Ben Katekar SC and Courtney Ensor recently appeared for the successful “interest-bearing clients” in Krejci, in the matter of Union Standard International Group Pty Limited (in liq) [2021] FCA 1483 with Karen Petch, led by Steven Golledge SC, representing the “trading clients”.
USIG held an Australian Financial Services Licence (AFSL) and operated a financial services business under the name USGFX, pursuant to which it used the MT4 online trading platform to trade in derivatives and foreign exchange contracts, make a market for these products and provide general financial product advice. The liquidators of USIG applied to the Court for various orders and directions in respect of the liquidation, the principal issue in dispute being the priority in the distribution of the proceeds of the liquidation between the so-called trading and investing clients (the interest-bearing clients being a subset of the investing clients). USIG had extensively mixed funds such that tracing individual deposits of clients was impossible.
The proofs of debt lodged by the investing clients were between $195 million and $405 million while those lodged by the trading clients were approximately $6 million. The liquidators only held approximately $6 million in connection with the liquidation (including some funds in frozen accounts).
While it was common ground that the moneys held on behalf of the trading clients should be taken to be held on trust under r 7.8.03(4) of the Corporations Regulations 2001 (Cth) and that they should take priority ahead of the general pool of unsecured creditors under r 7.8.03(6)(c), the interest-bearing clients contended that they too fell within r 7.8.03(4) and ranked equally with the trading clients such that there should be a proportional distribution of proceeds under r 7.8.03(6)(d).
The Court agreed. Justice Jagot found that the statutory trust under s 981H of the Corporations Act 2001 (Cth) applied equally to all monies deposited by trading and investing clients, and also found the existence of an express trust and a Quistclose trust. Justice Jagot found no reason on the facts to distinguish between recoveries made by the liquidators (taxation, hedge, and money processor) and trust accounts, operating accounts and term deposits held, directing that the liquidators would be justified in treating all as beneficially held by the trading and investing clients on a pari passu basis.
Notably, the Court also held that moneys can be moneys to which Subdiv A of Div 2 of Pt 7.8 of the Corporations Act applies even if paid in connection with dealings falling outside of the scope of a company’s AFSL, and that moneys do not need to have been paid into an account maintained conformably with the requirements of s 981B of the Corporations Act in order for those moneys to be held pursuant to a statutory trust.
A copy of the Court’s reasons can be found here.
