By Jen Singh, Solicitor – [SOURCE]
In this matter, the Liquidators of Union Standard International Group Pty Ltd (in Liq) (USIG) applied to the Court seeking an order pursuant to section 90-15(1) of Schedule 2 – Insolvency Practice Rules (Corporations) 2016 (Insolvency Practice Schedule) to the Corporations Act 2001 (Cth) (Act) that the Liquidators are justified in paying their remuneration, costs and expenses in connection with their application to the Court, and the proposed public examinations subject of that application, out of funds held by USIG on statutory trust in accordance with section 981H of the Act.
The primary facts are as follows:
- USIG held an Australian Financial Services License (AFSL) and carried on business in accordance with the AFSL.
- USIG’s business involved usage of an online trading platform to trade in foreign exchange contracts and derivatives, and providing general financial product advice. USIG’s clients who used this platform are referred to as ‘trading clients’.
- During the course of investigations, the Liquidators discovered that USIG took deposits from clients in China and Taiwan (referred to as ‘investing clients’) and paid interest to those clients, which may have been a breach of USIG’s AFSL.
- USIG’s financial records were unreliable and USIG mixed fund between multiple accounts, meaning that individual client deposits are untraceable.
- The Liquidators held funds of $5,799,796.14 in connection with the liquidation and a further $235,067.33 was held in two frozen accounts.
- Proofs of debt by the investing clients totalled between $195 million and $405 million, whole proofs of debt by the trading clients totalled approximately $6 million, thus meaning that there would be a significant shortfall in liquidation proceeds and return to creditors would be minimal.
- The sole shareholder of USIG failed to cooperate with the Liquidators, and the Liquidator’s investigations were allegedly being obstructed by actions of related companies and persons.
- Notice of the application has been given to USIG’s Committee of Inspection and creditors, and no objections were received.
In determining whether the Court would be minded making an order pursuant to section 90-15(1) of the Insolvency Practice Schedule with respect to the Liquidators remuneration and proposed public examinations, the Court considered that while the costs of public examinations were significant (estimated to exceed $1 million (GST exclusive)), the costs were reflective of the large number of persons proposed to be examined, the fact that documents needed to be obtained from a significant number of third parties and that the complexity of USIG’s affairs.
The Court made the following observation:
‘(6) while the estimate of costs likely to be incurred in the carrying out of the proposed public examinations is substantial (in excess of $1 million excluding GST), the seriousness of the issues raised in respect of the company’s dealings and the other circumstances justify the liquidators in reaching the conclusion that the proposed public examinations represent the best opportunity for further information to be gathered and potentially for claims and recoveries to be made in the best interests of creditors. In this regard, I accept that the affairs and dealings of the company are complex and it appears that steps have been taken to frustrate and delay the liquidators’ investigations, but nevertheless, those investigations have exposed that an extremely large sum of up to approximately $585 million cannot be accounted for in the dealings of the company.’
When considering the significant costs of the Liquidators conducting public examinations, the Court also considered that, as the estimated return to creditors was already marginal, the costs of the proposed public examination would not materially impact upon those returns.
As such, the Court was minded to make the orders sought by the Liquidators, pursuant to section 90-15(1) of the Insolvency Practice Schedule, allowing for their remuneration and granting them leave to make any applications for issue of examination summonses and production of documents.