the Financier Proceedings, the Financiers successfully established that the respondents had received funds in circumstances where the funds were impressed with a constructive trust of the kind described in Black v S Freedman & Co [1910] HCA 58; 12 CLR 105 (Black v Freedman). The Financiers established the existence of such trusts against each entity in Annexure I of the Liability Judgment: LJ at [1139], [1194], [1197], [1199], [1201], [1205]-[1208].

111 The constructive trusts are relevant to the distribution of assets in the present case. The beneficiaries of the trusts have an equitable proprietary interest in the trust assets, in addition to personal claims against the trustees: Fistar v Riverwood Legion and Community Club Ltd [2016] NSWCA 81; 91 NSWLR 732 at [39]-[40] (Leeming JA; Bathurst CJ and Sackville AJA agreeing); Heperu Pty Ltd v Belle [2009] NSWCA 252; 76 NSWLR 230 at [93] (Allsop P, as his Honour then was, Campbell JA and Handley AJA agreeing); Giumelli v Giumelli [1999] HCA 10; 196 CLR 101 at [4] (Gleeson CJ, McHugh, Gummow and Callinan JJ).

112 It is well accepted that a thief holds stolen property on trust: Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6; 200 FCR 296 at [255]; Fistar at [39]. The trust imposed has an institutional character in that it arises immediately upon the theft, rather than upon a court recognising or declaring its existence: Evans v European Bank Ltd [2004] NSWCA 82; 61 NSWLR 75 at [113], [115] (Spigelman CJ, Handley and Santow JJA agreeing). While there is some debate in the authorities as to the dichotomy between “institutional” and “remedial” constructive trusts, where, as here, the trust is recognised upon the establishment of theft or fraud where the relevant assets are in the hands of the thief or fraudster or someone benefitting through them, the Court recognises a constructive trust arising from the time of the theft or fraud: Sze Tu v Lowe [2014] NSWCA 462; 89 NSWLR 317 at [147] (Gleeson JA) and the authorities cited therein; LJ [1125(3)].

113 Where a third party receives trust property transferred in breach of trust, and is on notice of the breach of trust, they too will be liable as a constructive trustee: Fistar at [45]; Heperu at [92], [154]-[155], [163]. In Agip (Africa) Ltd v Jackson [1990] Ch 265 at 291 (affirmed on appeal: [1991] Ch 547 (Fox LJ)), Millet J said of a person who receives property in breach of trust:

He is liable as a constructive trustee if he received it with notice, actual or constructive, that it was trust property and that the transfer to him was a breach of trust; or if he received it without such notice but subsequently discovered the facts. In either case he is liable to account for the property, in the first case as from the time he received the property, and in the second as from the time he acquired notice.

114 This does not, however, mean that a person who unknowingly receives property in breach of trust comes under personal liabilities as though they were a knowing participant in the fraud beyond this duty to restore the trust property: Heperu at [154].

115 In relation to the interests of the beneficiaries of a Black v Freedman constructive trust, a competition may arise where the trustee has charged or otherwise dealt with trust property in a manner that results in a third party acquiring an interest in the trust property, even where the trustee is acting in breach of trust.

Subrogation

116 The principles in relation to subrogation have a bearing on the proposed order of distribution in relation to some of the assets of a number of the entities.

Doctrinal basis for equitable subrogation

117 The High Court has affirmed that subrogation is a remedy based on well-settled principles and available in defined circumstances that make it unconscionable for the defendant to deny the proprietary interest claimed by the plaintiff. In Bofinger v Kingsway Group Ltd [2009] HCA 44; 239 CLR 269, the High Court agreed with Millett LJ’s observation in Boscawen v Bajwa [1996] 1 WLR 328; [1995] 4 All ER 769 that subrogation is not a remedy which the court has a general discretion to impose whenever it thinks fit to do so. The High Court cited with approval Millett LJ’s observation that the “equity arises from the conduct of the parties on well settled principles and in defined circumstances which make it unconscionable for the defendant to deny the proprietary interest claimed by the plaintiff”: Bofinger at [94] (Gummow, Hayne, Heydon, Kiefel and Bell JJ), quoting Boscawen v Bajwa at 335. Subrogation “will only be granted in circumstances where it is appropriate to do so”: Re Trivan Pty Ltd (1996) 134 FLR 368 at 372 (NSWSC, Young J).

118 The equitable right of subrogation is based upon equity’s concern to prevent one party obtaining an advantage at the expense of another which in the circumstances of the case is unconscionable. There is a common thread running through the authorities to the effect that the conscience of the mortgagor should be affected so as to cause the mortgage to be kept alive.  See Cochrane v Cochrane (1985) 3 NSWLR 403 at 405 (Kearney J) cited with approval in Aged Care Services Pty Ltd v Kanning Services [2013] NSWCA 393; 86 NSWLR 174 at [54] (Gleeson JA, Meagher and Leeming JJA agreeing).

119 The concept of unjust enrichment does not supply the doctrinal basis for equitable subrogation in Australia: Bofinger at [85], [90]-[91], [97]-[98].

120 Subrogation is thus available as a remedy where the circumstances and conduct of the parties are such that it would be unconscionable for the defendant to deny the plaintiff’s right to subrogate: Bofinger at [94], quoting Boscawen v Bajwa at 335; Trivan at 371-372.

121 The equitable principles relating to subrogation aim to adjust the interests of three parties, such as a creditor, a debtor and an insurer or surety, so as to avoid the unconscionable result of double recovery by the creditor or inequitable discharge of the liability of the debtor: Registrar General v Gill (unreported, NSWCA, Gleeson CJ, Mahoney and Priestley JJA, 16 August 1994), citing Meagher RP, Gummow WMC and Lehane JRF, Equity: Doctrines and Remedies (3rd ed, Butterworths, Sydney, 1992) at [951]; see also Heydon JD, Leeming MJ and Turner PG, Meagher, Gummow & Lehane’s Equity: Doctrines & Remedies (5th ed, Lexis Nexis Butterworths, 2014) (Meagher, Gummow & Lehane (2014)) at [9-090]).

122 Where there is a guarantor who has discharged an obligation owed to a creditor, subrogation operates by permitting the guarantor to take the benefit of the security (or other rights) held by the creditor as against the principal. The relevant equity justifying subrogation in these circumstances was explained by the High Court in Bofinger at [8]:

This notion of the ultimate liability of the principal provides a foundation for the application of subrogation in aid of the surety. Thus, where a claim to the benefit of securities held by the creditor is made by a surety, … the equity for subrogation is derived from the obligation of the principal debtor to indemnify the surety... There is ‘nothing hard’ in the act of a court of equity in placing the surety in exactly the situation of the creditor with respect to those securities…, because it would be unconscientious for the debtor to recover back the securities from the creditor while the debtor was obliged to indemnify the surety....

(Citations omitted.)

Principles of subrogation

123 In Aged Care Services, the New South Wales Court of Appeal set out the following relevant principles of subrogation at [47]-[59]:

(1) where a third party has paid off a mortgage, he or she is presumed, unless the contrary appears, to intend that “the mortgage shall be kept alive for his own benefit” (at [52]);

(2) the expression “kept alive” means in this context that the legal relations between the third party and the debtor are regulated as if the benefit of the security had been assigned to the third party (at [53]);

(3) sufficient “unconscionability” to engage the doctrine may be found in the mortgagor insisting that the effect of the third party’s payment is to discharge it from the encumbrance, unless that was the basis on which the third party made the payment. In other words, the position of a mortgagor who claims to be discharged as a result of the third party’s payment, rather than that the mortgage subsists for the benefit of the third party, is prima facie unconscionable, even if that characterisation is somewhat “attenuated”; but that prima facie position is displaced if it is shown that the third party intended otherwise (at [57], quoting Brereton J in Re Dalma No 1 Pty Ltd (in liq) [2013] NSWSC 1335; 279 FLR 80 at [32]);

(4) there is no occasion to order subrogation where there is available to a third party another remedy at law or in equity sufficient to avoid the unconscionable result (at [58]); and

(5) the absence of a common intention on the part of the borrower and the lender that the lender should have security is not fatal to a lender’s subsequent claim for subrogation (at [59], quoting Cheltenham & Gloucester Plc v Appleyard [2004] EWCA Civ 291 at [40] (Neuberger LJ)).

124 Where subrogation is available, a guarantor or third party subrogates to all the rights of the creditor as against the principal, not just to the security interests held by the creditor: Meagher, Gummow & Lehane (2014) at [9-295], citing Craythorne v Swinburne (1807) 14 Ves 160 at 162; 33 ER 482 at 483, Lord Eldon LC accepted the following formulation as to the right of subrogation enjoyed by sureties:

a surety will be entitled to every remedy, which the creditor has against the principal debtor; to enforce every security and all means of payment; to stand in the place of the creditor; not only through the medium of contract, but even by means of securities, entered into without the knowledge of the surety; having a right to have those securities transferred to him; though there was no stipulation for that; and to avail himself of all those securities against the debtor.

125 In Bofinger, the High Court quoted with approval what was said by Sir Andrew Morritt V-C in Liberty Mutual Insurance Co (UK) Ltd v HSBC Bank Plc [2001] Lloyd’s Rep Bank 224 at 225 (affd: [2002] EWCA Civ 691) as to the right of subrogation in favour of a surety (at [4], emphasis added):

The right operates so as to confer on the surety who has paid the debt in full the rights against the debtor formerly enjoyed by the creditor or by imposing on the creditor the obligation to account to the surety for any recovery in excess of the full amount of his debt.

126 In Aged Care Services, Gleeson JA (Meagher and Leeming JJA agreeing) observed that (at [49]):

in a general sense, subrogation is the “process by which one party is substituted for another so that he may enforce that other’s rights against a third party for his own benefit” (sic): C Mitchell, The Law of Subrogation, Clarendon Press, Oxford (1994) at 3 cited with approval in Highland v Exception Holdings Pty Ltd (in liq) [2006] NSWCA 318; (2007) 60 ACSR 223 per Santow JA at [90].

127 The principles of subrogation must align with “the cardinal principle of equity that the remedy must be fashioned to fit the nature of the case and the particular facts”: Bofinger at [1].

128 When the subrogee exercises rights against a principal, it does so in the creditor’s name. Subrogation does not operate to transfer or assign those rights to the creditor: Austin v Royal [1999] NSWCA 222; 47 NSWLR 27 at [19] (Cole AJA, Meagher and Handley JJA agreeing); Aged Care Services at [53].

Presumption that security be kept alive absent contrary intention

129 Where a third party’s funds are used to pay off a prior secured debt, the third party is presumed, absent contrary intention, to intend that the security be kept alive for their own benefit, whether the money is paid to the secured creditor or to the debtor for use in paying the secured creditor: Ghana Commercial Bank v Chandiram [1960] AC 732 at 745 (Privy Council); Aged Care Services at [52]; Cochrane v Cochrane at 405.

130 A right of subrogation may arise where only part of the principal’s obligations to a creditor have been discharged by a guarantor or third party, but cannot be exercised unless the primary secured debt has been repaid: Gandel Metals Pty Ltd v Centennial Mining Ltd (No 2) [2020] FCA 633 at [76]-[82] (Middleton J). In such circumstances, the payer is subrogated to the extent or proportion of the payment made but may only enforce the subrogated rights once the principal’s obligations to the extant secured creditor have been fully discharged.

131 In Re Dalma, Brereton J observed (at [28]-[29]):

[28]    Two of the varieties of circumstances in which subrogation is available are sureties, and the paying off of an existing mortgage or other security ([Bofinger]at [90]). The former class, under which a surety who discharges the principal's obligation is entitled to be subrogated to all the rights of the creditor against the debtor and third parties and all the creditor's securities if any, applies to unsecured as well as secured debts. But the equitable basis for intervention is clear: the surety is under a legal obligation to pay the creditor, and as between the surety and the principal debtor it would be inequitable for the surety to bear the burden.

[29]    The latter class, concerning discharge of existing securities, is more difficult to explain. Subject to a possible qualification about volunteers, a person who pays off a mortgage debt is entitled - and unless the contrary appears is presumed - to preserve the security for its own benefit ([Ghana Commercial Bank]; Paul v Speirway Ltd (in liq) [1976] Ch 220 (Oliver J)) …

132 The presumption on the part of the person providing the funds of an intention to preserve the existing security for their own benefit can be displaced by evidence to the contrary: Cochrane v Cochrane at 405:

The principle emerging from the Privy Council decision in [Ghana Commercial Bank]is that in such case the third party is presumed, unless the contrary appears, to intend that the mortgage shall be kept alive for his benefit. This involves, of course, that in order to determine whether the presumption applies in any given case the circumstances of the case have to be looked at. I accept that in accordance with this principle, it must be shown that the circumstances are such as to displace such a presumption in the case of a third person.

133 Where a payment is made pursuant to an agreement to advance funds by way of an unsecured loan agreement, the presumption is displaced, and subrogation is not available to the third party: Paul v Speirway Ltd (in liq) [1976] Ch 220; 2 WLR 715 at 725-726 (Oliver J). This is because the parties intended that the advance be an unsecured loan, and therefore the third party did not intend to keep the security alive for their own benefit. The unsecured lender has taken all the security they “bargained for”: Cheltenham & Gloucester plc v Appleyard at [38], [41] (Neuberger LJ).

Subrogation where misappropriated funds used to discharge existing secured debt

134 In the present case, it is necessary to consider whether claimants, such as the Financiers, whose money was misappropriated and used to pay a secured debt are entitled to be subrogated to the rights of the former secured creditor against the debtor. There were conflicting lines of authority on this proposition. The Court of Appeal in Re Diplock [1948] Ch 465 at 549-550 (Lord Greene MR, Wrottesley and Evershed LJJ) refused to conclude that the discharge of a loan secured over property using wrongfully paid funds gave the person entitled to the wrongfully paid funds any interest in the property over which the security was discharged. In Boscawen v Bajwa, Millett LJ expressed a substantially contrary view recognising the relationship in this respect of tracing and subrogation: 340-341.

135 In Heperu, the New South Wales Court of Appeal concluded that the views of Millett LJ in Boscawen v Bajwa are to be preferred to those of the Court of Appeal in Re Diplock: [135] (Allsop P, with whom Campbell JA and Handley AJA agreed), citing Heydon JD and Leeming MJ, Jacobs’ Law of Trusts in Australia (7th ed, LexisNexis Butterworths, 2006) at 681 fn 86 and Goff and Jones, The Law of Restitution (6th ed, Sweet & Maxwell, 2002) at 111-112 [2-043].

136 The contrasting approaches taken in Boscawen v Bajwa and Re Diplock are the subject of detailed analysis in Cook (Liquidator), in the matter of Italiano Family Fruit Company Pty Ltd (in liq) v Italiano Family Fruit Company Pty Ltd (in liq) [2010] FCA 1355 at [84]-[99] (Finkelstein J).

137 Justice Finkelstein observed that the reasoning in Re Diplock has been treated by some as establishing a general rule that where an innocent volunteer recipient has received misapplied trust funds and used them to discharge a debt, no right of subrogation is available. The leading case rejecting that proposition is Boscawen v Bajwa, of which Finklestein J said at [88]-[91]:

[88]     There is, however, a line of cases that reject the Re Diplock approach and permit subrogation as a remedy where funds have been misapplied. The leading case is [Boscawen v Bajwa]. A building society, Abbey National, made an advance to fund the purchase of a property. The funds were paid into the purchaser’s solicitor’s client account on the condition that they were to be used for the completion of the sale and would be returned if for any reason completion did not take place. The money was forwarded to the vendor’s solicitor’s client account to be held on trust pending execution of the transfer and release of the title deeds. In breach of trust, the money was applied prior to settlement to discharge an existing mortgage over the property. The sale later fell through. Abbey National sought to be subrogated to the rights of the secured creditor whose mortgage had been discharged with the misapplied funds.

[89]     Two arguments were raised against subrogation.  The first was that it would be inconsistent with Re Diplock. To this, Millett LJ (as he then was), who wrote the leading judgment, said (at 339-341) that the Re Diplock approach was not without its difficulties and was in need of reappraisal.  As to the concern in Re Diplock about “reviving” debts, he observed that the discharge of the creditor’s security is certainly not a bar to subrogation in equity. Millett LJ also noted that the concerns expressed in Re Diplock about the inequity of imposing a fresh charge may have been misplaced.  Ultimately, he said that the decision in Re Diplock is best understood as being confined to the particular circumstances of the case.

[90]     The second argument raised in Boscawen [v Bajwa] against subrogation was that the mere fact that the claimant’s money was used to discharge someone else’s debt does not entitle him to be subrogated to the creditor whose debt is paid – there must be an intention that the monies be used to discharge the relevant debt, and an intention to obtain the benefit of any security by subrogation. Again, the Court of Appeal rejected this argument. Millett LJ noted (at 338) that where a claimant intends to make an unsecured loan to a borrower who then uses the money to discharge a secured debt, subrogation cannot operate so as to give the claimant security, ie put him/her in a better position than he/she bargained for. But that situation is distinguishable from one where the claimant had no intention whatsoever for his/her monies to be used by the defendant. He explained (at 339), in a passage worth citing:

In cases such as Butler v Rice [[1910] 2 Ch. 277] and [Ghana Commercial Bank], where the claimant paid the creditor direct and intended to discharge his security, the court took the claimant's intention to have been to keep the original security alive for his own benefit save in so far as it was replaced by an effective security in favour of himself. In the present case the Abbey National did not intend to discharge the [secured creditor’s] charge in the events which happened, that is to say, in the event that completion did not proceed. But it did not intend its money to be used at all in that event. If Butler v Rice and similar cases are relied upon to support the proposition that there can be no subrogation unless the claimant intended to keep the original security alive for its own benefit save in so far as it was replaced by a new and effective security, with the result that the remedy is not available where the claimant had no direct dealings with the creditor and did not intend his money to be used at all, then I respectfully dissent from that proposition. I prefer the view of Slade LJ in Re TH Knitwear (Wholesale) Ltd [1988] Ch 275 at 286 that in some situations the doctrine of subrogation is capable of applying even though it is impossible to infer a mutual intention to this effect on the part of the creditor and the person claiming to be subrogated to the creditor's security. In the present case the payment was made by [the vendor’s solicitors], and it is their intention which matters. As fiduciaries, they could not be heard to say that they had paid out their principal's money otherwise than for the benefit of their principal. Accordingly, their intention must be taken to have been to keep the [secured creditor’s] charge alive for the benefit of the Abbey National pending completion. In my judgment this is sufficient to bring the doctrine of subrogation into play.

[91]     Millett LJ (at 334-5) viewed subrogation as one of a number of proprietary remedies which equity could fashion to suit the circumstances of a particular case. So, if a plaintiff can trace his/her monies to an asset in the hands of the defendant, a constructive trust might be available; if the monies have been used to improve the defendant’s property, a charge on that property may be appropriate; if the monies have been used to discharge a debt, subrogation may be suitable.

138 Consistently with, but without reference to, the decision in Heperu, Finklestein J concluded that the Boscawen v Bajwa approach is to be preferred to that in Re Diplock: Italiano Family Fruit Company at [93]. In doing so, his Honour noted amongst other things that there is much to be said for the view that Re Diplock was not intended to create an absolute rule, and should be confined to its peculiar facts: Italiano Family Fruit Company at [95]. Additionally, that it is important in applying Re Diplock, to distinguish between tracing and subrogation (at [96]):

It is undoubtedly the case that a claimant cannot trace into funds which have been paid by a volunteer to discharge a debt – the assets have ended up in the hands of a bona fide, for value and without notice, creditor.  But it is altogether a different matter whether there remains a right of subrogation against the volunteer ...

139 In Italiano Family Fruit Company, the bank was entitled, to the extent it suffered loss, to be subrogated to the rights of priority creditors who were paid out with the bank’s funds which has been misapplied in breach of trust. Absent subrogation, it would be unconscionable for the debtor (and its unsecured creditors) to benefit from a windfall produced by the breach of trust: [98].

Source of subrogation rights

140 A right of subrogation exists at equity and is supported by statute as well. The applicants point to s 3 of the Law Reform (Miscellaneous Provisions) Act 1965 (NSW) and s 52 of the Supreme Court Act 1986 (Vic). These provisions confer upon sureties statutory rights and remedies which furnish a summary mode of carrying into effect the rights that are otherwise available in courts of equity: Bofinger at [37]. The statutory right where available does not, however, cure the situation where a person seeking subrogation lacks the requisite equity supporting the claim of entitlement to subrogate: Bofinger at [37].

141 Bearing in mind the equitable nature of the right, an entitlement to subrogation may be denied where the claimant’s conduct “makes it inequitable to enforce it”, or where there are “circumstances rendering it inequitable to enjoy the rights of subrogation”: Bofinger at [52] and [71]. In the present case, it would be inequitable for a person to obtain the benefit of equitable subrogation in circumstances where:

(1) that person is the wrongdoer;

(2) that person had actual knowledge of a fraud intimately connected with the rights to which the person claims to be subrogated; and/or

(3) to recognise that subrogation would deny or reduce the claim of a victim of that fraud.

Claims of employee creditors under the Corporations Act

142 Section 560 of the Corporations Act provides:

Advances for company to make priority payments in relation to employees

If:

(a)    a payment has been made by a company:

(i)    on account of wages; or

(ii)    on account of superannuation contributions (within the meaning of section 556); or

(iii)    in respect of leave of absence, or termination of employment, under an industrial instrument; and

(b)    the payment was made as a result of an advance of money by a person (whether before, on or after the relevant date) for the purpose of making the payment;

then:

(c)    the person by whom the money was advanced has the same rights under this Chapter as a creditor of the company; and

(d)    subject to paragraph (e), the person by whom the money was advanced has, in the winding up of the company, the same right of priority of payment in respect of the money so advanced and paid as the person who received the payment would have had if the payment had not been made; and

(e)    the right of priority conferred by paragraph (d) is not to exceed the amount by which the sum in respect of which the person who received the payment would have been entitled to priority in the winding up has been diminished by reason of the payment.

143 Section 561 of the Corporations Act provides:

Priority of employee’s claims over circulating security interests

So far as the property of a company available for payment of creditors other than secured creditors is insufficient to meet payment of:

(a)    any debt referred to in paragraph 556(1)(e), (g) or (h); and

(b)    any amount that pursuant to subsection 558(3) or (4) is a cost of the winding up, being an amount that, if it had been payable on or before the relevant date, would have been a debt referred to in paragraph 556(1)(e), (g) or (h); and

(c)    any amount in respect of which a right of priority is given by section 560;

payment of that debt or amount must be made in priority over the claims of a secured party in relation to a circulating security interest created by the company and may be made accordingly out of any property comprised in or subject to the circulating security interest.

144 Section 561 focuses on the priority of employee claims (such as those listed in ss 556(1)(e), (g) or (h)) over circulating security interests held by a secured creditor. Section 561 applies only to circulating security interests.

145 Section 9 of the Corporations Act defines a “circulating security interest” as either a security interest within the meaning of the Personal Property Securities Act 2009 (Cth) (PPSA), being if it has attached to a “circulating asset” pursuant to the PPSA and the grantor has title to the asset, or as a “floating charge”. A “floating charge” is defined in the same section as including a charge that “conferred a floating security at the time of its creation but has since become a fixed or specific charge”. Therefore, s 561 applies to prefer employee entitlements with respect to a particular asset over a secured creditor only where the secured creditor has a circulating security interest over the asset.

146 An asset falls to be categorised as either a circulating asset or a non-circulating asset at the date the winding up is taken to have begun: Commonwealth v Tonks [2023] NSWCA 285; 383 FLR 297 at [59]-[60] (Adamson JA, Bell CJ and Griffith AJA agreeing), citing RCR Tomlinson Ltd (administrators appointed) [2020] NSWSC 737 at [17] and [25] (Black J).

147 Section 561 only requires the payment of the priority claims in sub-sections (a) to (c) out of any property comprised in or subject to the circulating security interest when it is “clear that the liquidation will not realise free assets sufficient to meet those claims (after taking into account other claims which, under s 556, have precedence)”: Italiano Family Fruit Company at [73] (Finkelstein J).

Competing Priorities

148 When considering how to resolve the competition between the various interests which influence the order of distribution, whether those interests be legal or equitable, in circumstances where it is anticipated that there will be a shortfall, the starting point is to consider the nature of the interest asserted by those claiming against the particular assets and the priority afforded to those interests, whether under statute or the general law.

149 In this section of my reasons, I will address both the applicable principles generally and also the particular principles applicable to the competing priorities which the applicants must confront in this distribution. In doing so, I will foreshadow, at a general level, the directions I will make as to the approach that the applicants are justified in taking in relation to particular priority contests.

General Principles

150 First, a later legal interest will prevail over an earlier equitable interest where the legal interest was obtained bona fide for value and without notice of the earlier equitable interest: Pilcher v Rawlins (1872) 7 Ch App 259 (Hatherley LC, James and Mellish LJJ); Macmillan Inc v Bishopsgate Investment Trust  plc (No 3) [1995] 3 All ER 747 (Millett J); Meagher, Gummow and Lehane (2014) at [8-220]-[8-270].

151 Secondly, when considering competing equitable interests, it is the relative merits of each that will determine their respective priorities. Where one equity is a “better equity” than the other, it will have priority. If the equities are equal, the first in time will prevail: Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq) [1965] HCA 17; 113 CLR 265 at 276 (Kitto J); Heid v Reliance Finance Corporation Pty Ltd [1983] HCA 30; 154 CLR 326 at 333 (Gibbs CJ) and 339 (Mason and Deane JJ).

152 Thirdly, an earlier equity may, however, be deprived of priority where there is an act, neglect, or default by the holder of the earlier equity that leads the holder of the later equity to acquire that interest on the supposition the earlier interest does not exist: Heid at 333 (Gibbs CJ) and 339 and 341 (Mason and Deane JJ).

Specific priority contests that arise

153 It is convenient to now examine at the point of principle, a number of the specific competing priorities that arise in the context of the present proposed distribution.

Subrogated secured creditor versus interest pursuant to a Black v Freedman constructive trust

154 The first of the relevant competing priorities is as between a third party who is subrogated to the position of a secured creditor and the beneficiary of a Black v Freedman constructive trust.

155 As noted above, where a party is subrogated to the position of a secured creditor, that party is entitled to all the rights and remedies of the secured creditor as against the debtor. That right prevails not merely as against the debtor but also against all persons claiming under the debtor including second mortgagees: Bofinger at [9].

156 Consequently, the order of priority between a party subrogated to the position of a secured creditor and the interest of the beneficiary of a constructive trust will depend on the priority the secured creditor would have enjoyed, as against the beneficiary claimant. Thus, if the secured creditor had a legal interest, such as a registered mortgage or a registered PPSA security interest (accepting as outlined below that the PPSA interest is afforded the status of a legal interest when applying the general law of priority), the secured creditor will take priority over the interest of the trust beneficiary. So too, would a party subrogated to the secured creditor’s rights.

157 This issue arises in relation to the proposed distributions of the assets of the following entities:

(1) FG;

(2) 5 Bulkara Street; and

(3) 26 Edmonstone Road.

PPSA security interest versus equitable interests

158 A number of the assets that are available for distribution are subject to competing claims between those claiming on the basis of a security interest registered under the PPSA and those claiming on the basis of an equitable interest.

159 Relevantly, the two examples of equitable interests involved in competition with PPSA interests are:

(1) the equitable interests of the Financiers and some Forum entities arising under a Black v Freedman constructive trust; and

(2) Aksara’s interest based on an equitable charge or equitable mortgage securing a vendor financing agreement with 9 Gregory Street, which was not registered on the Personal Property Securities Register (PPSR).

160 The potential for competition between PPSA security interests and interests based on a Black v Freedman constructive trust arises in relation to the distribution of assets of the following entities:

(1) FG;

(2) Forum Finance;

(3) FGOC;

(4) Forum Enviro;

(5) Smartprint;

(6) Imagetec Solutions; and

(7) 9 Gregory Street.

161 The potential for competition between security interests arising under the PPSA and Aksara’s equitable interests arises in relation to the distribution of the assets of 9 Gregory Street.

162 The principles which apply to determining the respective priority attaching to each of these equitable interests turn first on the proper characterisation of the nature of the competing interests for the purpose of applying the general law priority rules.

163 In the present circumstances, the starting point is to consider whether the competing equitable interests arise under the PPSA or outside of the PPSA. If the relevant competing interests arise under the PPSA, then the order of priority will be determined in accordance with the provisions of the PPSA. If, however, there is a competition between PPSA security interests and general law proprietary interests, then the order of priority is determined by the general law priority rules.

164 For the reasons that follow, I am satisfied that the relevant equitable interests which are in competition with the PPSA security interests in the present circumstances arise outside the PPSA. The consequence of that conclusion is that the order of priority will not be determined by reference to the PPSA priority rules.

165 The starting point is s 8(1)(c) of the PPSA, which relevantly provides:

Interests to which this Act does not apply

(1)     This Act does not apply to any of the following interests (except as provided by subsection (2) or (3)):

…

(c)     a lien, charge, or any other interest in personal property, that is created, arises or is provided for by operation of the general law;

…

166 The reference to “general law” extends to “the principles and rules of the common law and equity”: PPSA, s 10.

167 The applicants submit that an interest in personal property of a beneficiary under a constructive trust is an equitable interest and not an interest to which the PPSA applies by operation of the carve out in s 8(1)(c) of the PPSA. I accept that submission. In doing so, I note that there is no suggestion that the relevant interest here is a security interest captured by s 12 of the PPSA.

168 As mentioned, Aksara’s interest based on an equitable charge or equitable mortgage securing the vendor financing agreement with 9 Gregory Street is not a security interest captured by s 12 of the PPSA.

169 The PPSA priority rules in s 73 do not apply to determine the priority contest between PPSA security interests and these equitable interests. To the extent that such competition arises, it falls to be determined by the general law priority rules (which are outlined above). In this context, if the competing PPSA security interest is properly characterised as a legal interest then according to the general law of priorities, that legal interest will take priority over any equitable interests if the PPSA interest holder took its interest without notice of any prior equitable interest. If, on the other hand, a PPSA security interest is an equitable interest, rather than a legal interest, the general law with respect to competing priorities of different equitable interests will apply.

170 It is thus necessary to ascertain the proper characterisation of the PPSA interest for the purpose of applying the general law in relation to competing priorities.

171 The applicants submit that the PPSA interest is properly characterised as a legal interest with the result that the PPSA interest will take priority over equitable interests arising outside of the PPSA if the PPSA interest holder took its interest without notice of the prior equitable interest. For the reasons which follow, I accept that analysis to be correct and the applicants are justified in acting accordingly.

172 The applicants point to iTrade Finance Inc v Bank of Montreal [2011] 2 SCR 360, a decision of the Supreme Court of Canada in which the relevant competition was between a security interest arising under the Ontario Personal Property Security Act (RSO 1990 c P.10) and an equitable interest arising as a result of funds being obtained by fraudulent misrepresentation. The applicants also refer to the subsequent consideration of iTrade by this Court in Diversa Pty Ltd v Taiping Trustees Ltd [2022] FCA 316; 401 ALR 161 (Beach J).

173 Before turning to the those authorities, I note that having regard to the genesis of the PPSA, the Canadian authorities are of some relevance but there is a need to be cognisant of any relevant departures in the PPSA from the Canadian model: Diversa at [236] (Beach J); Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd [2014] VSCA 326; 49 VR 86 at [16] (Santamaria JA, with whom Maxwell P and Whelan JA agreed).

174 In Diversa, Beach J observed that there was no Australian authority which had directly considered a contest between a PPSA security interest and an equitable interest to which s 73 of the PPSA did not apply: [231].

175 Justice Beach considered the approach taken by the Supreme Court of Canada in iTrade in which the Supreme Court of Canada affirmed its earlier decision in Bank of Montreal v Innovation Credit Union [2010] 3 SCR 3.

176 In Bank of Montreal, the Supreme Court approached the priority contest by applying general property law to determine competing priority claims, and characterised the PPSA security interests as legal interests for that purpose. As mentioned, in iTrade, the Supreme Court of Canada was dealing with a competition between an interest that arose in equity and which was not subject to the PPSA and a security interest arising under the Ontario PPSA.

177 In Bank of Montreal, the security interest which was in competition with the PPSA interest was an interest created under different legislation, namely the Bank Act, S.C. 1991. In Bank of Montreal, Charron J said (at [41]-[42], citations omitted):

[41]     The PPSA does not contain any provisions which identify the nature of a PPSA security interest in proprietary terms. This is because … for those interests to which the PPSA applies, the PPSA resolves priority disputes through a detailed set of priority rules rather than on the basis of title or the form of a transaction. However, because the PPSA’s internal provisions do not apply to Bank Act security, and because the security regime contained in the Bank Act is property-based, it is necessary for the purposes of deciding the priority dispute in this case to characterize the PPSA security interest as a matter of property law …

[42]     Two characteristics of the PPSA are relevant for the present case. First, it is clear that a PPSA security interest, just as the Bank Act security interest, is a statutorily created interest and, as such, an interest recognized at law. While some of the historical forms of security created equitable rather than legal interests, the effect of the PPSA’s functional approach, which covers all of these antecedent security interests, is to treat them all equally as “security interests” under the PPSA. This conclusion is also the consensus found in the academic commentary, and I see no reason to depart from it …

178 The same approach has been followed in New Zealand by the Court of Appeal in Francis v Gross [2024] NZCA 528 at [128] (Gilbert, Goddard and Katz JJ):

As a matter of first principles, we consider that a security interest recognised by the PPSA is a statutory interest which would be enforced by a common law court, so must be a legal interest. If the holder of a PPSA security interest that has attached to property is a bona fide purchaser for value of that interest, their legal interest prevails over an equitable lien even if that equitable lien arose before the security interest attached to the property.

179 In Diversa, Beach J did not accept in the circumstances of that case, that the competing interest which Diversa sought to characterise as equitable was an interest to which s 73 of the PPSA did not apply: [239]-[241]. Justice Beach regarded the relevant competing interest in Diversa as being covered by s 73(1) of the PPSA because, amongst other things, his Honour was satisfied that it was an interest arising under the general law in relation to the provision of services in the ordinary course of business and the relevant services were provided by the interest holder: [241]. Although it was not necessary to do so, Beach J went on to address in obiter dicta a scenario where there is a contest between a PPSA security interest and an equitable interest to which s 73 does not apply: [242]-[253]. In that scenario, Beach J considered that because the holder of the legal interest under the PPSA had constructive notice of the earlier equitable interest, the legal interest would be postponed to the earlier equitable interest: [242], [253].

180 In the present circumstances, I am satisfied that the applicants would be justified in approaching the relevant distribution on the basis that the PPSA interests are properly characterised as legal interests when applying the general law of priorities and in the absence of the PPSA interest holder having notice of the earlier equitable interest, the PPSA interest will prevail over the relevant equitable interests, being the equitable interests of the Financiers under the Black v Freedman constructive trusts and of Aksara under the equitable mortgage or charge.

181 For completeness, I note that in accepting the applicants’ submission on the characterisation of the relevant PPSA interests as legal interests, I have also considered a competing argument which is to the effect that outside the operation of s 73 of the PPSA, one should apply the general law of priority by refence to the pre-PPSA characterisation of security interests as legal or equitable, depending on their form. According to this competing argument, all PPSA interests ought not be characterised as legal interests for the purpose of applying the general law of priorities to a competition between PPSA interests and non-PPSA interests and should retain their general law legal or equitable character. This alternative argument is advanced by Adam Waldman, an Australian academic, in his article “Resolving Priority Competitions between PPSA Security Interests and Non-PPS Interests” (2021) 44(2) UNSW Law Journal 811. Waldman contends that for the limited purpose of competition with non-PPSA interests which fall outside the statutory priority rules, and are thus determined by the general law, PPSA interests should retain the traditional character they bear outside the PPSA.

182 This alternative approach was considered and rejected by the Court of Appeal of New Zealand in Francis v Gross at [129]-[134].

183 As mentioned above, as a matter of first principles, a security interest recognised by the PPSA is a statutory interest which would be enforced by a common law court and is therefore properly characterised as a legal interest: Francis v Gross at [128]. The New Zealand Court of Appeal observed at [132] that it would be inconsistent with the central objectives of the PPSA schemes to require lenders to specify the underlying legal and/or equitable character of the security interest because to impose such a requirement would undermine the simplicity and transparency of the PPSA regime.

184 That observation may also be made in respect of the Australian PPSA scheme. Section 3 of the PPSA provides an overview of the PPSA. It commences by explaining that the PPSA is “a law about security interests in personal property”. Section 3 continues:

A security interest is an interest in personal property provided for by a transaction that secures payment or the performance of an obligation. The form of the transaction and the identity of the person who has title to the property do not affect whether an interest is a security interest.

(Emphasis added.)

185 Part 7.4 of the PPSA addresses the relationship between the PPSA and other Australian laws. Section 254(1) of the PPSA provides that the general law must be preserved to the extent that it is capable of operating concurrently with the PPSA. Section 254 is a provision of the type which the High Court has described as an “anti-exclusivity” clause in that such clauses militate against an implication of exclusivity in the sense that a statute is not intended to cover the field: Work Health Authority v Outback Ballooning Pty Ltd [2019] HCA 2; 266 CLR 428 at [130] (Edelman J). Division 2 of Part 7.4, of which s 254 forms part, sets out the general rule as to the concurrent operation of the PPSA with other Australian laws. Division 3 addresses when other laws prevail over the PPSA. Division 4 addresses when the PPSA prevails over other laws. Included in Division 4 is s 264 which provides:

When this Act prevails — attachment and perfection of security interests  

To the extent that a law of a State or Territory would have the effect of restricting or otherwise affecting the operation of the following provisions, the operation of the law is excluded by force of this section:

(a)     section 19 (when a security interest attaches to personal property);

(b)     section 21 (how a security interest is perfected).

186 The simplicity and transparency of the PPSA regime would be undermined by interpreting s 254 of the PPSA in such a way that it creates a need for pre-lending inquiries directed to ascertaining the underlying legal and/or equitable character of the security interest in the event of a contest between a PPSA interest and an interest outside the PPSA regime. It may well be argued that in those circumstances, s 264 of the PPSA would be engaged because the general law requirements would have the effect of restricting or otherwise affecting the operation of ss 19 and 21 in relation to attachment and perfection of security interests. Lenders taking a security interest would have an incentive to make inquiries into the existence of pre-existing equitable interests in the property of the company, because they would otherwise be at risk of being subordinated to such interests in relation to circulating assets. As recognised by the New Zealand Court of Appeal, one of the objectives of the relevant PPSA regimes was to remove the time and costs involved with such inquiries: Francis v Gross at [133].

187 One of the foundations of the alternative argument advanced by Waldman is that the pre-PPSA characterisation of security interests as legal or equitable, depending on their form, can co-exist with the provisions of the PPSA, and therefore must be preserved, relying on s 254(1) of the PPSA. The New Zealand Court of Appeal in Francis v Gross did not address this aspect of Waldman’s argument because they concluded that the New Zealand and Canadian PPSA regimes did not contain a statutory equivalent of the provision s 254(1) of the PPSA: [130]. As to the Canadian position, s 72 of the Ontario PPSA regime appears to correlate in substance with s 254(1) of the PPSA: see Diversa at [234]-[235].

188 If it were necessary to decide, I would incline against accepting that in its proper construction, s 254 of the PPSA preserves the pre-PPSA characterisation of security interests as legal or equitable, depending on their form, in contests between PPSA security interests and interests to which the general law applies when it comes to determine such contests under the general law. While s 254(1) relevantly provides that the PPSA does not exclude or limit the operation of the general law, to the extent that the  general law is capable of operating concurrently with the PPSA, I have doubt about Waldman’s underlying premise that the general law is capable of operating concurrently with the PPSA in a way that is coherent and consistent with the statutory scheme where the same interest in personal property is required to be treated in different contexts (which may overlap) as having two distinct characterisations. To construe s 254(1) of the PPSA in that way would not be consistent with the legislative scheme outlined in s 3 of the PPSA and with s 264 which provides that the PPSA prevails where law of a State or Territory would have the effect of restricting or otherwise affecting the operation of the PPSA provisions in relation to attachment and perfection of security interests.

189 If it were necessary in the context of the present application to determine this issue, I would respectfully agree with the analysis of the New Zealand Court of Appeal. However, in the circumstances presently arising, it is not necessary to decide this issue because the applicants’ proposed order of distribution proceeds on the basis that the relevant PPSA interests are legal interests which take priority ahead of the equitable interests of the Financiers. The Financiers did not seek to be heard against this approach to distribution as between themselves and those asserting a PPSA security interest in the particular assets. The relevant PPSA interests are, in the main, interests arising with respect to secured obligations under a guarantee or facility agreement between one or more of the entities and a lender (namely National Australia Bank Limited (NAB), Octet, Australia and New Zealand Banking Group Limited (ANZ) and CBA) and are likely characterised in a pre-PPSA sense as legal interests in any event.

190 Applying the general law of priorities, and accepting the characterisation of the relevant PPSA security interests as legal interests, in the absence of notice of the prior equitable interest, the holders of those PPSA interests will take priority over the interests of the Financiers as beneficiaries of a constructive trust. I will direct that the applicants are justified in approaching the order of distribution on this basis in respect of those assets which are subject to competing claims between PPSA interests and equitable interests arising outside the PPSA.

Aksara’s equitable charge or mortgage versus interests pursuant to a Black v Freedman constructive trust

191 The competing priority claims involving the Aksara securities arise in the proposed distributions of the assets of the following entities:

(1) 14 James Street;

(2) 5 Bulkara Street; and

(3) 9 Gregory Street.

192 Aksara is a secured creditor of these corporate plaintiffs pursuant to deeds of loan dated 30 April 2020, 7 July 2020 and 16 December 2020. Aksara does not hold any registered security interests, whether under the PPSA or with respect to real property. The rules regarding competing priorities of equitable interests apply to the security interests held by Aksara and any person claiming as a subrogee of Aksara.

193 Aksara’s security interests under the two deeds are equitable charges. The obligations of the principal debtors and guarantors arising under the relevant loan deeds are secured pursuant to substantially identical clauses in each loan deed. Clause 7(a) of each loan deed provides:

Subject to the rights of the registered mortgage by the First Registered Mortgagee and for the duration of the Loan Term, the Borrowers and Guarantors (if applicable) shall charge to the Lender all of their interest in the Secured Properties as security for the due and punctual payment to the Lender of all monies liable to be paid by the Borrowers under the Security Document.

194 The relevant equitable charges post-date the Financiers’ interests arising under the Black v Freedman constructive trusts. The relevant question is whether Aksara’s equitable charges amount to a better equity than the Financiers’ interests. If not, the Financiers’ interests will prevail as first in time: Heid at 333 (Gibbs CJ) and 339 (Mason and Deane JJ).

195 The applicants submit that the respective equities are equal, and accordingly propose a distribution based on the Financiers’ interests prevailing as the first in time.

196 I am satisfied that the applicants are justified in approaching the distribution on this basis. The Financiers have not done, or failed to do, anything which may be described as “negligent” and which led Aksara to acquire its later equity on the assumption that the Financiers’ earlier equity did not exist. The classic example is the failure to caveat: see, for example, Butler v Fairclough [1917] HCA 9; 23 CLR 78. Here, the Financiers could not have taken any steps to alert the world at large to their equity, themselves necessarily being unaware of its existence until they discovered the fraud which gave rise to it.

197 Likewise, there was no waiver by the Financiers of the rights associated with their equity, nor did the Financiers approve of the relevant corporate plaintiffs creating subsequent interests in the same property: cf. Fung Ping Shan v Tong Shun [1918] AC 403. The Financiers could not have waived their rights or approved of Aksara’s subsequent interests, given that they were not aware of the fraud against them nor of the entities’ use of their funds to acquire the property which subsequently became subject to Aksara’s interests. I accept that the applicants are justified in acting on the basis that the Financiers have not engaged in any conduct that would render their respective equities inferior to Aksara’s equity.

Administrators’ statutory indemnity and lien versus interest pursuant to a Black v Freedman constructive trust

198 The next of the relevant competing priorities is that of administrator or former administrator (other than pursuant to the Universal Distributing principle) to assets that are “the company’s property” and that are in the administrator’s or former administrator’s hands. The principles regarding an administrator’s statutory indemnity and the supporting lien are set out at paragraphs [98]-[106] above. In the present context, many of the relevant assets of the various companies in administration are subject to claims based on a Black v Freedman trust. The practical reality is that the trust interests are likely to exhaust the available assets that are subject to those trusts. In these circumstances, the priority of the administrator’s statutory indemnity under s 443D will only arise to be considered if, despite present expectations, there proves to be a surplus of assets after satisfaction of the Black v Freedman constructive trust interests. This possibility is addressed below in addressing the proposed order of distribution in relation to the asset pools available for each of the relevant entities.

Former trustee’s right of indemnity versus trust beneficiaries’ interests

199 The competing priority claims involving a former trustee’s right of indemnity arises in the proposed distributions of the assets of the Mangusta Trust. The relevant principles are set out at paragraphs [107]-[109] above.

200 Intrashield is the former trustee of the Mangusta Trust. FGFS, 26 Edmonstone Road and FG are trust creditors of the Mangusta Trust as funds obtained from each of these entities were used to purchase the XOXO Yacht. The primary beneficiaries of the Mangusta Trust are Mr Papas and Mr Tesoriero. The secondary and tertiary beneficiaries of the Mangusta Trust are broad and include any of Mr Papas’ and Mr Tesoriero’s spouses and family members and any companies in which Mr Papas, Mr Tesoriero, Intrashield or any other beneficiary is a director or shareholder.

201 Intrashield is entitled to exercise its right to be indemnified from the proceeds of the sale of the XOXO yacht, being a trust asset of the Mangusta Trust. Intrashield is then liable to pay the trust creditors from the assets of the Mangusta Trust, in priority to the interests of the beneficiaries of that trust. In practical terms, the proceeds of the sale of the XOXO yacht which are available for distribution are less than its purchase price and will exhaust this asset.

Priority rights of claims of employees or derived from employee claims versus interest pursuant to a Black v Freedman constructive trust

202 The applicants have raised for consideration the impact of ss 560 and 561 of the Corporations Act on the proposed distribution.

203 The entities affected by the claim in respect of FEG entitlements are:

(1) FG;

(2) Iugis; and

(3) Forum Enviro.

204 The Commonwealth, through the department administering the FEG, made advances to the liquidator of one of the entities, FG, for the purpose of paying employee entitlements. Pursuant to s 560 of the Corporations Act, the Commonwealth is entitled to the same priority afforded to employee creditors in the liquidation of that company. In the present context, the issue which arises is in relation to the competition between the Commonwealth’s rights under s 560 of the Corporations Act and the interests of the Financiers as the beneficiaries of Black v Freedman constructive trusts.

205 The Commonwealth’s rights under s 560 of the Corporations Act as a FEG creditor do not take priority over the interests in trust property of a beneficiary of a Black v Freedman constructive trust. Neither employee creditors nor the Commonwealth claiming pursuant to s 560 are creditors of the company in its capacity as trustee of a Black v Freedman constructive trust. The proceeds of trust property may only be used to discharge the debts of “trust creditors” (being creditors of the company in its capacity as trustee of the relevant trust) rather than debts of creditors of the company in its own right: Carter Holt Harvey Woodproducts at [40] (Kiefel CJ, Keane and Edelman JJ).

Tracing

General Tracing Principles

206 Other than Iugis Investments and Smartprint, which were not party to the Financier Proceedings, all the entities held the stolen funds received by them on trust, and are accordingly, obliged to account for those funds, including in respect of those funds paid away: LJ [1148], [1152], [1169], [1175], [1197], [1201], [1205].

207 Stolen funds in the hands of a thief are trust funds and cannot be divested of that character: Black v Freedman at 110. Through tracing, a proprietary claim over an asset may be made by a victim where the trustee thief uses the stolen money to obtain the relevant asset. In Boscawen v Bajwa, Millett LJ said (at 334):

[Tracing] is the process by which the plaintiff traces what has happened to his property, identifies the persons who have handled or received it, and justifies his claim that the money which they handled or received (and if necessary which they still retain) can properly be regarded as representing his property. He needs to do this because his claim is based on the retention by him of the beneficial interest in the property which the defendant handled or received.

…

If the plaintiff succeeds in tracing his property, whether in its original or in some changed form, into the hands of the defendant and overcomes any defences which are put forward on the defendant's behalf, he is entitled to a remedy. The remedy will be fashioned to the circumstances…

208 The authorities recognise that a robust approach to fact finding in the context of tracing moneys and property in the context of theft or fraud is warranted: see, for example, Toksoz v Westpac Banking Corporation [2012] NSWCA 199; 289 ALR 577 at [9] (Allsop ACJ, Hoeben and Sackville JJA agreeing) citing R v Powell (1837) 7 Car & P 640; 173 ER 280, Harford v Lloyd (1855) 52 ER 622, Black v Freedman, Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548 and El Ajou v Dollar Land Holdings Plc [1993] 3 All ER 717.

209 In Toksoz, Allsop ACJ (Hoeben JA and Sackville AJA agreeing) said (at [8]-[10]):

[8]    Money can be traced notwithstanding an inability of the follower to connect each link in the chain of accounts. Commonsense and reasonable inference play their part, especially if there is fraud involved and if there is a lack of explanation, when the circumstances cry out for honesty to be explained, if it can be.

[9]    …The expression “tracing by exhaustion” is sometimes used. Where the facts as proved are sufficient to permit the inference that moneys have been received or property bought without there being an honest source available to explain the wealth and the sums or value can be seen as referable to the following party's property wrongfully obtained, such that the inference is open that the wrongfully obtained funds were the source of the wealth, the funds can be so treated. One does not need to be able to show every link in the chain of accounts from and through which the money passed. Inferences will be more easily drawn, as here, in circumstances where the funds were stolen, the person who is said to have provided the funds was one of the thieves who stole money from the follower, when the recipient has an apparent close relationship with the thief, which recipient gave no value for it, has no personal source of income and gives no explanation as to the source or circumstances of the receipt of the money or any honest source of it.

[10]    None of this is the expression of a principle of law. It is the expression of the available approach to fact finding in the presence of fraud and lack of explanation when plainly called for.

210 The authorities further recognise a number of claimant-favouring principles or presumptions that apply when a person seeks to trace. Of present importance is the principle that a delinquent trustee is presumed to dissipate their own funds prior to dissipating trust funds: Re Hallett’s Estate; Knatchbull v Hallett (1880) 13 Ch D 696.

211 The ability to trace into property may be defeated if the relevant property has been dissipated: Foskett v McKeown [2001] 1 AC 102 at 130 (Lord Millett); Frontier Touring Co Pty Ltd v Rodgers [2005] NSWSC 668; 223 ALR 433 at [36]-[38] (Barrett J); Akers v Samba Financial Group [2017] AC 424 at [83] (Lord Sumption JSC). Equitable tracing presupposes “the continued existence of the money either as a separate fund or as part of a mixed fund or as latent in property acquired by means of such a fund”: Re Diplock at 521.

212 As is well-recognised, the ability to trace into property may also be defeated if the property was acquired by a bona fide purchaser for value without notice of the existing equitable interest: Foskett v McKeown at 130-132. The ability to trace subsists against a volunteer, although so long as he or she is not on notice of the equitable interest, the ability to trace is “fragile”, as the volunteer may dissipate the property, leaving no traceable product: Independent Trustee Services Ltd v GP Noble Trustees Ltd [2013] Ch 91; 3 All ER 210 at [77]-[78] (Lloyd LJ).

213 In Heperu, Allsop P summarised the effect of the principle in Black v Freedman with respect to a volunteer recipient as follows (at [92]):

a person entirely innocent of a fraud who comes to know that he or she has received and still retains the proceeds of, or taken advantage of, a fraud to which he or she was not a party, cannot knowingly seek to retain those proceeds or that advantage, without, in effect, becoming a party to that fraud and liable accordingly…

Tracing into assets which have increased in value

214 Several of the entities purchased real property using a combination of Financier stolen funds and loan money from third-party lenders secured by mortgages over the property purchased, in circumstances where the property the subject of the security was later sold at an increased value. The applicants submit that as victims of the fraud, the Financiers are entitled to trace into the whole of the increase in value.

215 This issue arises in relation to the proposed distributions of the assets of the following entities:

(1) FGFS;

(2) 14 James Street;

(3) 5 Bulkara Street;

(4) 6 Bulkara Street;

(5) 26 Edmonstone Road; and

(6) 64-66 Berkeley Street.

216 The applicants submit that the principle in Scott v Scott [1963] HCA 65; 109 CLR 649 (McTiernan, Taylor and Owen JJ) is not presently engaged. Accordingly, they submit that as trust beneficiaries the Financiers’ tracing remedy is not limited to the proportionate share of the increase in value of an asset based on the proportion of trust funds, as against non-trust funds, used to purchase the relevant assets. The applicants submit that for the following reasons the Financiers are entitled to the whole of the increase in value of the assets into which their funds have been traced.

217 First, where, as here, the trustee or fiduciary does not purchase the asset with their own money and instead uses trust money combined with a loan secured by the asset being purchased, the trust beneficiary is entitled to the whole of increase in value of the asset. The applicants rely on Paul A Davies (Aust) Pty Ltd (in liq) v Davies (No 2) [1983] 1 NSWLR 440; (1982) 8 ACLR 1 in support of that proposition. In Davies, the directors of a company breached their duties by using company money, loaned to the directors, to purchase a real property in conjunction with a mortgage loan. President Moffit observed (at 448):

Accepting that it is appropriate to apply the principle applied by Hudson J in Scott in some cases, I think a distinction should be drawn and the principle not applied where the fiduciary does not provide his own money, but, having used trust money to provide the deposit and/or part of the purchase money so as to acquire an equitable interest in the property provides the balance by a mortgage loan on the security of the property. This is the view expressed by Scott on Trusts 3rd ed vol 5 p 3618. The provision of this money itself depends on the gain flowing from the breach of trust. In any event in the present case the two factors referred to are interrelated. It is difficult to think that when the sale was completed by the use of the mortgage loan moneys the procedures for the auction of this large country boarding house were not already well under way, so such mortgage money was provided on a bridging basis to enable the accrued gain to be realized. It can also be inferred that the whole of the balance of purchase money was provided by the bank without personal contribution by the respondents because of the increase in value of the property beyond the original purchase price.

(Emphasis added.)

218 In reaching the conclusion that the company was entitled to the whole of the increase in value, Moffit P and Hutley JA did not treat the loan money as personal money of the fiduciary. The provision of the loan moneys flowed from a breach of trust: Davies at 447 (Moffit P) and 449 (Hutley JA). Mahoney JA preferred to rely on the no profit rule: Davies at 456-457.

219 Davies was applied in Australian Postal Corporation v Lutak (1991) 21 NSWLR 584. In that case, Bryson J went further than the court in Davies by commenting that irrespective of how an investment is made, the trustee should not receive any profit. His Honour said (at 593):

In my opinion, if there is any difficulty of principle involved in understanding the judgments in Paul A Davies’ case the difficulty is why it would make a difference for entitlement to profits or gains whether or not the money which a trustee contributed to the mixed fund to make an unauthorised investment was all or partly his own or all or partly borrowed. The rule that a trustee may not derive a profit from his trust would seem to require that, irrespective of the source from which he raised his contribution, a trustee should not receive any profit related to that contribution; the whole of the profit of the investment should go to the beneficiary. That was the actual result in Paul A Davies’ case: see par (1) of the draft order of Hutley JA (at 452). The decision finally reached by Hudson J in Scott v Scott may not be easy to reconcile with this principle but this part of his Honour's judgment was not the subject of appeal to the High Court: see 109 CLR 649 at 657. In the High Court the principle was firmly restated with authorities (at 658, 659); see, too (at 661). The judgments in the Court of Appeal do not to my reading accept that if the amount borrowed from the Bank of New South Wales were treated as a capital contribution by the constructive trustees themselves, it would follow that they were entitled to a share in the profits.

(Emphasis added.)

220 Accordingly, where, in the present circumstances, an entity purchased real property using only Financier money and a loan, the applicants submit that the Financier(s) will be entitled to the full increase in value of that property. This proposition is consistent with the no profit rule: Lutak at 593; Scott v Scott at 658; Consul Development Pty Ltd v DPC Estates Pty Ltd [1975] HCA 8; 132 CLR 373 at 377-378 (McTiernan J) and 392-398 (Gibbs J).

221 Secondly, even if the loan moneys were the relevant entity’s money by reason of them undertaking personal liability, that would not prevent the application of the no profit rule as noted by Mahoney JA in Davies. A trustee must account to the trust beneficiaries for any unauthorised profit which he has made from the trust or his position as trustee: Scott v Scott at 658; Consul Development at 377-378 (McTiernan J) and 392-398 (Gibbs J).

222 The entities here were participants in the fraudulent scheme orchestrated by Mr Papas and Mr Tesoriero. I accept the force of the applicants’ submissions as to the distribution proceeding on the basis that the Financiers are entitled to trace into the whole of the increased value of the relevant assets with the consequence that the entities do not retain any profit derived from the fraud. The applicants are justified in approaching the distribution on this basis in the manner reflected in the proposed distribution addressed below.

PART I – THE ENTITIES

Overview

223 The applicants seek judicial advice or direction in relation to the distribution of the remaining assets of the following entities:

(1) FG;

(2) FGFS;

(3) Forum Finance;

(4) FGOC;

(5) 14 James Street;

(6) 5 Bulkara Street;

(7) 6 Bulkara Street;

(8) 26 Edmonstone Road;

(9) Iugis;

(10) Iugis Investments;

(11) Forum Enviro;

(12) Smartprint;

(13) Imagetec Solutions;

(14) Palante;

(15) Intrashield;

(16) Mangusta;

(17) 9 Gregory Street;

(18) 64-66 Berkeley Street;

(19) TIG; and

(20) 23 Margaret Street.

224 For each entity, the applicants have, by their evidence and submissions, demonstrated the relevant context in which the entities operated at the relevant time, the nature of the assets that are available for distribution and by reference to the applicable legal principles (which are relevantly addressed in Part H above) the basis upon which the proposed order of distribution in relation to each available pool of assets is advanced.

225 Having carefully reviewed the evidence and written submissions, as further elucidated by the submissions made at the hearing, I am satisfied that the applicants are justified in proceeding in the way they propose in relation to each of the asset pools.

226 The proposed order of distribution was modified in some respects during the hearing in response to queries raised during the hearing and upon further consideration by the applicants (and by the Financiers who were the only parties who sought to be heard on the application). In referring to the applicants’ proposed order of distribution in what follows, I am referring to the final iteration of the proposed order of distribution as refined during the course of the hearing.

227 In my consideration of the proposed distribution, I have borne steadily in mind that the effect of providing this advice to the applicants is that, provided that they have made full and fair disclosure of the material facts, they will be protected from liability to a creditor or contributory or to the company for any alleged breach of duty in their relevant capacities in connection with the administration of each of the entities for anything done by them in accordance with the Court’s direction. The respective source of the Court’s power to provide such advice is addressed in Part G above. The materials relied on by the applicants are in evidence and the detailed written submissions advanced by the applicants will be placed on the Court file.

228 As I have mentioned, following notice being given to all interested persons, and after the Financiers being afforded an opportunity to make submissions at the hearing of this application, there was no substantive opposition to the course proposed by the applicants in its final iteration. There was however one issue which percolated to the surface during the hearing but ultimately receded. I will address that issue briefly before addressing the proposed distribution in relation to the available assets of each of the entities in seriatim.

Subrogation as between the Financiers where one or more of them claims in respect of the same asset pool

229 The issue to which I have alluded that arose during the course of the hearing was in relation to the distribution of asset pools which, to put it neutrally, may be amenable to subrogation claims by one or more but not all of the Financiers. The relevant assets potentially affected by this issue were the funds realised upon the sale of real properties of 5 Bulkara Street, 6 Bulkara Street and 64-66 Berkeley Street.

230 The essential point of difference that emerged during the hearing between, on the one hand, Westpac and SMBC, and on the other hand, Societe Generale, was that Westpac and SMBC sought to attain a higher priority than Societe Generale in respect of the sale proceeds of real property where stolen funds had been deployed from one or both of them and Societe Generale to service or discharge an existing secured liability in the form of a real property mortgage. Westpac and SMBC sought to obtain this advantage by relying on the declarations made in their favour in the Financier Proceedings in respect of their entitlement to equitable subrogation.

231 Westpac and SMBC, having largely prosecuted their respective claims against the full panoply of entities to which their funds had been traced, had the benefit of declarations in the Financier Proceedings which recognised that they were entitled to be subrogated to the rights of various secured creditors where they established that their funds could relevantly be traced to the service or discharge of the earlier securities. In the determination of the final relief following the Liability Judgment, declarations were made recognising Westpac’s and SMBC’s entitlement to equitable subrogation where stolen funds were used to discharge loans secured over various real properties resulting in a discharge of the relevant mortgages on the sale of the properties or to reduce a secured debt.

232 The declarations made on 21 May 2025 in respect of Westpac’s subrogation claims are as follows:

(1) As against FGFS:

(a) WBC and WNZL are subrogated to the rights of BNY Trust Company of Australia as registered mortgagee in respect of the contributions made from trust property (funds held on trust for WBC and WNZL respectively used for the purchase, maintenance, and improvement of the Atherton Road Property) to discharge any part of the secured debt to BNY in respect of the Atherton Road Property; and

(b) WBC and WNZL are subrogated to the rights of NAB as secured creditor in respect of the contributions made from the trust property (funds held on trust for WBC and WNZL respectively used in the purchase of an Audi RSQ8) to discharge any part of the secured debt to NAB in respect of the Audi RSQ8;

(2) As against 64-66 Berkeley Street, WBC and WNZL are subrogated to the rights of GI 500 Pty Ltd (Gemi) as registered mortgagee in respect of any part of the trust property (funds, the traceable property acquired using those funds, and traceable proceeds of those funds on trust for WBC and WNZL respectively) used in the discharge of the secured debt to Gemi;

(3) As against 14 James Street, WBC and WNZL are subrogated to the rights of NAB as registered mortgagee in respect of the contributions made from the trust property (funds held on trust for WBC and WNZL respectively used for the purchase, maintenance, and improvement of the James Street Properties) to discharge any part of the secured debt to NAB in respect of the James Street Properties;

(4) As against 5 Bulkara Street, WBC and WNZL are subrogated to the rights of NAB as registered mortgagee in respect of any part of the trust property (funds held on trust for WBC and WNZL respectively used for the acquisition, maintenance, improvement and development of the 5 Bulkara Property) that was used in discharge of the secured debt to NAB in respect of the 5 Bulkara Property;

(5) As against 6 Bulkara Street, WBC and WNZL are subrogated to the rights of NAB as registered mortgagee in respect of any part of the trust property (funds and traceable property held on trust for WBC and WNZL respectively used for the acquisition, maintenance, improvement and development of the 6 Bulkara Property) that was used in discharge of the secured debt to NAB in respect of the 6 Bulkara Property; and

(6) As against 23 Margaret Street, WBC and WNZL are subrogated to the rights of AFSH Nominees Pty Ltd as registered mortgagee in respect of any part of the contributions made from funds held on trust for WBC and WNZL respectively to the maintenance and development of the Rozelle Property that was used in discharge of the secured debt to AFSH in respect of the Rozelle Property.

233 The declarations made on 21 May 2025 (as amended on 23 May 2025) in respect of SMBC’s subrogation claims are as follows:

(1) As against FGFS, SMBC is subrogated to the rights of BNY as registered mortgagee in respect of any part of the funds, or traceable proceeds of funds, paid by SMBC that was used in discharge of the secured debt to BNY;

(2) As against 5 Bulkara Street, SMBC is subrogated to the rights of NAB as registered mortgagee in respect of any part of the funds, or traceable proceeds of funds, paid by SMBC that was used in discharge of the secured debt to NAB;

(3) As against 6 Bulkara Street, SMBC is subrogated to the rights of NAB as registered mortgagee in respect of any part of the funds, or traceable proceeds of funds, paid by SMBC that was used in discharge of the secured debt to NAB;

(4) As against 23 Margaret Street, SMBC is subrogated to the rights of AFSH as registered mortgagee in respect of any part of the funds, or traceable proceeds of funds, paid by SMBC that was used in discharge of the secured debt to AFSH; and

(5) As against 64-66 Berkeley Street, SMBC is subrogated to the rights of Gemi as registered mortgagee in respect of any part of the funds, or traceable proceeds of funds, paid by SMBC that was used in discharge of the debt secured by the registered mortgage.

234 As mentioned, this issue has a practical impact in relation to the distribution scenarios for 5 Bulkara Street, 6 Bulkara Street and 64-66 Berkeley Street.

235 The position in relation to Societe Generale is different. Societe Generale ran a more confined case on liability in which it did not claim against anyone other than Mr Papas, FG and FGFS. Societe Generale, having not claimed against the broader group of entities into which its funds were traced and in respect of which knowledge was proved, did not have the benefit of declarations in respect of any right of subrogation as against this broader group of entities. The position of Societe Generale and the tracing of its funds was however addressed in the common body of evidence led in the Financier Proceedings. This led to Societe Generale pressing for and obtaining a notation in the orders for final relief in its proceeding in which it was noted that the funds traced from the proceeds of funds held on trust for Societe Generale and any traceable property from those funds have been paid to or on behalf of the various entities set out in an annexure to those orders in total amounts which accord with Annexure I of the Liability Judgment: notation to orders made on 21 May 2025 (as amended on 4 June 2025).

236 During the hearing, it emerged that if distribution vis-à-vis the Financiers amongst themselves was fashioned to reflect the declarations that had been made in favour of Westpac and SMBC that would potentially result in Westpac and SMBC taking priority over Societe Generale in relation to the affected asset pools. If the distribution of the affected assets was approached in such a way as to recognise that Westpac and/or SMBC were entitled to be subrogated to the rights of a secured creditor but Societe Generale was not, it appeared that there would likely be a material reduction in any distribution to Societe Generale in respect of at least one of the relevant entities.

237 This issue threatened to upset the apple cart. The scope of the potential dispute narrowed because Westpac adopted an approach that it would be uneconomical to disturb the applicants’ proposed order of distribution by reference to its declared subrogated status except to a limited extent. The exception for which Westpac contended was directed to ensuring that the order of distribution should give effect to the declaratory relief Westpac (and by extension SMBC) had obtained in relation to certain entities only. Having obtained declarations in the Financier Proceedings as to the subrogation of WBC and WNZL to the rights of the relevant secured creditors in respect of several entities, Westpac sought to have the liquidators’ proposed waterfall of distributions varied to reflect Westpac’s subrogated position in respect of 5 Bulkara Street, 6 Bulkara Street and 64-66 Berkeley Street. An amendment was not sought in respect of the proposed distribution of the relevant asset of FGFS in respect of the Atherton Road Property, notwithstanding that a declaration as to subrogation had been obtained. That was because Westpac recognised that in view of the limited funds available for distribution from the sale of the Atherton Road Property this aspect of the fight was not worth the candle. SMBC fell in behind Westpac’s position.

238 When the prospect of differential treatment based on whether a claim for subrogation had been recognised by way of declaration in the separate final relief orders emerged, the applicants took an agnostic position, which was befitting of their independent status and the nature of the relief sought: Halifax at [20]. The applicants’ proposed order of distribution did not distinguish as between Financiers on the basis of a differential treatment in relation to subrogation where the Financiers’ funds had been used to service or as part of paying out existing mortgages. Rather, where the tracing exercise supported the factual conclusion that a Financier’s funds had been used in this way, the proposed order of distribution was based on each of the Financiers in that position being afforded the same priority, with the priority being based on giving effect to an equitable subrogation.

239 In order to ascertain whether this late breaking dispute with the potential for differential treatment between the Financiers was in fact a dispute worth having, the applicants assisted the Court by agreeing to undertake some calculations to quantify the potential effect this issue would have on the distribution of the affected asset pools. I adjourned the proceeding for a brief period to enable the applicants to undertake that analysis and provide it to each of the Financiers with a view to the parties informing the Court whether they sought to be heard further on this issue. Upon that conferral concluding, the nascent dispute concerning differential recognition of the subrogated status of the Financiers vis-à-vis each other fizzled out.

240 On 25 May 2025, the evening before the hearing resumed, the Financiers collectively confirmed that they consented to the orders proposed by the applicants and that they did not wish to make any further submissions. In doing so, each of WBC, WNZL and SMBC confirmed that they did not press for the subrogation declarations which had been made in the final orders giving effect to the Liability Judgment to be recognised in the order of distribution in respect of the assets of 5 Bulkara Street, 6 Bulkara Street and 64-66 Berkeley Street. Similarly, Societe Generale did not press for recognition in the order of distribution of any right it may have to subrogate into the position of any secured creditor in respect of the relevant asset pools of these three entities.

241 Taking all of the above into account, I am satisfied that notwithstanding the declarations that have been made as part of the final relief granted in the Financier Proceedings in respect of the status of Westpac and SMBC as equitable subrogees, the applicants are justified in proceeding on the basis of distributing the relevant assets without regard to the relative subrogation rights of the Financiers as between themselves. The applicants’ approach is considered and is consistent with the overarching purpose embodied in s 37M of the FCA Act. This is another instance of the principled yet pragmatic way in which the applicants have navigated the complex issues of law and fact thrown up by this application. The constructive engagement of the Financiers and their advisers in reaching a consensual resolution of this discrete issue advances the objective of maximising the return to creditors by limiting technical debate where that debate is unlikely to generate a net improvement in the timing and quantum of the return to creditors.

Funding Agreement

242 Westpac and the liquidators entered into the Funding Agreement dated 18 August 2021 following Court approval on 3 September 2021. The Funding Agreement provided a facility for the purposes of providing an interim funding arrangement for the liquidators’ remuneration and expenses incurred in connection with the external administrations in July, August and September 2021.

243 In clause 1.1 of the Funding Agreement, “Funder” is defined as Westpac and “any other party who accedes to this Agreement as a funder”. Both SMBC and Societe Generale were provided the opportunity to accede as a funder to the Funding Agreement upon written consent from both Westpac and the liquidators.

244 On 18 November 2021, SMBC entered into an Accession Deed and became a party to the Funding Agreement. Societe Generale did not.

245 Separately on 18 November 2021, WBC and SMBC agreed with the liquidators to amend the Facility Agreement to increase the facility limit and extend the time period to cover the liquidators’ remuneration and expenses incurred by the liquidators in the liquidation up to January 2022.

246 Societe Generale did not accede as a funder to the Funding Agreement.

247 Pursuant to the Funding Agreement, the liquidators borrowed substantial funds from Westpac and SMBC. The loans provided under the Funding Agreement are on limited recourse basis, such that the liquidators are only liable to repay the drawdown amounts from the assets of a “Relevant Entity”: cl 3.7. “Relevant Entities” is defined as the entities to which Mr Preston and Mr Ireland have been appointed as either liquidators or provisional liquidators: cl 1.1. Where a Relevant Entity has employee creditors (or the Commonwealth is a FEG creditor pursuant to s 560 of the Corporations Act), the liquidators must first pay those priority employee entitlements before repaying Westpac and SMBC: cl 3.6(a). A similar approach is adopted for Iugis Investments as a creditor of Autonomous Energy Pty Ltd, whereby the liquidators must pay each creditor of Iugis Investments prior to repaying Westpac and SMBC: cl 3.6(b).

248 Any obligation falling on the liquidators to repay Westpac and SMBC are either costs of the liquidation of the relevant entity pursuant to s 556(1)(a) of the Corporations Act (as expenses incurred by the liquidators in preserving, realising or getting in the property of the relevant company) or expenses of the liquidators with priority pursuant to s 556(1)(dd) of the Corporations Act (as other expenses properly incurred).

249 I now turn to each of the relevant entities and address the order of distribution for each of their respective asset pools.

FG

Overview

250 FG was the primary trading entity within the group of companies owned by FGOC and received a substantial amount of the Financier funds: LJ [43], [151]. FG provided information technology and print services to various customers. FG also provided services to other entities within the group, such as invoicing customers and collecting accounts receivable.

251 The proposed distribution of the assets of FG is the most complex of the distribution scenarios that arise in respect of the entities.

252 By way of overview, FG has multiple pools of assets available for distribution. In addition to the Financiers’ claims, there are other competing claims in respect of the assets of FG. There are registered PPSA security interests that fall to be considered in the FG distribution. Those PPSA interests comprise first ranking PPSA interests and second ranking PPSA interests arising under facilities entered into by FG with various third parties. FG’s intellectual property and goodwill was sold to Our Kloud Print Pty Ltd. One of the assets available for distribution is the net proceeds of sale to Our Kloud. Those proceeds are held by the Former Administrators of FG. The Former Administrators were appointed to FG on 8 July 2021. At that time, FG employed approximately 120 staff. Some of those employees were terminated by the Former Administrators. The remainder of the employees were transferred to Our Kloud. The claims made by or through employees in relation to their entitlements must also be considered. Against that background, I will now set out in chronological order the events that are relevant to the competing claims.

253 Between 2018 to 2020, FG granted the following security interests:

(1) a first ranking PPSA security interest to NAB securing obligations owed by FG under a bank guarantee facility (the FG Bank Guarantee Facility); and

(2) a second ranking PPSA security interest to Octet securing amounts owing under a $3 million “Business Transaction Facility” entered into with Octet (the Octet Facility).

254 The FG Bank Guarantee Facility dated 10 July 2020 provided for a $904,611 bank guarantee facility for the purpose of “Working Capital” and “Financing of a Shop and Office Furniture and Equipment”. It was executed by Mr Papas as sole director and secretary of FG on 16 July 2020. The FG Bank Guarantee Facility was secured by:

(1) guarantees from related party guarantors, Mr Papas, FGOC and 5 Bulkara Street;

(2) a security interest and charge over all present and future rights, property and undertaking of each of FGOC and 5 Bulkara Street; and

(3) a registered mortgage over the 5 Bulkara Street Property.

255 On 29 July 2022, 5 Bulkara Street paid to NAB the total amount outstanding of the FG Bank Guarantee Facility at that date, being approximately $1,036,715, as discussed below.

256 The Octet Facility dated 27 September 2018 originally appears to have had a $1 million facility limit, however that limit was subsequently increased to $3 million. FG is described as the “buyer” and the guarantors are Mr Papas, Mr Tesoriero and various entities. On 5 October 2018, Octet lodged a financing statement on the PPSR in relation to its security interest. On 11 October 2018, FG and Octet entered into a general security deed which granted Octet a security interest over all present and after-acquired property of FG.

257 On 5 July 2021, Mr Resnick and Mr Robinson of dVT Group were appointed by Octet as receivers of FG. Mr Robinson retired as receiver on 21 July 2023, leaving Mr Resnick as the FG Receiver.

258 By way of recap, on 8 July 2021, the Former Administrators were appointed to FG. On 22 July 2021, Mr Preston and Mr Ireland of McGrathNicol replaced the administrators who had been appointed earlier that month. On 28 July 2021, the Court ordered that FG be wound up and appointed Mr Preston and Mr Ireland as liquidators.

FG assets available for distribution

259 The relevant FG assets are:

(1) funds totalling approximately $3.4 million in a NAB bank account, the 2934 Account, which includes approximately $2,353,095 that has been traced to the Financiers, with the balance being generated by ordinary trading activity;

(2) funds totalling approximately $9,500 held by the Former Administrators, being the net proceeds of sale of FG’s intellectual property and goodwill to Our Kloud. The net recovery from this sale reduced from approximately $434,332 after the Former Administrators applied part of these funds towards FG’s trading expenses;

(3) funds totalling approximately $11,000 in another NAB bank account, the 4257 Account;

(4) proceeds of FG receivables and FG stock realised by the FG Receiver and currently held by the FG Receiver which, if the FG Receiver retires, may be remitted to the FG liquidators;

(5) funds totalling approximately $888,245 held by the FG Receiver; and

(6) any sale proceeds of the XOXO yacht that are received by FG following distribution of the assets of Intrashield (noting that FGFS and 26 Edmonstone Street also contributed funds to the purchase of this yacht).

Competing claims

260 Apart from the claims based on the equitable interests of those of the Financiers whose funds have been traced to FG, the applicants identify the following creditor claimants of FG: the liquidators; the Former Administrators; the Commonwealth as a FEG creditor; Octet; Westlawn; and 5 Bulkara Street.

Consideration of proposed order of distribution

Table 1: FG Summary of Proposed Distribution

261 The following table outlines in summary form the applicants’ proposed order of distribution in relation to the assets of FG. My consideration of, and reasons for concluding that, the proposed order of distribution is justified follow this table.

262 I now turn to consider each of the relevant assets.

The 2934 Account

263 The 2934 Account had a closing balance of approximately $3.4 million as at 12 July 2021. Of this balance, the liquidators have established that an amount of approximately $2,353,095 is traceable to the Financiers, with the balance of approximately $1.05 million being generated by the ordinary trading activity of FG. The relevant account balance will have accrued additional interest in the intervening period.

264 The applicants propose to first pay any costs and remuneration reasonably incurred by the FG Receiver and/or Former Administrators and/or Mr Preston and Mr Ireland in the care, preservation or realisation of the funds in the 2934 Account in accordance with the principle in Universal Distributing. As a matter of principle, the applicants are justified in proceeding on that basis. The present application is not concerned with approving the liquidators’ costs and remuneration.

265 In accordance with the principle that a trustee is taken to dissipate their own money before depleting trust funds, payments made at this stage of the distribution will be treated as having been made out of the non-trust funds in the 2934 Account: Re Hallett’s.

266 The next tier of the distribution proposed by the applicants is that an amount of approximately $1,036,715 be paid to 5 Bulkara Street on that the basis that it is subrogated to the rights of NAB which was the first ranking secured creditor. The applicants submit that 5 Bulkara Street should be recognised as the subrogee of NAB for the following reasons.

267 NAB had a first ranking valid and enforceable PPSA security interest over all of FG’s assets which secured FG’s obligations to NAB under the FG Bank Guarantee Facility. The relevant security interest included a contractual right to combine and/or set off accounts. The FG Bank Guarantee Facility was guaranteed by 5 Bulkara Street and secured by a mortgage granted to NAB by 5 Bulkara Street over the 5 Bulkara Street Property. On completion of the sale of the 5 Bulkara Street Property in mid-2022, 5 Bulkara Street, as guarantor of the FG Bank Guarantee Facility, paid approximately $1,036,715 to NAB in repayment of the FG Bank Guarantee Facility. That amount was the total amount outstanding under the FG Bank Guarantee Facility at that date. I accept that in the present circumstances by reason of making that payment, 5 Bulkara Street is entitled to be subrogated into NAB’s position as first ranking secured creditor of FG. As such, 5 Bulkara Street is entitled to use all of NAB’s rights and remedies against FG: Bofinger at [8]. I accept that 5 Bulkara Street is entitled to enforce NAB’s entitlement as first ranking secured creditor to approximately $1,036,715 of the moneys in the 2934 Account.

268 It will be recalled that the 2934 Account is an account held with NAB. In accordance with the principle that a delinquent trustee in possession of a mixed fund will be taken to first dissipate its own funds before accessing the trust funds, the applicants are justified in approaching the distribution of the funds in the 2934 Account as follows:

(1) in relation to the non-trust funds in the 2934 Account credit balance, 5 Bulkara Street is entitled to exercise NAB’s contractual right to set off on that amount. The effect of that set-off is that NAB’s obligation to pay FG up to approximately $1,036,715 of the non-trust credit balance in the 2934 Account is eliminated and instead, those funds become payable to 5 Bulkara Street (as subrogee of NAB); and

(2) in relation to the trust funds in the 2934 Account, 5 Bulkara Street is entitled to exercise NAB’s first ranking PPSA security interest to satisfy the remaining debt FG owes to 5 Bulkara Street as subrogee (being the remaining amount owing if the non-trust moneys that are subject to the set-off are less than approximately $1,036,715). For the reasons I have given commencing at paragraph [154] above, in exercising NAB’s PPSA interest, 5 Bulkara Street has priority over the Financiers’ equitable interest. NAB as a secured creditor acquired its PPSA interest in circumstances where it did not have notice of the conduct giving rise to the Financiers’ equitable interests. Accordingly, this interest ranks in priority to the Financiers’ interests.

269 After the payment of approximately $1,036,715 to 5 Bulkara Street, the third distribution tier proposed by the applicants in respect of the balance in the 2934 Account is to Octet or any other party subrogated to Octet’s security. The rationale for this tier is that Octet has a valid and enforceable PPSA security interest in respect of FG’s obligations under the Octet Facility, which ranks second behind NAB’s security, but ahead of the Financiers’ equitable interests. In relation to the competition between Octet’s PPSA interests and the Financiers’ interests, the analysis is the same as in respect of the NAB PPSA interest to which 5 Bulkara Street is subrogated. Again, there is no suggestion that Octet as a secured creditor acquired its PPSA interest with notice of the conduct giving rise to the Financiers’ equitable interests. Accordingly, the applicants are justified in treating Octet or any other party subrogated to Octet’s security as ranking in priority to the Financiers.

270 The fourth and final tier of distribution proposed by the applicants in relation to the 2934 Account is to the Financiers. The amount of approximately $2,353,095 has been traced into the 2934 Account and is subject to their respective equitable interests based on the Black v Freedman constructive trusts. By analogy with the reasons given at  paragraph [205] above with respect to claims made pursuant to s 560 of the Act, I accept that the applicants are justified in proceeding on the basis that the Financiers’ equitable proprietary interests in the property that are subject to Black v Freedman constructive trusts take priority over any distributions under s 556 of the Corporations Act: Carter Holt Harvey Woodproducts at [40] (Kiefel CJ, Keane and Edelman JJ) and [92] (Bell, Gageler and Nettle JJ).

271 Of the amount that is ultimately available for distribution of up to approximately $2,353,095, the respective entitlements of each of the Financiers have been calculated by the applicants to be as follows:

(1) WBC: 4.17%;

(2) WNZL: 93.49%;

(3) SMBC: 1.88%; and

(4) Societe Generale: 0.45%.

272 I will pause at this point to explain the way in which the applicants have arrived at this apportionment. As mentioned, in conducting the tracing exercise, the liquidator categorised funds according to which Financier they were sourced from. Where funds were not attributed to any Financier, they were allocated to the category “Other”. The liquidator proposed to treat the funds allocated to the “Other” category as having been spent in advance of traceable funds and to adjust the Financiers’ portions accordingly. This approach was proffered in the interests of simplifying the distribution process, saving time and costs in the distribution process and ensuring that the assets go to the entities with a proprietary claim to them. During the hearing, the applicants took steps to revise the percentages attributed to the Financiers and the “Other” category in order to exclude the proportion that was previously allocated to the “Other” category and to distribute the remaining allocation as between the Financiers. The percentages included in these reasons are the final percentages to be allocated to the Financiers (after exclusion of the “Other” category).

273 This same method of apportioning the respective entitlements of the Financiers has been applied consistently by the applicants in respect of all assets into which two or more of the Financiers are able to trace their funds. I am satisfied that it represents a pragmatic and principled approach and that the applicants are justified in proceeding on this basis. The Financiers did not ultimately seek to be heard against the approach taken by the applicants to the apportionment.

274 The applicants anticipate that the fourth tier of distribution will exhaust the funds in the 2934 Account.

275 Before leaving the 2934 Account, I note that the Commonwealth through the department administering the FEG has no priority to the moneys in the 2934 Account other than via s 556 of the Corporations Act. A consequence of the application of the principle that a defaulting trustee expends non-trust funds first is that the non-trust credit balance in the 2934 Account will be exhausted by the priority claims of the Universal Distributing claimants and 5 Bulkara Street (as subrogee to NAB). The remaining funds in the 2934 Account are trust funds to which FG’s creditors, including the Commonwealth as a FEG creditor, are not entitled to claim in priority to trust creditors. For completeness, the Commonwealth as a FEG creditor is not a trust creditor.

276 The distribution proposed by the applicants does not accommodate Westlawn. The applicants’ evidence, which I accept, is that Westlawn has not provided any evidence to substantiate its claim that certain funds in the 2934 Account are held on trust for Westlawn. Westlawn claimed approximately $1.6 million pursuant to an agreement between Westlawn and FG executed on 5 June 2014 whereby Westlawn authorised FG to purchase equipment, enter into rental and service agreements with third party customers and collect payments from those customers which were to be held on trust by FG for Westlawn. As mentioned, I am satisfied that Westlawn was notified of this application and of the proposed distribution. Westlawn has not sought to be heard and has not sought to substantiate in this application its earlier assertion made to the applicants in respect of the 2934 Account. In these circumstances, I am satisfied that the applicants are justified in proceeding in the way they have proposed in relation to the 2934 Account.

Funds from sale of intellectual property and goodwill to Our Kloud held by the Former Administrators

277 These funds are the proceeds from sale of FG’s intellectual property and goodwill to Our Kloud. The Former Administrators sold FG’s intellectual property and goodwill. The Former Administrators initially realised approximately $434,332 from the sale. The amount now remaining has reduced to $9,500 as a result of the Former Administrators applying most of those funds towards FG’s trading expenses.

278 These assets were not subject to a circulating security interest at 8 July 2021 (being the date the winding up was taken to begin for the purposes of s 561 of the Corporations Act) and are therefore not characterised as a “circulating asset”: Corporations Act, s 9; see paragraph [146] above.

279 The applicants submit that the remaining funds should be distributed first in accordance with the principle in Universal Distributing to the FG Receiver and/or Former Administrators and/or Mr Preston and Mr Ireland for any costs and remuneration reasonably incurred in the care, preservation or realisation of FG’s intellectual property and goodwill. Then, to Octet (or any other party subrogated to Octet’s security) on the basis that Octet is the highest-ranking secured creditor (noting that 5 Bulkara Street will be fully paid from the 2934 Account). Then, in accordance with s 556 of the Corporations Act. This distribution is premised on the fact that the Financiers are unable to trace into this asset. I accept the applicants’ submissions. They are justified in proceeding on this basis.

Proceeds of receivables and stock realised by the FG Receiver and the funds in the 4527 Account

280 In their submissions, the applicants address these two asset pools collectively. In relation to the distribution of the proceeds of receivables and sale of stock realised by the FG Receiver, the applicants note that those proceeds are not in the possession or control of the liquidators of FG. They submit that if the FG Receiver retires and transfers to the liquidators of FG any part of those proceeds, they propose to distribute such funds in the same order as the proposed distribution of the funds in the 4527 Account. Accordingly, I will turn to consider the rationale for the proposed order of distribution in relation to the funds in the 4527 Account.

281 The funds in the 4527 Account total approximately $11,000. No Financier funds have been traced into this bank account. The applicants submit, and I accept, that they are justified in distributing the funds in this account as follows.

282 The first tier of distribution will be in accordance with the principle in Universal Distributing.

283 The second tier of distribution will be to the Commonwealth in respect of advances made under the FEG. The applicants submit that the funds in the 4527 Account were more probably than not sourced from assets (cash, receivables and inventory) which were subject to Octet’s (and NAB’s) circulating security interests as at 8 July 2021, being the date the winding up was taken to have begun. Pursuant to ss 433 and/or 561 of the Corporations Act, FEG will take priority over Octet (and any costs and remuneration of the FG Receiver not covered by the Universal Distributing lien) in relation to property that was secured by a circulating security interest at the date of appointment of the receivers: Re CMI Industrial Pty Ltd (in Liq); Byrnes v CMI Ltd [2015] QSC 96; 105 ACSR 635; [2016] 1 Qd R 241 at [45]-[50] (Mullins J); Langdon; Forge Group Ltd (Recs and Mgrs Apptd) (In Liq) [2017] FCA 170; 118 ACSR 434 at [63], [114] (Gilmour J). This includes any cash, receivables and inventory held by FG as at 8 July 2021.

284 The third tier of distribution is to Octet, or any claimant subrogated to Octet’s security. Octet is the highest-ranking secured creditor at this stage of the distribution. This is premised on 5 Bulkara Street being fully paid from the 2934 Account and NAB’s first ranking security no longer being relevant to the distribution.

285 The fourth tier sees any balance thereafter being distributed in accordance with s 556 of the Corporations Act.

286 I am satisfied that the order of distribution in relation to both of these assets proposed by the applicants is justified on the basis of the rationale exposed by the applicants in their submissions.

XOXO yacht proceeds

287 Any funds received by FG derived from the XOXO yacht proceeds are simply a distribution from another entity. For this reason, no material costs pursuant to the Universal Distributing lien have been incurred by any of the external administrators of FG in relation to this asset. The Financiers are unable to trace into this asset.

288 Subject to any remaining secured creditor claims, the applicants submit, and I accept, that these funds should be distributed in accordance with s 556 of the Corporations Act. The applicants are justified to proceed on that basis.

Conclusion

289 For these reasons, I am satisfied that the applicants are justified in distributing the assets of FG in the manner in which they propose.

FGFS

Overview

290 FGFS was established as a private company of Mr Papas and Mr Tesoriero: LJ [16], [155], [414], [445], [554]. It was not part of the Consolidated Group: LJ [16], [32], [445], [554]. Its accounts were not audited: LJ [36], [421], [554]. It acted as a treasury entity for the other entities that were part of the Consolidated Group: LJ [17], [33], [155], [788]. FGFS was the primary entity through which tainted funds received from the Financiers were distributed to and between various entities or otherwise for Mr Papas’ and Mr Tesoriero’s personal purposes: LJ [32]-[34], [43], [48], [72], [135], [155], [418], [445], [555], [785], [793]-[796], [807]-[809], [887(3)], [913]. FGFS did not conduct any legitimate business in its own right: LJ [17], [32], [155], [401(1)], [555], [786], [794], [913]. FGFS did not have any employees at the date of the liquidators’ appointment on 15 July 2021.

291 At the time of the liquidators’ appointment, FGFS’ primary assets comprised real property at 2-4 Atherton Road, Oakleigh Victoria (Atherton Road Property), several motor vehicles and cash at bank of approximately $572,000. The tracing exercise undertaken by the liquidators identified that the funds used to purchase the Atherton Road Property and some of the motor vehicles included Financier funds.

FGFS assets available for distribution

292 The assets of FGFS available for distribution are:

(1) the remaining proceeds of sale of the Atherton Road Property;

(2) the proceeds of the XOXO yacht that FGFS may receive as a distribution from Intrashield (noting the similar claims in this respect made by FG and 26 Edmonstone Road);

(3) the remaining proceeds of two Audi motor vehicles; and

(4) miscellaneous other property.

Competing claims

293 Apart from the claims based on the equitable interests of those of the Financiers whose funds have been traced to FGFS, the applicants identify the following as creditor claimants of FGFS: Mr Preston and Mr Ireland (as provisional liquidators and liquidators); the Former Administrators; and various unsecured creditors including other related entities.

Consideration of proposed order of distribution

Table 2: FGFS Summary of Proposed Distribution

294 The table below outlines the applicants’ proposed order of distribution for each asset outlined above:

Proceeds of the Atherton Road Property

295 In around April 2022, the Atherton Road Property was sold by an agent for BNY Trust Company of Australia Ltd as mortgagee in possession. After the discharge of the mortgage over the property, the balance of the proceeds was approximately $1,150,250. The applicants submit that based on the principles outlined at paragraph [214] above and following, the Financiers are entitled to trace into the increase in value of the property. I accept that submission.

296 The liquidators identified that approximately $1,621,387 of Financier funds were paid to, or used to make payments on behalf of, FGFS in connection with the Atherton Road Property. Applying the findings and principles outlined in the Liability Judgment, the Financiers have an equitable proprietary interest in the Atherton Road Property sale proceeds up to the amount traced. The Financiers’ equitable interest takes priority over distributions under s 556 of the Corporations Act, but will rank after any Universal Distributing lien.

297 For the reasons outlined at paragraphs [229]-[249] above, I am satisfied that the applicants are justified in approaching the distribution of the proceeds of the Atherton Road Property without taking into account the relative position of the Financiers in relation to subrogation as between themselves.

Proceeds of the XOXO yacht

298 The funds used to purchase the XOXO yacht cannot be traced to the Financiers. The applicants submit that FGFS may receive a distribution from Intrashield in respect of the proceeds of the XOXO yacht. Subject to any Universal Distributing lien, the applicants are justified in distributing the proceeds of the XOXO yacht in accordance with s 556 of the Corporations Act. I will address the distribution of the proceeds of the sale of the XOXO yacht in my consideration of Intrashield below.

Proceeds of the Audi vehicles

299 FGFS owned a number of motor vehicles which have been sold. Only some of those sales have produced net proceeds that are available for distribution to creditors of FGFS.

300 The vehicles realised by the liquidators were:

(1) an Audi RSQ8 with a VIN number ending in 194, purchased in around March 2021 and financed by NAB secured by a chattel mortgage over the vehicle (Audi RSQ8);

(2) an Audi R8 LMS GT with a VIN number ending in 073 purchased in around March 2021 (First Audi R8); and

(3) another Audi R8 LMS GT with a VIN number ending in 027 purchased in around April 2021 (Second Audi R8).

301 FGFS also made a payment towards a third Audi R8 LMS GT, but did not complete the purchase of that vehicle.

302 The Audi RSQ8 was purchased with funds borrowed from NAB. FGFS made regular payments to NAB in respect of that loan between March 2021 and June 2021. The applicants have traced Financier funds to the loan repayments for the Audi RSQ8. NAB was a secured creditor of FGFS with a chattel mortgage over the Audi RSQ8. The entirety of the proceeds of sale of the Audi RSQ8 were used to repay NAB as secured creditor with respect to the mortgage over this vehicle and to pay sale costs. No net proceeds of sale remain for distribution. Thus although WBC and WNZL established an equitable interest in the proceeds of sale of this vehicle, the available funds were exhausted by the superior claim of NAB.

303 Only the First Audi R8 and Second Audi R8 vehicles have produced net proceeds available for distribution to creditors of FGFS. The Financiers cannot trace into the First Audi R8 or Second Audi R8 because there is no evidence that Financier funds were used to purchase these vehicles.

304 In these circumstances, the applicants’ proposed distribution is justified.

Remaining Property

305 The remaining property of FGFS includes any distribution that FGFS may receive from 23 Margaret Street and from 26 Edmonstone Road (but not the proceeds of the XOXO yacht which are addressed separately). As discussed below, the net proceeds of the sale of the contents of the 5 Bulkara Street Property (which are currently held by FGFS) are expected to be exhausted by the distribution proposed in relation to 5 Bulkara Street (see Table 6). This was confirmed by the applicants’ solicitors after the hearing.

306 Prior to the commencement of the hearing of the applications, the applicants indicated that directions in relation to 23 Margaret Street were no longer pressed.

307 By way of brief overview, 23 Margaret Street purchased, maintained and leased the property at 23 Margaret Street, Rozelle NSW 2039 (Rozelle Property) in its capacity as trustee of the 23 Margaret Street Unit Trust. The Rozelle Property was leased to FGFS and used by Mr Papas as his primary residence until his flight from the jurisdiction in June 2021. The Rozelle Property was sold on 25 February 2022. Prior to the sale completing, on 9 February 2022, this Court ordered that the net proceeds of the sale of the Rozelle Property be paid into an interest bearing, controlled monies account to be opened in the joint names of Westpac and Mr Tesoriero. The controlled moneys account in the joint names of Westpac and Mr Tesoriero is the only material asset of 23 Margaret Street. Westpac and SMBC are expected to obtain orders against 23 Margaret Street which would entitle them to the funds in the controlled moneys account. In these circumstances, there is no utility in the applicants seeking orders or directions in relation to 23 Margaret Street.

308 The applicants identified that $865,000 of Financier funds were paid to, or used to make payments on behalf of, FGFS for transactions other than those already addressed above. In other words, the total amount of Financier funds traced to the remaining property excludes the amounts paid in respect of the Atherton Road Property, the Audi RSQ8, the First Audi R8 and the Second Audi R8.

309 In accordance with the findings in the Liability Judgment and the principles outlined therein, the Financiers have an equitable proprietary interest in the funds up to the amount traced. The applicants are justified in distributing these assets on the basis that the Financiers’ equitable interest takes priority over any distributions under s 556 of the Corporations Act, but rank behind any distribution in accordance with the Universal Distributing lien. The distribution to the Financiers is appropriately in accordance with the percentages identified by the applicants.

Conclusion

310 I am satisfied that the applicants are justified in distributing the assets of FGFS in the manner in which they propose.

Forum Finance

Overview

311 The applicants’ evidence demonstrates that in part Forum Finance conducted a business of arranging or broking equipment lease contracts, including by entering into equipment leasing and maintenance contracts with customers. As the Liability Judgment demonstrates, despite the ostensible conduct of a legitimate business, a material part of Forum Finance’s activities were directed to the perpetration of the fraud to which the Financiers fell victim. Forum Finance was the primary entry point for funds advanced by WBC and Societe Generale, which were then disbursed to various other entities: LJ [12], [31], [43].

312 Forum Finance did not have any employees as at the date of the liquidators’ appointment on 9 July 2021.

313 The applicants have traced approximately $3,758.235 from Westpac and SMBC that was paid to or used to make payments on behalf of Forum Finance: Liability Judgment, Annexure I. Westpac and SMBC each have an equitable proprietary interest to the extent of the amount traced.

Forum Finance assets available for distribution

314 The Forum Finance assets available for distribution comprise funds, totalling approximately $402,829, are:

(1) funds held by the liquidators, totalling approximately $129,386;

(2) funds in a NAB account which has not been released to the liquidators, totalling approximately $160,000; and

(3) funds held by the FG Receiver, totalling approximately $113,443.

Competing claims

315 Apart from the claims based on the equitable interests of those of the Financiers whose funds have been traced to Forum Finance, the applicants identify the following creditor claimants of Forum Finance: Octet (and its appointed receivers); the liquidators; various unsecured claims by related parties; and various secured creditor claims in addition to Octet.

Consideration of proposed order of distribution

Table 3: Forum Finance Summary of Proposed Distribution

316 The table below outlines the proposed order of distribution for each asset of Forum Finance:

Funds

317 The applicants are justified in proceeding in accordance with the proposed order of distribution that they have suggested.

318 The Universal Distributing principle is engaged and accordingly any costs and remuneration reasonably incurred in the care, preservation or realisation of the assets of Forum Finance by the receivers and/or liquidators take first priority.

319 Octet is a first ranking secured creditor of Forum Finance. Octet has a valid and enforceable PPSA security interest given by Forum Finance pursuant to the Octet Facility. Octet, the receivers appointed by it (in respect of their expenses and remuneration of the receivership) and any other entity subrogated to Octet’s security take second priority after the Universal Distributing lien.

320 The applicants note that there are other secured creditors which hold valid and enforceable PPSA security interests. To the extent any remaining funds are identified as proceeds of an asset to which such creditor’s security attaches, the proposed distribution is in accordance with the priorities afforded under the PPSA. That may result in a secured creditor taking priority over Octet in relation to a particular asset. The point is that the applicants’ proposed distribution accommodates any competing PPSA security interests being determined in accordance with the priorities under the PPSA. That approach is justified.

321 Applying the findings made in the Liability Judgment and the principles articulated above, any legal interests of secured creditors with an enforceable PPSA security interest will take priority over equitable interests arising at general law and outside of the PPSA. Relevantly, this will include in this instance, Westpac’s and SMBC’s equitable interests unless the PPSA security holders were relevantly on notice. There is nothing to suggest that this was so. Westpac’s and SMBC’s equitable proprietary interests arising as a result of the Black v Freedman constructive trusts will however take priority over any distributions made in accordance with s 556 of the Corporations Act. The applicants’ summary table does not refer to s 556 distributions. I infer this is because it is anticipated that the relevant assets will be exhausted before this tier of distribution is reached.

Conclusion

322 For these reasons, I am satisfied that the applicants are justified in distributing the assets of Forum Finance in the manner in which they propose.

FGOC

Overview

323 FGOC was the ultimate holding company of 13 entities in Australia (including FG) and an entity registered in New Zealand. FGOC did not operate a trading business and did not have any employees as at the date of the liquidators’ appointment on 28 July 2021.

324 There are two registered security interests against FGOC.

325 First, Octet has a registered PPSA security interest against FGOC pursuant to the Octet Facility. Octet is a secured creditor of FGOC, amongst other entities, pursuant to a guarantee given by FGOC as security for FG’s obligations pursuant to the Octet Facility. The guarantee was signed by Mr Tesoriero and Mr Papas. The applicants observe that as a practical matter the amount ultimately distributed to Octet will be reduced to reflect realisations made by the receivers who Octet appointed.

326 Secondly, CBA held a registered PPSA interest over all present and after-acquired property of FGOC which was discharged on 16 July 2024, however no liability to CBA was recorded in FGOC’s balance sheet and the liquidators are not aware of the nature of the debt (other than that it related to a guarantee of debt owed by entities associated with Mr Tesoriero to CBA). CBA has not made a demand upon the guarantee given by FGOC. A copy of the Preston Affidavit was provided to CBA on 4 December 2024, confirming that CBA would not be treated as a creditor of FGOC. On 6 December 2024, the solicitors for CBA confirmed that CBA does not object to the orders sought by the applicants and does not otherwise seek to participate in the proceeding. Accordingly, the applicants have not included CBA in the proposed distribution for FGOC. I accept that they are justified in taking this approach.

327 FGOC received funds from FG, Forum Finance and FGFS. The funds sourced from FG, Forum Finance and FGFS are traceable in part to the Financiers. The traceable amount totals approximately $11,102,896.

328 Part of the FGOC funds that are available for distribution come from a GST refund in the sum of approximately $7.6 million that was received by FGOC in January 2025.  The circumstances in which this GST refund was secured are addressed below.

FGOC assets available for distribution

329 The FGOC assets available for distribution are:

(1) the remaining funds derived from the sale of a Toyota Corolla motor vehicle owned by FGOC, totalling approximately $1,735; and

(2) funds held in cash totalling approximately $7.9 million, primarily derived from:

(a) pre-appointment bank accounts, totalling $301,727; and

(b) the GST refund received from the ATO of approximately $7.6 million.

Competing claims

330 Apart from the claims based on the equitable interests of those of the Financiers whose funds have been traced to FGOC, the applicants identify the following creditor claimants of FGOC: Mr Preston and Mr Ireland (as liquidators and administrators); the Former Administrators; Octet as a secured creditor; possible claims by co-guarantors under and in respect of the FG Bank Guarantee Facility; and various unsecured liabilities including to entities in the Forum Group.

Consideration of proposed order of distribution

Table 4: FGOC Summary of Proposed Distribution

331 The table below outlines the proposed order of distribution for each asset of FGOC:

Proceeds of Toyota Carolla

332 The applicants have not identified any funds traceable to the Financiers in respect of the Toyota Corolla. The proceeds of this vehicle will be distributed first in accordance with the Universal Distributing lien, assuming that lien has not already been satisfied, and thereafter to the claims of those with PPSA security interests in accordance with the PPSA regime.

Remaining Funds

333 In respect of the distribution of the remaining funds, the applicants submit that following distribution to the Former Administrators and liquidators in accordance with the principle in Universal Distributing and any secured creditor of FGOC, the Financiers’ equitable proprietary interests will rank next up to the amount of approximately $11,102,896, being the amount subject to their trust claim. The Financiers’ claim is expected to exhaust the funds in FGOC’s accounts. The Financiers’ equitable interests take priority over distributions under s 556 of the Corporations Act.

334 I am satisfied that the applicants are justified in proceeding on this basis.

GST refund

335 The applicants propose to take a practical approach to the competing priorities in relation to the distribution of the GST refund. For the reasons which follow, I am satisfied that the proposed approach is both practical and principled in the present circumstances.

336 By way of context, FGOC was the ultimate holding company of the Forum consolidated tax group. FGOC submitted consolidated business activity statements to the ATO and remitted GST to the ATO for this group. The GST refund was calculated by reference to two distinct underlying rationales, one of which was connected to the fraud on the Financiers and the other of which was not.

337 The first part of the GST refund derives from a claim made by the applicants in which they successfully contended that the GST that FGOC had remitted to the ATO in connection with fictitious lease contracts (where no actual goods or services were supplied by the Forum Group to the relevant customers) should not have been paid. In effect, the first component of the refund claim was that there had been an overpayment of GST between October 2018 and April 2020 where the GST had been remitted in relation to fraudulent and fictitious supplies.

338 The applicants submit that these overpayments are traceable to the fraud perpetrated against the Financiers and accordingly should be treated as subject to the Financiers’ respective equitable proprietary interests when considering the distribution waterfall. This portion of the GST refund is directly referable to the Financier funds that were wrongly paid to the ATO as part of the fraudulent scheme. The liquidators have not identified another significant source of funds for the GST payments of this type that were paid to the ATO. I accept the applicants’ submission that it would not be practical to obtain financial account statements from the ATO and to undertake further forensic analysis in these circumstances. Had the stolen Financier funds not been paid to the ATO in respect of a GST obligation that in truth did not exist, FGOC would not have received the first component of GST refund from the ATO. I am persuaded that the transactions are causally linked to the fraudulent dealing and the basic requirement for tracing is satisfied. Accordingly, the applicants are justified in approaching the proposed distribution on this basis.

339 The second component of the GST refund was in respect of outstanding GST credits claimed for Forum Enviro (a member of the Forum Group tax consolidated group) between May 2020 and May 2021. These GST credits resulted from the legitimate business of Forum Enviro. The applicants submit that the Financiers should not be able to trace into this portion of the GST refund. The Financiers have not sought to demonstrate that they should be treated as having an interest in this component of the GST refund.

340 Taking the robust approach to tracing that is warranted where fraud has occurred and applying the principle that a delinquent trustee be taken to use its own funds first, the applicants propose that distribution of the GST refund be as follows. The part of the GST refund into which the Financiers cannot trace be applied as the first source of meeting the claims based on the Universal Distributing lien and secured creditors. The applicants expect that applying these funds to that purpose will exhaust that part of the GST refund into which the Financiers cannot trace. The applicants propose that thereafter the balance of this asset pool, being effectively trust property, be distributed to the Financiers in accordance with their respective equitable proprietary interests (as calculated in percentage terms by the applicants).

341 I am satisfied that the applicants are justified in taking this approach.

Pre-liquidation accounts and remaining funds

342 Given that FGOC did not operate a trading business and in excess of $11.1 million of Financier funds have been traced to FGOC, I accept the applicants’ submission that they are justified in treating any remaining funds, being cash held in pre-liquidation bank accounts, as being derived from the stolen Financier funds. Accordingly, taking a robust approach to fact finding in connection with tracing, I am satisfied that the Financiers can trace into the funds. The applicants will be justified in distributing these funds to the Financiers in the proportions calculated by the applicants to the extent they are available after satisfaction of the first two tiers of distribution.

Conclusion

343 For these reasons, I am satisfied that the applicants are justified in distributing the assets of FGOC in the manner in which they propose.

14 James Street

Overview

344 14 James Street acquired, held and leased various properties (LJ [828]-[829]) (the James Street Properties) in its capacity as trustee of the 14 James Street Unit Trust. 14 James Street did not conduct any trading business other than holding and leasing the James Street Properties. Mr Preston and Mr Ireland were appointed by the Court as receivers and managers of the James Street Properties on 3 September 2021 and later sold the properties for $6.84 million. 14 James Street did not have any employees at the date of the liquidators’ appointment.

345 The James Street Properties were acquired using funds from:

(1) a loan from Fort Matilda Pty Ltd in the amount of $730,000, supported by mortgages over the James Street Properties, later refinanced by NAB;

(2) a further loan from NAB in the amount of $3,268,000, also supported by mortgages over the James Street Properties; and

(3) FGFS, including funds traced from Westpac totalling approximately $2,078,855.

346 The James Street Properties were purchased between 16 January 2020 and 20 July 2020. Each of the James Street Properties was subject to various encumbrances.

14 James Street assets available for distribution

347 The 14 James Street assets available for distribution are the remaining funds derived from the sale proceeds from the James Street Properties and rental income generated prior to the sale. The amounts paid to third parties at settlement of the sale of the James Street Properties included:

(1) approximately $541,543 paid to NAB which held a first registered mortgage;

(2) approximately $366,188 paid to Aksara pursuant to a guarantee given by 14 James Street to secure the obligations of 9 Gregory Street under a vendor financing facility given by Aksara (discussed at paragraph [351] below);

(3) $2,800,000 paid to 5 Bulkara Street pursuant to 5 Bulkara Street’s right of subrogation to NAB; and

(4) the usual outgoings associated with a sale.

348 The remaining funds comprise the following:

(1) funds held in an account controlled by the 14 James Street liquidators (approximately $15.18);

(2) funds in an account controlled by the receivers (approximately $31,196); and

(3) funds in a controlled monies account of Allens, the receivers' solicitors (approximately $2,598,239).

Competing claims

349 Apart from the claims based on the equitable interests of the Financiers whose funds have been traced to 14 James Street, the applicants identify the following as creditor claimants of 14 James Street: the Former Administrators; Mr Preston and Mr Ireland (as administrators, liquidators and receivers); Aksara; and FGFS.

350 Amounts owing to NAB as a secured creditor (subject to some outstanding legal fees) have been fully repaid. Similarly, an amount of $2.8 million has been paid to 5 Bulkara Street pursuant to its right of subrogation to the NAB, which is discussed further at paragraph [361] below.

351 Aksara is a secured creditor of 14 James Street pursuant to a guarantee given by 14 James Street backed by an equitable charge or equitable mortgage over the James Street Properties to secure the obligations of 9 Gregory Street under a vendor financing facility given by Aksara executed in around December 2020. On 28 August 2024, Aksara agreed to lift its caveat over the property to allow the sale to proceed in consideration of this payment.

Consideration of proposed order of distribution

Table 5: 14 James Street Summary of Proposed Distribution

352 The table below outlines the proposed order of distribution for each asset of 14 James Street:

Funds

353 The first priority is in accordance with the principle in Universal Distributing. The second priority is the respective equitable interests of WBC and WNZL. The third priority is the equitable interest of Aksara, which was later in time that the equitable interests of WBC and WNZL.

354 Westpac are entitled to trace into the increase in the value of the relevant properties as the purchase funds came from Financier funds and third party lender – see principles outlined at paragraph [214] above and following.

Conclusion

355 For these reasons, I am satisfied that the applicants are justified in distributing the assets of 14 James Street in the manner in which they propose.

5 Bulkara Street

Overview

356 5 Bulkara Street purchased, maintained and leased the property at 5 Bulkara Street, Wagstaffe, NSW 2257 (the 5 Bulkara Street Property) in its capacity as trustee of the 5 Bulkara Street Unit Trust: LJ [839]. The 5 Bulkara Street Property was one of the two adjacent waterfront properties, north of Sydney, each purchased by the Jointly Owned Entity after which they are named and used by Mr Papas and Mr Tesoriero as holiday rentals: LJ [437], [839]-[840].

357 The circumstances which are presently relevant to 5 Bulkara Street are similar in some respects to those addressed above in relation to 14 James Street. 5 Bulkara Street purchased its relevant real property in its capacity as trustee for a unit trust. The liquidators of 5 Bulkara Street are also the Court-appointed receivers and managers of the 5 Bulkara Street Property. The 5 Bulkara Street Property has been sold. The applicants have not identified 5 Bulkara Street as having had any employees or having conducted any business other than holding and leasing the 5 Bulkara Street Property.

358 5 Bulkara Street exchanged contracts for the purchase of the 5 Bulkara Street Property on or around 23 January 2019 for consideration of $5,800,000. The purchase was acquired using:

(1) a loan of $3,675,000 from CBA secured by a mortgage over 5 Bulkara Street, which was later refinanced by NAB in July 2020; and

(2) funds from FGFS (which included funds obtained from the Financiers).

359 5 Bulkara Street later obtained further funds from FGFS including as further loans to meet ongoing expenses and maintenance costs relating to the 5 Bulkara Street Property (which funds have been proved to include Financier funds).

360 5 Bulkara Street leased the 5 Bulkara Street Property to FG from around 6 May 2019 until around 1 September 2020. From around 1 September 2020 onwards, 5 Bulkara Street leased the 5 Bulkara Street Property to FGFS.

361 On 29 July 2022, the 5 Bulkara Street Property was sold by an agent of NAB, the mortgagee in possession, for approximately $8,506,449. On settlement of that sale, NAB was paid amounts from the sale proceeds that fully repaid the 5 Bulkara Street loan described above, the FG Bank Guarantee Facility, and the James Street Facility. The principal debtor under the FG Bank Guarantee Facility was FG. An amount of approximately $1,036,715 is proposed to be distributed to 5 Bulkara Street as subrogated secured creditor on the basis that NAB’s security is first ranking – see paragraph [267] above. The principal debtor under the James Street Facility was 14 James Street. When the receivers of 14 St James Street sold the 14 St James Street Properties, $2.8 million was paid to 5 Bulkara Street pursuant to its right of subrogation to the NAB.

362 Aksara is also a secured creditor of 5 Bulkara Street pursuant to an equitable mortgage or equitable charge over the 5 Bulkara Street Property, which secures the obligations of 5 Bulkara Street as guarantor pursuant to two loan agreements, which post date the equitable interests of the Financiers. The liquidators have not been able to ascertain whether there are any amounts that remain outstanding to Aksara as a secured creditor.

5 Bulkara Street assets available for distribution

363 The 5 Bulkara Street assets available for distribution are:

(1) the remaining proceeds of sale of the 5 Bulkara Street Property;

(2) funds claimed pursuant to its rights of subrogation to NAB in respect of the assets of FG and 14 James Street. The applicants estimate this as being approximately $4.1 million (once 5 Bulkara Street receives its distribution from FG);

(3) any remaining proceeds from the sale of the contents of the 5 Bulkara Street Property (approximately $52,500) and of the SUMO book ($3,200) (which are currently held by FGFS); and

(4) to the extent it has not already been applied, a small sum of approximately $12,000 that was held as cash at bank as at the date of the liquidators’ appointment.

Competing claims

364 Apart from the claims based on the equitable interests of those of the Financiers whose funds have been traced to 5 Bulkara Street, the applicants identify the following as creditor claimants of 5 Bulkara Street: Mr Preston and Mr Ireland (as liquidators and receivers); the Former Administrators; Aksara; FGFS; and various unsecured creditors. As mentioned, Mr Tesoriero’s competing claim to the contents of the 5 Bulkara Street Property is no longer pressed.

365 Aksara is a secured creditor of 5 Bulkara Street pursuant to an equitable mortgage or equitable charge over the 5 Bulkara Street Property, which secures the obligations of 5 Bulkara Street as guarantor pursuant to two loan agreements in around June and July 2020. Westpac’s and SMBC’s equitable interests under the constructive trusts arise earlier in time than Aksara’s equitable interest and accordingly take priority.

Consideration of proposed order of distribution

Table 6: 5 Bulkara Street Summary of Proposed Distribution

366 The proposed order of distribution for the assets of 5 Bulkara Street is as follows:

Proceeds of 5 Bulkara Street Property and pre-appointment bank accounts

367 The applicants’ tracing exercise identified that approximately $3,285,688 of funds from Financiers were paid to or used to make payments on behalf of 5 Bulkara Street including purchasing and maintaining the 5 Bulkara Street Property (excluding the purchase of certain contents of the 5 Bulkara Street Property). Applying the findings and principles in the Liability Judgment, the Financiers have an equitable proprietary interest in the balance of sale proceeds of the 5 Bulkara Street Property including any increase in value of the property (subject to any Universal Distributing lien) – see principles outlined at paragraph [214] above and following. The respective percentages as between the Financiers are as identified by the applicants. The applicants are justified in distributing the SUMO proceeds and any remaining bank balances in 5 Bulkara Street bank accounts in the same way.

368 The only relevant competing claim to this pool of assets as against the Financiers is the equitable interest of Aksara pursuant to its equitable mortgage or charge. As explained in paragraph [365] above, that interest is subordinate to the Financiers’ earlier equity on the basis that it is later in time.

Proceeds of contents of 5 Bulkara Street Property

369 The contents of the 5 Bulkara Street Property were purchased by FGFS via an interior design consultant. The applicants have identified that $201,740 of Westpac’s funds were paid to or used to make payments on behalf of 5 Bulkara Street in respect of the contents of the 5 Bulkara Street Property. The contents of the 5 Bulkara Street Property were sold by the liquidators of FGFS for approximately $52,500 and are held in an FGFS account. The applicants have treated a photography book by Annie Leibovitz titled “SUMO” as being owned by FGFS, however no tracing exercise has been able to be conducted for this book. The amount involved in the sale of SUMO is minimal in relative terms to the rest of the contents of the 5 Bulkara Street Property. The applicants’ approach in grouping the proceeds of the SUMO book with the balance of the net proceeds of the contents of the 5 Bulkara Street Property is sensible.

370 The distribution of these funds is expected to exhaust the remaining proceeds from the sale of the contents of the 5 Bulkara Street Property. This was confirmed by the applicants’ solicitors after the hearing. The applicants do not expect there to be any distribution from this asset pool as part of the distribution identified in the last tier of the FGFS distribution (Table 2 above). Westpac has an equitable proprietary interest in these proceeds up to the amount traced, subject to any Universal Distributing lien. The respective shares as between WBC and WNZL are as identified by the applicants and are specific to the distribution of these proceeds based on the relative amounts traced to each of WBC and WNZL which together comprised the total of $201,740.

Conclusion

371 For these reasons, I am satisfied that the applicants are justified in distributing the assets of 5 Bulkara Street in the manner in which they propose.

6 Bulkara Street

Overview

372 6 Bulkara Street acquired, maintained and let the property at 6 Bulkara Street, Wagstaffe, NSW 2257 (the 6 Bulkara Street Property) in its capacity as trustee for the 6 Bulkara Street Unit Trust: LJ [840]. The 6 Bulkara Street Property is the other of the two adjacent waterfront properties which were used by Mr Papas and Mr Tesoriero as holiday rentals to which I have referred at paragraph [356] above: LJ [437], [839]-[840].

373 As with 5 Bulkara Street, the liquidators of 6 Bulkara Street are also Court-appointed receivers and managers of the 6 Bulkara Street Property. The 6 Bulkara Street Property has been sold. The applicants have not otherwise identified 6 Bulkara Street as having had any employees or having conducted any business other than holding and letting the 6 Bulkara Street Property, including as a holiday rental from time to time.

374 On 18 December 2020, 6 Bulkara Street purchased the 6 Bulkara Street Property and its contents. 6 Bulkara Street acquired the 6 Bulkara Street Property using funds from:

(1) three separate loans from NuLend totalling approximately $8.57 million, secured by a mortgage over the 6 Bulkara Street Property, which were later refinanced by NAB with NAB being first secured creditor; and

(2) FGFS, which included Financier funds totalling approximately $4,809,830.

375 Following the acquisition of the 6 Bulkara Street Property, FGFS made payments (including by using Financier funds) totalling $3,004,650 to meet interest and principal repayments on the loan to NuLend (and later, to NAB) and other ongoing expenses and maintenance costs. The payments were recorded in a loan account between FGFS and 6 Bulkara Street with the description “Loan to 6 Bulkara”.

376 On 11 February 2022, Mr Preston and Mr Ireland (as receivers and managers) sold the 6 Bulkara Street Property for $16.2 million, including its contents which were sold for $200,000. Of the sale proceeds, approximately $6,065,995 was paid to NAB as first ranking secured creditor.

6 Bulkara Street assets available for distribution

377 The 6 Bulkara Street assets available for distribution are the remaining net proceeds of sale of the 6 Bulkara Street Property and its contents, totalling approximately $9,811,582.

Competing claims

378 Apart from the claims based on the equitable interests of those of the Financiers whose funds have been traced to 6 Bulkara Street, the applicants identify the following as creditor claimants of 6 Bulkara Street: the liquidators and receivers; the Former Administrators; and various unsecured creditors.

Consideration of proposed order of distribution

Table 7: 6 Bulkara Street Summary of Proposed Distribution

379 The table below summarises the proposed order of distribution of the funds held by 6 Bulkara Street.

Proceeds of the sale of 6 Bulkara Street Property and its contents

380 The 6 Bulkara Street Property was acquired by 6 Bulkara Street using funds provided by FGFS and third party financiers. FGFS made other payments towards the property, including by repaying NuLend, and later, NAB.

381 As the contents of the 6 Bulkara Street Property were bought and sold together with the 6 Bulkara Street Property, the applicants have treated the contents in the same way as the proceeds of the 6 Bulkara Street Property for the purposes of the tracing exercise. The applicants’ tracing exercise identified that approximately $4,809,830 of funds from the Financiers were paid to or used to make payments on behalf of 6 Bulkara Street including in relation to purchasing and maintaining the property. Applying the findings and principles in the Liability Judgment (and noting that 6 Bulkara Street had no other property or business), the Financiers have an equitable proprietary interest in the sale proceeds of the 6 Bulkara Street Property and its contents, including in relation to the increase in value of the 6 Bulkara Street Property – see paragraph [214] above and following. The Financiers’ interest takes priority subject to satisfaction of any Universal Distributing lien.

382 Mr Tesoriero no longer presses his claim for ownership of any of any of the property from which these sale proceeds are derived.

383 For the reasons given at paragraph [241], I am satisfied that the applicants are justified in distributing as between the Financiers in the proportions they have identified notwithstanding the declaration as to subrogation made in favour of Westpac and SMBC in the Liability Proceedings.

Conclusion

384 For these reasons, I am satisfied that the applicants are justified in distributing the assets of 6 Bulkara Street in the manner in which they propose.

26 Edmonstone Road

Overview

385 26 Edmonstone Road purchased, maintained and let the property at 26 Edmondstone Road, Bowen Hills, Queensland 4006 (the 26 Edmondstone Road Property) in its capacity as trustee of the 26 Edmonstone Road Unit Trust: LJ [827]. It otherwise did not have any employees or conduct any other business.

386 26 Edmonstone Road purchased the 26 Edmondstone Road Property on 11 April 2018 for $2,900,000. The 26 Edmondstone Road Property was acquired using funds provided by FG (via Intrashield) and FGFS as follows:

(1) a deposit in the amount of $290,000, which was described in a journal entry in Intrashield’s loan account as “Deposit Paid by FG for 26 Edmonstone via Intrashield”; and

(2) the balance of the purchase price was paid for by FGFS.

387 The 26 Edmondstone Road Property was purchased before the Financiers, or any of them, provided the stolen funds to any of the Forum entities. Accordingly, no Financier funds have been traced to the purchase of the 26 Edmondstone Road Property.

388 On 10 April 2018, 26 Edmonstone Road obtained a loan from ING Bank (Australia) Limited in the amount of around $1,650,000 secured by a mortgage over the 26 Edmondstone Road Property. In or around 17 December 2020, the mortgage from ING was refinanced with a loan to 26 Edmonstone Road in the amount of $2.1 million from Perpetual Corporate Trust Limited as trustee for La Trobe Financial.

389 In or around 12 June 2018, 26 Edmonstone Road obtained a loan in the amount of $1,200,000 from JAF Nominees Pty Ltd secured by an equitable mortgage over the 26 Edmondstone Road Property. Mr Preston’s evidence is that this loan has been repaid. Before it was repaid, in or around 8 June 2019, the deed of loan in respect of the JAF Nominees loan was amended so as to reduce the loan amount to $950,000 and to require that the loan be repaid in 6 months.

390 The 26 Edmondstone Road Property was leased to Forum Direct, a wholly owned subsidiary of FGOC. The rent on this lease was paid by FG. Forum Direct caused the lease to be disclaimed on 24 August 2021.

391 The ING, JAF Nominees and Perpetual loans were repaid in full, using a combination of rental payments made to 26 Edmonstone Road by FG and funds received by 26 Edmonstone Road from FGFS. In respect of the funds received from FGFS approximately $1.096 million has been traced to the loan repayments made to the secured lenders to 26 Edmonstone Road:

(1) approximately $98,241 was used to repay principal and interest on the ING loan between 1 May 2018 and 1 December 2020;

(2) approximately $36,883 was used to repay principal and interest on the loan from Perpetual between 20 January 2021 and 21 June 2021; and

(3) approximately $960,956 was used to repay principal and interest, and then repay in full, JAF Nominees between 12 July 2019 and 12 December 2019.

392 In accordance with the principles outlined at paragraphs [155] and [156] above, the applicants propose to treat FGFS as being a subrogated secured creditor with respect to each of those loans in the amounts specified in the preceding paragraph.

393 After the purchase of the property, FGFS paid further money to, or for the benefit of, 26 Edmonstone Road for ongoing expenses, maintenance and consultant costs relating to the 26 Edmondstone Road Property. The applicants have traced a total of approximately $2,141,740 of the Financier funds that were paid to or used to make payments on behalf of 26 Edmonstone Road (Annexure I of the Liability Judgment) with the respective contributions being:

(1) WBC: approximately $1,775,050;

(2) WNZL: approximately $206,234;

(3) SMBC: approximately $141,973; and

(4) Societe Generale: approximately $18,483.

394 On 31 January 2022, Mr Preston and Mr Ireland, as receivers and managers, sold the 26 Edmondstone Road Property for $4,325,000. The proceeds of the sale were used amongst other things to pay Perpetual as the registered mortgagee, GST to the ATO and other transaction costs including relevant remuneration. The balance of the net proceeds are held in a controlled monies account by the applicants’ solicitors. As at December 2024, the approximate balance was $1,969,343.

395 26 Edmonstone Road holds a right of action against Intrashield in relation to a payment it made to Intrashield of $1,006,675 to assist in the purchase of the XOXO yacht on 21 June 2018. As mentioned above, FGFS and FG also contributed funds for the purchase of the XOXO yacht. The Financiers funds have not been traced into the funds used in the purchase of the yacht.

26 EdmonstoneRoad assets available for distribution

396 The 26 Edmonstone Road assets available for distribution are:

(1) the net sale proceeds of the 26 Edmondstone Road Property, totalling approximately $1,969,343; and

(2) any proceeds of the sale of the XOXO yacht distributed by Intrashield (see further below).

Competing claims

397 Apart from the claims based on the equitable interests of those of the Financiers whose funds have been traced to 26 Edmonstone Road, the applicants identify the following as creditor claimants of 26 Edmonstone Road: Mr Preston and Mr Ireland (as liquidators, receivers and administrators); the Former Administrators; FGFS as subrogated secured creditor; and various unsecured creditors.

Consideration of proposed order of distribution

Table 8: 26 Edmonstone Road Summary of Proposed Distribution

398 The table below outlines the proposed order of distribution for each asset outlined above.

Proceeds of the 26 Edmondstone Road Property

399 Distribution in accordance with the principle in Universal Distributing will be the first priority.

400 In relation to the net proceeds of the sale of the 26 Edmondstone Road Property, FGFS is a subrogated secured creditor in respect of the amounts paid by it in the discharge of each of the earlier secured loans on the 26 Edmondstone Road Property. There is no evidence which would suggest a contrary intention on the part of FGFS that might rebut the presumption that FGFS intended the security would be kept alive for the benefit of FGFS, in accordance with the principles outlined in paragraphs [123], [129] and [132] above. Accordingly, FGFS will take second priority.

401 As mentioned, the 26 Edmondstone Road Property was acquired prior to the Financiers advancing money to the Forum entities. The Financiers are accordingly not able to trace their funds to the purchase of the property. Accordingly, the third priority will be distribution of what, if anything, remains in accordance with s 556 of the Corporations Act.

402 The applicants note that of the funds that are distributed to FGFS in its right as a subrogated secured creditor, the Financiers are likely to receive some of these funds indirectly in the distribution of FGFS’s assets and also potentially via repayment under the Funding Agreement between Westpac, SMBC and the liquidators. The Financiers did not seek to be heard against the applicants’ proposed distribution of the remaining proceeds of sale of the 26 Edmondstone Road Property.

403 I am satisfied that the applicants are justified in distributing these proceeds as they propose.

Proceeds of the XOXO yacht

404 The applicants submit that the Universal Distributing lien does not bite in this instance because any proceeds received will simply be as a result of a distribution by another entity, namely Intrashield. The applicants have not traced any Financier funds to the purchase and/or maintenance of the XOXO yacht and so the Financiers cannot assert an equitable proprietary interest in any proceeds received from Instrashield. I am satisfied that the applicants are justified in distributing any proceeds of the XOXO yacht received from Intrashield in accordance with s 556 of the Corporations Act.

Conclusion

405 For these reasons, I am satisfied that the applicants are justified in distributing the assets of 26 Edmonstone Road in the manner in which they propose.

Iugis

Overview

406 Iugis conducted a business of leasing environmental and waste management equipment, primarily food waste digesters, to customers, primarily in the hospitality and food service sectors, and maintaining that equipment. The applicants’ evidence is that Iugis conducted a loss-making business and relied on funds obtained from FGFS to fund its ongoing losses. Iugis has certain priority creditors in respect of employee entitlements totalling $697,917, including the Commonwealth of Australia which claims $449,364 in respect of advances made pursuant to the FEG.

Iugis assets available for distribution

407 The Iugis assets available for distribution comprise approximately $1,214,879 held in a liquidation account. These funds derive from a combination of: cash in a pre-appointment NAB account; proceeds of the sale of inventory; proceeds of a confidential settlement agreement with Veolia Environmental Services (Australia) Pty Ltd in relation to amounts claimed by Iugis to be payable to it under distribution agreements; and a distribution pursuant to a deed of company arrangement entered into by Autonomous Energy (which was indebted to Iugis) among other things.

Competing claims

408 Apart from the claims based on the equitable interests of those of the Financiers whose funds have been traced to Iugis, the applicants identify the following as creditor claimants of Iugis: the liquidators; the Former Administrators; the Commonwealth as a FEG creditor; and various other unsecured creditors, including related Forum entities.

Consideration of proposed order of distribution

Table 9: Iugis Summary of Proposed Distribution

409 The applicants’ proposed order of distribution for Iugis is as follows.

Cash

410 The distribution that is proposed by the applicants is informed by the following considerations.

411 First, Iugis in fact conducted a genuine business as well as receiving a large sum of money sourced from the Financiers (approximately $19,626,862). At least part of the equipment financed using funds obtained from the Financiers was genuine equipment.

412 Second, a substantial portion of the funds now available for distribution comprise the proceeds of a commercial settlement agreement that was entered into with Veolia (which was one of the entities to which Iugis supplied genuine waste digestors). These settlement funds derive from the genuine part of Iugis’ business.

413 Third, in these circumstances, the applicants maintain that extensive further financial and legal analysis would be necessary to determine whether a tracing claim could be maintained in relation to any part of the monies available for distribution and that to undertake this task would dissipate the funds available for distribution. If that was to occur that dissipation would be at the expense of employee entitlement claims which rank ahead of the claims of Westpac and SMBC under the Funding Agreement.

414 The distribution proposed by the applicants is not opposed by any of the Financiers.

415 I accept that the distribution proposed by the applicants is justified in these circumstances.

416 The first priority is properly in accordance with the principle in Universal Distributing.

417 The second priority will be in accordance with s 556 of the Corporations Act. The Commonwealth’s priority in respect of employee entitlements paid pursuant to the FEG are recognised by s 556 of the Corporations Act. The circumstances applying to the distribution of Iugis do not involve any competition between employee entitlements and secured creditors of circulating assets so as to enliven s 561 of the Corporations Act.

Conclusion

418 For these reasons, I am satisfied that the applicants are justified in distributing the assets of Iugis in the manner in which they propose.

Iugis Investments

Overview

419 Iugis Investments owns Iugis Waste. Iugis Investments was incorporated on 3 February 2021. Mr Papas has been the sole director since the company was incorporated. Iugis Investments was not a respondent in the Financier Proceedings.

420 On 8 July 2021, the Former Administrators were appointed as voluntary administrators of Iugis Investments. On 21 July 2021, Mr Ireland, Mr Preston and Kathy Sozou were appointed as voluntary administrators of Iugis Investments, replacing the Former Administrators. On 28 July 2021, on the application of Mr Ireland, Mr Preston and Ms Sozou, Iugis Investments was ordered to be wound up pursuant to s 461(1)(k) of the Corporations Act. Mr Preston and Mr Ireland were appointed as its liquidators.

421 The applicants’ evidence is that the sole purpose of Iugis Investments was ostensibly to purchase and hold shares in Autonomous Energy and Iugis Waste. On or around 19 February 2021, Iugis Investments purchased shares in Autonomous Energy, using Financier funds which it had obtained via FGFS. The purchase price was $4,300,356. The purchase price included an amount described as an Unpaid Debt Amount of approximately $527,934, which was paid by Iugis Investments to repay a debt owing by Autonomous Energy to the sellers under the share sale agreement. As a result of the Unpaid Debt Amount, Autonomous Energy became indebted to Iugis Investments (AE Intercompany Debt).

422 Iugis Investments is not known to have had any employees. It does not appear to have had any employees as at the date of the liquidators’ appointment. No claims have been received from persons claiming to be employees of Iugis Investments. There are no available books suggesting that it employed anyone at the time of the relevant appointment.

423 Similarly, there is nothing to suggest that Iugis Investments conducted any business. As mentioned, its sole function appears to have been acquiring and holding shares in Autonomous Energy and Iugis Waste.

Iugis Investments assets available for distribution

424 The Iugis Investments assets available for distribution comprise approximately $340,865 of funds held in a liquidation account. The applicants’ evidence is that the only asset of material value held by Iugis Investments as at the liquidators’ appointment was the AE Intercompany Debt. The funds presently held in the liquidation account are primarily derived from a distribution received from Autonomous Energy pursuant to a creditors’ trust deed following the administration of Autonomous Energy and a subsequent deed of company arrangement entered into by Autonomous Energy following a resolution of its liquidators. The distribution is predicated on the claim made in relation to the AE Intercompany Debt.

Competing claims

425 Apart from the claims based on the equitable interests of those of the Financiers whose funds have been traced to Iugis Investments (via FGFS), the applicants identify the following as creditor claimants of Iugis Investments: the liquidators and administrators; the Former Administrators; and various unsecured creditors, including the Financiers to the extent they are unsecured.

Consideration of proposed order of distribution

Table 10: Iugis Investments Summary of Proposed Distribution

426 The table below outlines the proposed order of distribution of the Iugis Investments’ funds.

Cash

427 The applicants’ evidence demonstrates that the $4,300,356 paid by FGFS in respect of the Autonomous Energy transaction (which included the acquisition of the AE Intercompany Debt) was principally comprised of funds obtained from Westpac (approximately $3,075,883) and SMBC (approximately $813,424) with the residual amount not being sourced from any of the Financiers.

428 The applicants submit that applying the legal principles in the Liability Judgment, they are justified in distributing to Westpac and SMBC on the basis that they have an equitable proprietary interest in funds in the liquidation account. I accept that is appropriate in the present circumstances. Here, FGFS is in the position of a thief which holds stolen property on a Black v Freedman trust. That trust arises immediately upon the theft. Iugis Investments is in the position of a third party who has received the trust property, and who is (via its sole director, Mr Papas) on notice of the trust. In these circumstances, the applicants are justified in approaching the distribution of the funds held by Iugis Investments on the basis that Iugis Investments is liable as a constructive trustee.

429 Accordingly, the applicants are justified in distributing the funds in the manner in which they propose with the first priority being in accordance with the principle in Universal Distributing and thereafter the equitable proprietary interests of Westpac and SMBC take second priority. These equitable proprietary interests take priority over any distributions under s 556 of the Corporations Act because as funds impressed with a trust they are available only to trust creditors: see paragraph [205] above.

Conclusion

430 For these reasons, I am satisfied that the applicants are justified in distributing the assets of Iugis Investments in the manner in which they propose.

Forum Enviro

Overview

431 Forum Enviro was one of the three Forum group companies which were Primary Recipients of the stolen funds received from the Financiers: LJ [11]-[12]. Mr Papas was the sole director of Forum Enviro.

432 Forum Enviro managed and maintained contracts for Forum Finance and was the sole shareholder in Orca Enviro Systems, which formerly operated a business involving the provision of environmental and waste management services. In October 2019, Forum Enviro sold its business and assets (including some of the assets of Orca Enviro Systems) to Iugis. At the date of the liquidators’ appointment on 12 November 2021, Forum Enviro did not operate a trading business.

433 At the date of the Former Administrators’ appointment on 8 July 2021, Forum Enviro had 12 employees who provided services on behalf of Iugis. Their employment was terminated by the Former Administrators shortly after their appointment. Claims for employee entitlements paid under the FEG have been made, and are addressed below.

434 Forum Enviro obtained funds from FGFS and FG, which are traceable in part to the Financiers. The applicants’ evidence establishes that a total amount of approximately $15,606,270 (comprised almost exclusively of Westpac’s funds with a de minimis amount from SMBC) were paid to, or used to make payments on behalf of, Forum Enviro.

435 Forum Enviro owned a number of vehicles: a Range Rover Sport and six Toyota Hiluxes. One of the Toyota Hiluxes has not been located by the liquidators. The remaining five were financed by Toyota Finance Australia Limited. The Range Rover Sport and the five Toyota Hiluxes were bought by Forum Enviro between October 2017 and December 2017, prior to the Forum entities receiving funds from the Financiers.

Forum Enviro assets available for distribution

436 The Forum Enviro assets available for distribution comprise the following:

(1) approximately $40,000 in an account with NAB, which is yet to be released to the liquidators; and

(2) approximately $70,934 held in a liquidation account made up of:

(a) the net proceeds of sale of the Range Rover Sport, totalling $70,000; and

(b) the amount of approximately $2,631 received from Toyota Finance representing the residual value of the five Toyota Hiluxes after the liquidators disclaimed the relevant leases (all of which the applicants submit are not  circulating assets).

Competing claims

437 Apart from the claims based on the equitable proprietary interests of Westpac whose funds have been traced to Forum Enviro, the applicants identify the following creditor claimants of Forum Enviro:

(1) Octet, as a secured creditor pursuant to a valid and enforceable PPSA security interest given by Forum Enviro in respect of the Octet Facility;

(2) Mr Preston and Mr Ireland (as liquidators and provisional liquidators);

(3) the Former Administrators;

(4) employees (totalling approximately $238,677, of which the Commonwealth as a FEG creditor has claimed approximately $191,055 for FEG advances); and

(5) unsecured creditors (being Iugis and Westlawn, who have each submitted proofs of debt).

Consideration of proposed order of distribution

Table 11: Forum Enviro Summary of Proposed Distribution

438 The applicants’ proposed order of distribution for Forum Enviro’s meagre remaining assets is as follows:

439 The Commonwealth as a FEG creditor does not specifically feature in the proposed distribution for Forum Enviro to the extent that the liquidators have treated the funds in the NAB account as trust money. The employees are not trust creditors of the Black v Freedman constructive trust that has been declared over the stolen funds or traceable proceeds of the stolen funds. The Commonwealth is otherwise entitled to be paid in accordance with s 556 of the Corporations Act in relation to the asset comprised of the vehicle sale proceeds. The Financiers are not able to trace into this asset due to the relevant vehicles having been purchased prior to any funds being advanced by Westpac (and SMBC).

Funds in the NAB Account

440 The first priority will be distributions in accordance with the principle in Universal Distributing.

441 The second priority will be to Octet as the highest-ranking secured creditor pursuant to its PPSA security interest. As discussed at paragraphs [169] and [190] above, the legal interest of a secured creditor with a registered PPSR interest takes priority over the relevant Financiers’ equitable proprietary interests.

442 As mentioned, approximately $15,606,270 of Westpac’s and SMBC’s funds have been traced to payments to or on behalf of Forum Enviro. Applying the findings and principles in the Liability Judgment, Westpac has an equitable proprietary interest in the funds up to the amount traced. Accordingly, Westpac will rank third in the respective proportions identified by the applicants. Having regard to the de minimis amount traced to SMBC ($26.41), the applicants are justified in ignoring the amount traced to SMBC in the distribution of the funds in the NAB Account. SMBC did not seek to be heard against this approach.

Proceeds of vehicles

443 Each of the vehicles was purchased between October and December 2017, prior to the Financiers advancing money to Forum entities. Accordingly, the Financiers cannot trace into and claim a constructive trust over the relevant sale proceeds of the vehicles. Accordingly, the proceeds fall to be distributed in accordance with the principle in Universal Distributing, then to Octet as a secured creditor (to the extent it is not repaid by another entity) and then to the extent any funds remain, in accordance with s 556 of the Corporations Act, including in respect of employee entitlements.

Conclusion

444 For these reasons, I am satisfied that the applicants are justified in distributing the assets of Forum Enviro in the manner in which they propose.

Smartprint

Overview

445 As mentioned, Smartprint was not a party to the Financier Proceedings. The company was previously known as Forum Group Finance Pty Ltd. Smartprint provided managed print services to third party customers.

446 Since 28 March 2014, the sole director of Smartprint has been Mr Papas. The sole shareholder of Smartprint is Forum Finance. The ultimate holding company of Smartprint is FGOC.

447 On 8 July 2021, the Former Administrators were appointed as voluntary administrators of Smartprint. On 21 July 2021, Mr Ireland, Mr Preston and Ms Sozou were appointed as voluntary administrators of Smartprint by resolution at a meeting of creditors, replacing the Former Administrators.

448 On 28 July 2021, orders were made in this proceeding, on the application of Mr Ireland, Mr Preston and Ms Sozou, that Smartprint be wound up pursuant to s 461(1)(k) of the Corporations Act and that Mr Preston and Mr Ireland be appointed as liquidators.

449 On 12 July 2021, Mr Resnick and Mr Robinson of dVT Group were appointed as receivers of Smartprint pursuant to a general security deed granted to Octet in support of the Octet Facility. Octet lodged a financing statement in relation to its PPSR security interest over Smartprint’s assets on 2 April 2019. Mr Robinson retired as receiver on 21 July 2023.

450 Smartprint’s operations were primarily conducted by staff employed by FG. Smartprint did not have any employees as at the date of the liquidators’ appointment, and the liquidators found nothing to suggest that Smartprint employed anyone. Smartprint was one of the entities that provided a guarantee and security to Octet in support of the Octet Facility.

Smartprint assets available for distribution

451 The Smartprint assets available for distribution are:

(1) funds held by the receivers (dVT Group, appointed by Octet) which are the proceeds of the sale of certain assets of Smartprint to One Vend Pty Ltd on around 13 August 2021 (Smartprint Business Sale); and

(2) approximately $845,396 comprised of cash at bank at the time of the liquidator’s appointment and the proceeds of the accounts receivable collected by the receivers.

Competing claims

452 Apart from the claims based on the equitable interests of Westpac whose funds have been traced to Smartprint, the applicants identify the following as creditor claimants of Smartprint: the liquidators; the Former Administrators; and Octet (including their appointed receivers).

Consideration of proposed order of distribution

Table 12: Smartprint Summary of Proposed Distribution

453 The table below outlines the applicants’ proposed order of distribution for Smartprint.

Proceeds of Smartprint Business Sale

454 The applicants’ evidence establishes that approximately $2,479,884 of funds from WBC and WNZL were used to acquire an asset that was sold as part of the Smartprint Business Sale. The applicants submit that consistently with the legal principles identified in the Liability Judgment, they are justified to treat Westpac in the distribution of the proceeds of the Smartprint Business Sale as having a priority on the basis of an equitable proprietary interest. I accept that is appropriate in the present circumstances.

455 By analogy to the position of Iugis Investments, which similarly was not a respondent to the Financier Proceedings, here, Smartprint is in the position of a third party who has received trust property on notice of the theft giving rise to the trust via its sole director, Mr Papas. In these circumstances, the applicants are justified in approaching the distribution of the funds held by Smartprint in accordance with Smartprint being liable as a constructive trustee.

456 Accordingly, the applicants are justified in distributing the proceeds of the Smartprint Business Sale in the manner in which they propose with the first priority being distribution in accordance with the principle in Universal Distributing, the second priority being the extant claims of secured creditors holding a valid and enforceable PPSA security interest, including Octet, or any other entity subrogated to Octet’s security and the third priority being to WBC and WNZL on the basis that they have an equitable proprietary interest up to the amount traced in the proportions identified by the applicants.

Other assets

457 The difference between the applicants’ proposed distribution in relation to this asset pool when compared to that of the Smartprint Business Sale proceeds is that the applicants’ evidence does not establish a Financier tracing claim into this asset pool. For this reason, the order of distribution in relation to this asset pool will differ as to the third tier. If there is a balance after any distribution to secured creditors or their subrogees based on a valid and enforceable PPSA security interest, then that will fall to be distributed in accordance with s 556 of the Corporations Act and not by reference to any equitable proprietary interests on the part of any of the Financiers.

Conclusion

458 I am satisfied that the applicants are justified in distributing the assets of Smartprint in the manner in which they propose.

Imagetec Solutions

Overview

459 Imagetec Solutions supplied IT services, including print and office equipment and managed print services, to its customers. After its acquisition by FGOC in March 2017, much of Imagetec Solutions business was transferred to FG. From about March 2017, Imagetec Solutions’ operations were limited to a legacy book of customer contracts or linked to legacy supplier agreements. There was a continuing revenue stream from this business which accrued to Imagetec Solutions until the date of the liquidators’ appointment.

460 Imagetec Solutions did not have any employees as at the date of the liquidators’ appointment. Imagetec Solutions was one of the entities that provided a guarantee and security to Octet in support of the Octet Facility. Another creditor, Westlawn, holds what the applicants describe as a ‘chattel paper’ PPSR registration and an ‘account’ PPSR registration against Imagetec Solutions.

Imagetec Solutions assets available for distribution

461 The Imagetec Solutions assets available for distribution are the funds (approximately $27,261) held in a liquidation account. The remaining asset of Imagetec Solutions, cash at bank held in a NAB account, is yet to be released to the liquidators. The applicants propose that if the cash held in the NAB account is released, it will be treated in the same manner as the funds in the liquidation account.

Competing claims

462 Apart from the claims based on the equitable interests of Westpac and SMBC whose funds have been traced to Imagetec Solutions, the applicants identify the following as creditor claimants of Imagetec Solutions: the liquidators; the Former Administrators; various secured creditors including Octet and Westlawn; and various unsecured creditors.

Consideration of proposed order of distribution

Table 13: Imagetec Solutions Summary of Proposed Distribution

463 The table below outlines the applicants’ proposed order of distribution of Imagetec Solutions’ funds.

Cash

464 The applicants’ evidence establishes that Financier funds from WBC and SMBC totalling approximately $2,897,330 were paid to or used to make payments on behalf of Imagetec Solutions. The applicants acknowledge that they have not undertaken an analysis that demonstrates that the cash found in the bank accounts is sourced from Westpac or SMBC. That would be difficult in circumstances where Imagetec Solutions continued to conduct business until the date the liquidators were appointed.

465 Informed by the fact that the likely outcome is that the majority of the available funds will likely be distributed via the first two tiers of priority and that any remaining funds will be distributed to WBC and SMBC pursuant to s 556 of the Corporations Act based on the Funding Agreement, the applicants submit that there is limited utility in undertaking a further tracing exercise. I accept the force of the applicants’ submission. The applicants’ approach also has the advantage of preserving such funds as may remain for distribution via the third tier, rather than dissipating the available assets by conducting a further tracing exercise.

Conclusion

466 For these reasons, I am satisfied that the applicants are justified in distributing the assets of Imagetec Solutions in the manner in which they propose.

Palante

Overview

467 Palante was an entity wholly owned by Mr Papas: LJ [862]. It held various cash and shares in listed companies and made various payments for the apparent benefit of Mr Papas and the Papadimitriou Family Trust. Palante obtained funds from FGFS, including funds traceable to the Financiers, to fund these share acquisitions and cash holdings. Palante did not have any employees as at the date of the liquidators’ appointment.

Palante assets available for distribution

468 The assets of Palante available for distribution are funds totalling approximately $1,308,880 comprised of:

(1) Approximately $650,000 held in a NAB account, which is yet to be released to the liquidators; and

(2) Approximately $658,880 in a liquidator account from the realisation of the cash and shares held by Palante.

Competing claims

469 Apart from the claims based on the equitable interests of those of the Financiers whose funds have been traced to Palante, the applicants identify the following as creditor claimants of Palante: the liquidators; NAB; FGFS; and the ATO. NAB is a secured creditor in respect of a guarantee given by Palante to secure the obligations of 14 James Street pursuant to a $3.2 million loan facility. The applicants expect that NAB will be repaid in full from the distributions of other Entities.

Consideration of proposed order of distribution

Table 14: Palante Summary of Proposed Distribution

470 The table below outlines the applicants’ proposed order of distribution of the Palante funds.

Cash

471 The applicants’ tracing exercise identified that approximately $3,168,588 of Financiers funds were paid to or used to make payments on behalf of Palante in the proportions set out in the table above. These funds were used to fund the share acquisitions and otherwise held in cash by Palante.

472 The first priority will be in accordance with the principle in Universal Distributing.

473 Applying the findings and principles in the Liability Judgment, and subject to NAB being paid out in full through distributions from other Entities, the Financiers have an equitable proprietary interest up to the amount traced which takes second priority. This claim will exhaust the funds in the liquidation and NAB accounts.

Conclusion

474 I am satisfied that the applicants are justified in distributing the assets of Palante in the manner in which they propose.

Intrashield

Overview

475 Intrashield is indirectly held by Mr Papas (through Eros Management Pty Ltd) and Mr Tesoriero (through TIG): LJ [159].

476 Intrashield acquired the XOXO yacht as trustee for the Mangusta Trust for USD $900,000 on 1 June 2018: LJ [785]. Intrashield was the trustee of the Mangusta Trust until 14 February 2019. Pursuant to a deed of removal of trustee and appointment of new trustee, Mr Papas and Mr Tesoriero caused Mangusta to replace Intrashield as trustee. The XOXO yacht was subsequently transferred to Mangusta on 15 March 2019 for $1.00: LJ [785].

477 Intrashield did not have any employees as at the date of the liquidators’ appointment on 28 July 2021.

478 Intrashield provided loans to entities associated with Forum and Mr Papas, and sourced funds from related entities for the purchase of assets on behalf of Mr Papas and Mr Tesoriero. In order to fund these loans and purchases, Intrashield obtained funds from FGFS and FG, which are traceable in part to the Financiers. The applicants’ evidence establishes that funds from Westpac and SMBC totalling approximately $1,227,216 were paid to or used to make payments on behalf of Intrashield. The extent to which the Financiers’ funds are traceable to particular assets is addressed below.

Intrashield assets available for distribution

479 The Intrashield assets available for distribution are:

(1) the net proceeds of the sale of a 2019 Lotus motor vehicle previously owned by Intrashield, totalling approximately $63,822;

(2) the right to receive the net proceeds of sale of the XOXO yacht (totalling approximately $603,820) arising from Intrashield’s right of indemnity as the former trustee of the Mangusta Trust;

(3) funds (totalling approximately $3,300) held in at a bank account in the name of Intrashield at the time of appointment.

Competing claims

480 Apart from the claims based on the equitable interests of those of the Financiers whose funds may be traced to Intrashield, the applicants identify the following as creditor claimants of Intrashield: the liquidators and voluntary administrators; the Former Administrators; related parties and creditors of the Mangusta Trust.

Consideration of proposed order of distribution

Table 15: Intrashield Summary of Proposed Distribution

481 The table below outlines the proposed order of distribution for each asset of Intrashield:

Proceeds of 2019 Lotus

482 The first priority is pursuant to the principle in Universal Distributing.

483 The second priority is to WBC and WNZL in the proportions identified by the applicants. The funds provided by FGFS to Intrashield which were used to purchase the 2019 Lotus have been traced to Westpac. The applicants’ evidence establishes that $140,000 from WBC and WNZL was used to acquire the 2019 Lotus. Applying the principles from the Liability Judgment, Westpac have an equitable proprietary interest in the Lotus proceeds up to that amount.

484 Westpac’s equitable proprietary interest is in these proceeds as trust property and thus ranks ahead of distributions under s 556 of the Corporations Act.

Distribution from Mangusta

485 Intrashield, in its capacity as trustee of the Mangusta Trust, obtained funds from FGFS, 26 Edmonstone Road and FG which were used to purchase the XOXO yachts:

(1) $116,500 was paid by FGFS;

(2) $1,006,675 was paid on behalf of 26 Edmonstone Road; and

(3) $75,000 was paid by FG.

486 Upon advancing the relevant funds, each of FGFS, 26 Edmonstone Road and FG became creditors of Intrashield in its capacity as trustee of the Mangusta Trust.

487 No Financer funds have been traced to the purchase and/or maintenance of the XOXO yacht. XOXO was purchased prior to the first advance of funds from any of the Financiers. Accordingly, the Financiers do not feature in the distribution based on the exercise of Intrashield’s right of indemnity as the former trustee of the Mangusta Trust.

488 At the time Mr Preston and Mr Ireland were appointed as receivers and managers of the XOXO yacht, legal title of the XOXO yacht was held by Mangusta as trustee of the Mangusta Trust. As mentioned, Mangusta obtained that title for nominal consideration and without repaying the funding that had been used by Intrashield to acquire the XOXO yacht.

489 A total of $253,196 was spent by FG, FGFS, and Intrashield to transport and moor the XOXO yacht between 15 October 2018 and 15 January 2021: LJ [863].

490 Mr Preston and Mr Ireland, as receivers and managers of the XOXO yacht, sold the XOXO yacht on 9 March 2022 for $956,000.

491 Applying the legal principles set out at paragraphs [107]-[109] and [199]-[201] above, Intrashield is entitled to exercise its right to be indemnified from the trust assets and is then liable to pay the trust creditors from the assets of the Mangusta Trust, namely the proceeds of the XOXO yacht, in priority to the interests of the beneficiaries of that trust. The proceeds of the sale of the XOXO yacht which are available for distribution are less than its purchase price and will exhaust this asset.

Other assets

492 The remaining assets of Intrashield comprise only approximately $3,300 cash at bank. Given the amount involved and the time and cost in undertaking a specific tracing exercise in respect of these funds, the applicants have not done this, relying instead on the general tracing exercise that has been conducted.

493 Based on that general tracing analysis, the Financiers who likely have a tracing claim are WBC, WNZL and SMBC. By virtue of the operation of s 556 of the Corporations Act in the context of the Funding Agreement, the applicants submit that the outcome of a distribution pursuant to s 556 of the Corporations Act or a distribution in respect of a specific tracing claims is unlikely to differ in substance. I accept that is so. The expense involved in undertaking specific tracing into this asset outweighs the practical benefit of that exercise. In these circumstances, I am satisfied that the applicants are justified in distributing the remaining assets of Intrashield in accordance with the principle in Universal Distributing, and then pursuant to s 556 of the Corporations Act.

Conclusion

494 I am satisfied that the applicants are justified in distributing the assets of Intrashield in the manner in which they propose.

Mangusta

Overview

495 Mangusta’s business was limited to holding the XOXO yacht in its capacity as trustee of the Mangusta Trust: LJ [169], [785]. As mentioned, Mr Preston and Mr Ireland were appointed receivers and managers of the XOXO yacht on 3 September 2021. At this time, Mangusta had the legal title for the XOXO yacht. Mr Preston and Mr Ireland have not been appointed as liquidators of Mangusta. In the present application, the applicants are only seeking judicial advice in respect of distribution of the proceeds of the sale of XOXO yacht. They do so in the context where Mr Preston and Mr Ireland are the liquidators of Intrashield, the former trustee of the Mangusta Trust which enjoys a right of indemnity from the trust property.

Mangusta asset available for distribution

496 As mentioned, the net proceeds from the sale of the XOXO yacht total approximately $603,820.

Competing claims

497 The creditors of the Mangusta Trust known to Mr Preston and Mr Ireland are Intrashield in its capacity as the former trustee and themselves as the receivers and managers of the XOXO yacht. As mentioned, the XOXO yacht was purchased prior to any funding being advanced by the Financiers and as such none of the Financiers are able to trace into the proceeds of sale of the XOXO yacht.

498 The applicants’ evidence is that according to the books and records of Intrashield and the other relevant entities, the liabilities incurred by Intrashield in the course of it acting as trustee of the Mangusta Trust remain unpaid in an amount that exceeds the available proceeds of the sale of the XOXO yacht. Those liabilities include the amounts paid by or on behalf of FGFS, FG and 26 Edmonstone Road towards the purchase of the XOXO yacht, and which the liquidators of FGFS, FG and 26 Edmonstone Road have treated as loans from those entities to Intrashield in its capacity as trustee of the Mangusta Trust.

Consideration of proposed order of distribution

Table 16: Mangusta Summary of Proposed Distribution

499 The applicants’ proposed order of distribution of the net proceeds of sale of XOXO yacht is as follows:

Net proceeds of XOXO

500 The applicants’ proposed order of distribution of the proceeds of the XOXO yacht is in accordance with orthodox principle.

501 The first priority is the costs and remuneration of the receivers for any costs and remuneration reasonably incurred by them in the care, preservation and realisation of the XOXO yacht in accordance with the Universal Distributing lien.

502 The second priority is to Intrashield pursuant to its right of indemnity as former trustee of the Mangusta Trust: see paragraphs [107]-[109] and [199]-[201] above.

Conclusion

503 I am satisfied that the applicants are justified in distributing the remaining proceeds of the sale of the XOXO yacht in the manner in which they propose.

9 Gregory Street

Overview

504 9 Gregory Street purchased and leased the property at 9 Gregory Street, Ouyen, Victoria (the 9 Gregory Street Property) on 18 December 2020 for $900,000. The property was a non-operational petrol station site. It was acquired using:

(1) funds loaned by ANZ in the sum of $540,000, secured by a registered mortgage over the 9 Gregory Street Property and a PPSA security interest;

(2) vendor financing of $70,000 provided by Aksara, secured by an equitable charge or equitable mortgage over the 9 Gregory Street Property; and

(3) $5,400 from FGFS, traced to Financier funds.

505 9 Gregory Street was the trustee of the 9 Gregory Street Ouyen Unit Trust. It did not have had any employees or conduct any other business other than holding and leasing the 9 Gregory Street Property in its capacity as trustee of the 9 Gregory Street Ouyen Unit Trust. In December 2022, Mr Preston and Mr Ireland were appointed by this Court as receivers and managers of the 9 Gregory Street Property. They had been appointed as the liquidators of 9 Gregory Street in November 2022.

506 Mr Preston and Mr Ireland caused a sale process to be conducted with respect to the 9 Gregory Street Property. One proposed sale did not complete, and the purchaser, Master Maximus Holdings Pty Ltd, forfeited a deposit of $80,000, which was collected in a receivership account. On 2 September 2024, the 9 Gregory Street Property was sold for $500,000. Of that amount, amongst other amounts payable at settlement, approximately $334,744 was paid to ANZ and ANZ’s mortgage was discharged. The applicants’ evidence does not explain why ANZ’s mortgage was not fully discharged at this time. The applicants’ evidence is that approximately $283,427 remains outstanding to ANZ, which continues to be secured by a registered security interest under the PPSR over all present and after-acquired property of 9 Gregory Street.

9 Gregory Street assets available for distribution

507 The 9 Gregory Street assets available for distribution include:

(1) The remaining proceeds of sale of the 9 Gregory Street Property (approximately $152,966) held by the liquidators’ solicitors in a controlled money account; and

(2) The remaining funds of approximately $62,649 primarily derived from the deposit forfeited by Master Maximus Holdings Pty Ltd and from rental income.

Competing claims

508 Apart from the claims based on the equitable interests of those Financiers whose funds have been traced via FGFS to the purchase of the 9 Gregory Street Property, the applicants identify the following as creditor claimants of 9 Gregory Street: the liquidators and receivers; ANZ; Aksara (and potentially 14 James Street as subrogee); and FGFS.

Consideration of proposed order of distribution

Table 17: 9 Gregory Street Summary of Proposed Distribution

509 The applicants propose the following order of distribution for the assets of 9 Gregory Street:

Proceeds of the sale of the 9 Gregory Street Property

510 The applicants are justified in giving first priority to the payment of  any costs and remuneration reasonably incurred in the care, preservation or realisation of the assets of 9 Gregory Street in accordance with the principle in Universal Distributing.

511 ANZ is a secured creditor that acquired its proprietary interest without being on notice of the conduct giving rise to the Financiers’ equitable interest. It therefore ranks in priority to equitable interests of the Financiers and of Aksara: see paragraph [180] above.

512 To the extent that funds remain available for distribution to the Financiers and Aksara, their respective equities are equal — they arose contemporaneously on purchase of the 9 Gregory Street Property.

513 The applicants’ evidence identified that in relative terms, $5,400 of Financier funds and $70,000 of Aksara’s funds were used in the purchase the 9 Gregory Street Property. Accordingly, their proportionate entitlement to any remaining funds will be shared as between them in the proportion 70,000 (Aksara):5,400 (the Financiers collectively). The Financiers’ individual entitlements will then be in the proportions identified by the applicants in the table above which reflects the respective amounts traced from each of them to the cumulative amount of $5,400.

514 In the event that Aksara is paid in full, 14 James Street as a secured creditor of 9 Gregory Street will by virtue of its subrogation to Aksara’s rights as against 9 Gregory Street be entitled to a distribution in Aksara’s place. As mentioned, 14 James Street paid Aksara approximately $366,188 as guarantor of 9 Gregory Street's obligations under the loan deed between Aksara and 9 Gregory Street and is thus entitled to be subrogated to Aksara’s equitable interest: see paragraphs [191]-[197] and [351].

Other property

515 The other property which is available for distribution is the remaining balance of the deposit forfeited by the would-be purchaser of the 9 Gregory Street Property as a result of the proposed sale which did not complete and some rental income. Aksara’s interest does not extend to that property and the Financiers are not able to trace into this property. In these circumstances, the proposed distribution of this property by the applicants is justified.

Conclusion

516 I am satisfied that the applicants are justified in distributing the assets of 9 Gregory Street in the manner in which they propose.

64-66 Berkeley Street

Overview

517 64-66 Berkeley Street is another of the Jointly Owned Entities. It owned the residential property at 64-66 Berkeley Street, Hawthorn, Victoria (the Berkeley Street Property) in its capacity as trustee for the 64-66 Berkeley St Hawthorn Unit Trust (the Berkeley Trust): LJ [156(1)]. The Berkeley Street Property was used by Mr Tesoriero as his primary residence: LJ [838].

518 64-66 Berkeley Street did not have any employees as at the date of the liquidators’ appointment and is not known to have had any employees or conducted any other business at any other time.

519 The Berkeley Trust was established on or around 26 August 2020, based on the date of the trust deed, shortly before the acquisition of the Berkeley Street Property on 23 November 2020. The Berkeley Street Property was recorded as an asset in the balance sheet of the Berkeley Trust. 64-66 Berkeley Street purchased the Berkeley Street Property for $7,950,000 using funds sourced from Judo Bank (which was later refinanced by Gemi) and FGFS (including from Financier Funds): LJ [838].

520 Judo Bank provided a $7.155 million loan to 64-66 Berkeley Street. The security for this facility included a registered mortgage over the Berkeley Street Property, a general security interest over all present and after-acquired property of 64-66 Berkeley Street, guarantees from Mr Tesoriero and FGOC, and a general security interest over all present and after-acquired property of FGOC.

521 FGFS provided the sum of $1,409,025 towards the purchase of the Berkeley Street Property.

522 The applicants’ evidence demonstrates that $1,774,931.12 of the Financiers’ funds were paid to or used to make payments on behalf of 64-66 Berkeley Street, including in the purchase of the Berkeley Street Property and in repaying the Judo Bank loan.

523 In or around 15 February 2023, Judo Bank assigned its loan and the mortgage over the Berkeley Street Property to Gemi. The applicants’ evidence details the various interactions between Mr Preston and Mr Ireland and the receivers and managers who were appointed to the Berkeley Street Property by Gemi in relation to taking possession of the property and in dealing with Mr Tesoriero and Samantha Pagano, who continued to occupy the property. The culmination so far as is presently relevant is that on 18 September 2023, Gemi sold the Berkeley Street Property as mortgagee-in-possession for the sum of $9,360,000. The net proceeds of the sale of the Berkeley Street Property were disbursed as follows:

(1) $7,851,359.84 was paid to Gemi as mortgagee;

(2) $45,500 was refunded to the purchasers after an apparent removal of fixtures.

(3) $1,009,794.86 was paid to the liquidators’ solicitors; and

(4) various other amounts were paid at completion to third parties.

64-66 Berkeley Street assets available for distribution

524 The 64-66 Berkeley Street assets available for distribution are the remaining net proceeds of the sale of the Berkeley Street Property, totalling approximately $1,041,118.

Competing claims

525 Apart from the claims based on the equitable interests of the Financiers whose funds have been relevantly traced to 64-66 Berkeley Street, the applicants identify the following as creditor claimants of 64-66 Berkeley Street: Mr Preston and Mr Ireland in their capacity as liquidators and/or receivers; and FGFS (in respect of an unsecured loan).

526 For completeness, I note that the Tesoriero Entities previously claimed an interest in the Berkeley Street Property in respect of financial contributions made to the Berkeley Street Property. That interest was based on alleged financial contributions made by the Tesoriero Entities towards the Berkeley Street Property. The liquidators declined to include this claim in the distribution of 64-66 Berkeley Street’s assets because:

(1) the Tesoriero Entities have not demonstrated that their own moneys (as opposed to monies obtained directly or indirectly from the Financiers) were paid towards the Berkeley Street Property (nor have they demonstrated that the payments made were not gifts made at the direction of Mr Tesoriero);

(2) having regard to the findings made against Mr Tesoriero and the Tesoriero Entities in the Liability Judgment, the Tesoriero Entities are not entitled to exercise any right of equitable subrogation and that is the only mechanism by which they could obtain priority over the Financiers' equitable interest. In short, it would be inequitable for the Tesoriero  Entities to enjoy rights of subrogation to the detriment of the Financiers they defrauded: Bofinger at [52], [71], [78], [82].

527 Had it been necessary to determine this issue, I would accept the applicants’ submissions. As it is, the claim was not pressed.

Consideration of proposed order of distribution

Table 18: 64-66 Berkeley Street Summary of Proposed Distribution

528 The applicants propose the following order of distribution for the assets of 64-66 Berkeley Street:

Proceeds of the Berkeley Street Property

529 The applicants are justified in affording first priority to Mr Preston and Mr Ireland for costs and remuneration reasonably incurred in the care, preservation or realisation of the assets of 64-66 Berkeley Street in accordance with the principle in Universal Distributing.

530 As mentioned, the applicants’ evidence establishes that approximately $1,774,931 of Financier funds were paid to, or used to make payments on behalf of, 64-66 Berkeley Street, including purchasing the Berkeley Street Property and repaying the Judo Bank loan. 64-66 Berkeley Street did not use any of its own funds to purchase the Berkeley Street Property.

531 Applying the findings and principles in the Liability Judgment, the Financiers have an equitable proprietary interest in the proceeds of sale of the Berkeley Street Property, including in any increase in the value of the property (see principles set out at paragraphs [217]-[222] above). The Financiers’ interests rank second.

532 For the reasons given at paragraph [241] above, I am satisfied that the applicants are justified in distributing as between the Financiers in the proportions they have identified notwithstanding the declaration as to subrogation made in favour of Westpac and SMBC in the Liability Proceedings.

533 These two stages of distribution will exhaust the relevant asset.

Conclusion

534 I am satisfied that the applicants are justified in distributing the assets of 64-66 Berkeley Street in the manner in which they propose.

TIG

Overview

535 TIG is the trustee of the Tesoriero Investment Trust and was used by Mr Tesoriero as a vehicle for investing in FGOC: LJ [475], [476], [504]. TIG received money from various other entities associated with the Forum Group (including as loans) and made payments to other entities in the Forum Group. TIG did not have any employees at the date of the liquidators’ appointment on 2 November 2022.

536 CBA is a secured creditor of TIG pursuant to a valid and enforceable PPSA security interest granted by TIG as security for a “BetterBusiness Loan” facility. The loan facility was for $6.44 million for a term of three years. As at 2 September 2024, approximately $3,949,184 remained outstanding.

537 The applicants’ evidence demonstrates that TIG obtained funds from FGFS, which are traced in part to the Financiers’ funds. A total of approximately $577,014 of Financier funds were paid to or used to make payments on behalf of TIG.

TIG assets available for distribution

538 The TIG assets available for distribution are:

(1) funds held by TIG prior to the liquidators’ appointment which are held by CBA, totalling approximately $40,871; and

(2) the net proceeds of a settlement with Haidi Holdings Pty Ltd, which are held in a liquidation account, totalling approximately $157,424.

539 The settlement with Haidi was in respect to debts owed to TIG by Haidi in its capacity as trustee of the John Tesoriero Family Trust. The total settlement was $293,750.98, which comprised approximately $244,251 to pay the debt, reasonable costs of $40,000 and disbursements of $9,500. The circumstances in which the underlying debt came about are described in Re Haidi Holdings Pty Ltd [2023] VSC 739.

Competing claims

540 Apart from the claims based on the equitable interests of the Financiers whose funds have been traced to TIG, the applicants identify the following as creditor claimants of TIG: the liquidators; CBA (which holds a registered all present and after-acquired property PPSA security interest pursuant to the CBA loan facility); and various unsecured creditors (including FGFS, 286 Carlisle Street and Mr Tesoriero).

Consideration of proposed order of distribution

Table 19: TIG Summary of Proposed Distribution

541 The table below outlines the applicants’ proposed order of distribution for each asset of TIG:

Pre-appointment funds

542 The applicants seek to distribute these funds in an orthodox way affording first priority to CBA as a secured creditor and thereafter to those of the Financiers whose funds have been relevantly traced into this asset pool. The applicants do not assert a claim pursuant to the principle in Universal Distributing given the nature of this asset. The applicants are justified in the approach they have taken.

Funds from the settlement with Haidi

543 The Financiers cannot trace into the proceeds of the settlement with Haidi. The settlement sum is in connection with a debt arising from unpaid entitlements that were payable to TIG by Haidi in its capacity as trustee of the John Tesoriero Family Trust. The entitlement of TIG to receive the distributions that had been declared but not paid from that trust cannot be said to be derived from, or by the use of, funds advanced by the Financiers.

544 Accordingly, the proposed distribution is that the first priority will be in accordance with the Universal Distributing lien, then to CBA as secured creditor and thereafter pursuant to s 556 of the Corporations Act.

Conclusion

545 I am satisfied that the applicants are justified in distributing the assets of TIG in the manner in which they propose.

23 Margaret Street

546 Prior to the commencement of the hearing of the present application, the applicants informed the Court that they no longer seek directions in relation to the distribution of the assets of 23 Margaret Street. The circumstances in relation to 23 Margaret Street are exposed in my consideration of the distribution of the assets of FGFS.

PART J – CONCLUSION

547 For these reasons, having regard to the known circumstances and the relevant legal principles, I am satisfied that the applicants are justified and otherwise acting reasonably in taking the approach they have articulated in relation to distribution. None of those notified by the applicants have sought to be heard against the proposed distribution. The approach advanced by the applicants is consistent with, and informed by, the imperative of preserving the assets available for distribution. Where the applicants have on an informed basis concluded that further investigation is unlikely to change the order of distribution, they have responsibly exposed the basis for forming that view and it appears to be reasonable. I will make orders giving effect to the applicants’ proposed order of distribution and the related orders sought as to joinder.

548 The applicants’ costs of and incidental to this application will be costs in the relevant liquidations and receiverships. As a matter of fairness, the applicants proposed that the costs order should operate on a several basis, with the costs divided in proportion to the funds of each entity available for distribution. The making of an additional order as to costs to this effect was not opposed by the Financiers. I accept that it is appropriate in the present circumstances for the costs order to operate in this way.

Associate:

Dated:    1 August 2025

SCHEDULE OF PARTIES