Federal Court outlines when a liquidator may recover general liquidation remuneration and costs from trust assets

In the recent decision Lawrence, Ozifin Tech Pty Ltd (in liq) v AGM Markets Pty Ltd (in liq) [2022] FCA 1478, the Federal Court of Australia has provided useful guidance on when a liquidator may recover general liquidation remuneration and costs from trust assets.


In this judgment, liquidators of multiple companies were successful in obtaining directions and declarations they sought regarding the distribution of statutory trust funds, and obtaining payment of their fees from trust assets.

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

AGM was the only entity to hold an Australian Financial Services Licence (AFSL). OT and Ozifin were authorised to provide certain financial services on behalf of AGM through separate agreements. AGM’s role was mainly as an issuer of financial products, and the custodian of the client funds of OT and Ozifin.

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

Intervention by ASIC

ASIC intervened in each application and took an opposing view to the liquidators in terms of the characterisation of the constructive trust funds and whether the liquidators could take out their general liquidation costs and expenses in priority to the investors who are the beneficiaries of such non-statutory trusts. ASIC asserted that each of the relevant trusts involved an institutional constructive trust rather than a remedial constructive trust. Accordingly, the Liquidators sought to use constructive trust funds to pay general liquidation costs and expenses.

His Honour Beach J rejected ASIC’s submissions that the constructive trusts should be characterised as institutional for the following reasons:

  • the application of a remedial constructive trust is preferred where funds are held by the constructive trustee as a result of their own misconduct;
  • the client accounts were not static after the Companies’ wrongdoing occurred, making the determination of funds payable very intricate;
  • the element of judicial discretion was absent from ASIC’s submissions, which is required in institutional and remedial constructive trusts;
  • an institutional constructive trust is unpreferable where it has the effect of preventing a liquidator from recouping their general liquidation costs and expenses.

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

His Honour lastly considered the Court’s “expansive jurisdiction to allow a liquidator’s remuneration to be paid out of assets of a trust” and held that the liquidators’ general liquidation work had the effect of indirectly benefitting the trust and its beneficiaries.

Key takeaways

Beach J relevantly provides that:

  • neither Staatz or Park are authority for any principle that liquidators cannot recover general liquidation costs from trust funds in an appropriate case. Both are an application of the broad discretionary power to the circumstances of the relevant case. The question is one of discretion with each case turning on its own facts (at [210]);
  • generally, whether general liquidation costs can be recovered from trust assets is a matter for the Court to determine, and relevant factors include the extent to which the relevant company acted in its capacity as trustee of a trust and whether there are separately identifiable company assets from which the remuneration of the liquidators might be paid (at [220]).

This decision resolves the history of uncertainty in cases recovering general liquidation expenses from trust assets and considers the appropriate characterisation of funds subject to constructive trusts. The outcome reinforces the notion that courts will ensure to prevent a liquidator from being exposed for their costs and expenses. It also highlights that courts will generally support arrangements that result in cost-effective distributions to beneficiaries.