Marco Polo: Administrator remuneration and trust assets

In the recent case of ASIC v Marco (No.9) [2021] FCA 1306, the Federal Court considered the question of whether the former administrators of AMS Holdings (WA) Pty Ltd (AMS) were entitled to remuneration from AMS’ assets where AMS held all of its assets as trustee.

The situation was particularly complex as AMS had been involved in an apparent ponzi scheme, and at the time of the administrators’ appointment all of AMS’ assets were already under the control of court appointed receivers.

In disposing of the matter, the Court had to consider the interaction between a trustee’s right of exoneration and indemnity from trust property and an external administrator’s right to apply for a remuneration determination under section 60-10(1)(c) of the Insolvency Practice Schedule (IPS), being Schedule 2 of the Corporations Act 2001 (Cth) (Act).


The sole shareholder and director of AMS was Chris Marco.  Between 2014 and 2018, Mr Marco operated an investment scheme whereby he entered into trust arrangements with investors on terms requiring Mr Marco to invest the investors’ funds into alleged complex and high yield international investments.  However, it appears that the investors funds were in fact used by Mr Marco to pay “investment returns” to other investors, and to purchase assets such as real property and motor vehicles.  Some of the investor funds were also diverted by Mr Marco into AMS, and were used by AMS to purchase assets in AMS’ name.

On 31 October 2018, ASIC obtained orders to freeze the assets of Mr Marco and AMS.  On 27 May 2020, ASIC successfully applied for interim receivers to be appointed to take control of those assets and to investigate the investment scheme run by Mr Marco and AMS (the Scheme).  And then on 7 December 2020, the interim receivers were formally appointed as liquidators (and receivers) (Liquidators) of the Scheme.

As part of their investigations, the interim receivers (who became the Liquidators) found that although AMS had been established and set up as trustee of the AMS Trust in July 2013 (the beneficiaries of the trust being Mr Marco and his family), AMS had never traded in its own right and had been a mere recipient of investor funds transferred to it by Mr Marco.  The interim receivers also identified approximately $8.6m of assets owned by AMS which had been purchased with investor funds.

In the midst of this activity, on 24 September 2020, Mr Marco appointed voluntary administrators to AMS (Administrators).  This was about a month before the final hearing of ASIC’s winding up application in respect of the Scheme.  After being appointed, the Administrators undertook significant work in relation to (amongst other things) investigating the activities of the Scheme, adjudicating on the proofs of debt submitted in the administration of AMS by the investors, and considering various DOCA proposals put forward by Mr Marco.

Ultimately, the investors rejected the DOCA proposal from Mr Marco and voted against the Administrators’ remuneration.

The Administrators then applied to the Court for a remuneration determination under section 60-10(1)(c) of the IPS.  The application was opposed by the Liquidators.

The Application

The Liquidators argued that AMS held all of its assets not as trustee of the AMS Trust but on constructive trust for all of the investors who had invested funds with Mr Marco, which were then transferred by Mr Marco to AMS.  The Liquidators said that in these circumstances, the only right of exoneration that AMS (and by extension the Administrators) could have would be for work done in preserving the assets, and that this could not extend to any work done in respect of the Administrators’ general tasks such as adjudicating on proofs, conducting investigations or holding meetings.

The Administrators argued that they had been required by the Act to perform the work that they did, and that they were therefore entitled to be remunerated for that work.  They also argued that to the extent that AMS held all of its property as trustee, then all of the Administrators’ work should be remunerated from the trust assets as the administration should be considered to be in the performance or administration of the trust (as per the usual situation with a trading trust where the trustee has no other business or assets other than the trust business and assets).

The Decision

In relation to the trust issues, McKerracher J held that AMS’ receipt of investor funds did lead to the creation of a “multitude” of constructive trusts in favour of the investors.  His Honour also appeared to accept that in the ordinary course, an administrator could have recourse to a trustee’s right of exoneration from trust assets for work that could properly be described as being for the purposes of the trust.

However, McKerracher J noted that:

  • the right of exoneration re a trust belongs to the trustee, and constitutes an asset/property of the trustee; and
  • in this case, the asset preservation and appointment orders made in October 2018 and March 2020 meant that all of AMS’ assets, including its right of exoneration and indemnity from the trust assets, had been in the control and possession of the interim receivers at all relevant times.

McKerracher J went on to conclude that in the circumstances, the Administrators could not have recourse to AMS’ right of exoneration for the purposes of their entitlement to remuneration, nor was it possible for any of the Administrators’ activities to have been in the exercise of rights over the trust assets which they had never possessed.

This in effect disposed of the Administrators’ application under section 60-10(1)(c) of the IPS which was advanced solely on the basis that the Administrators had an entitlement to remuneration under AMS’ right of exoneration against the trust assets.

However, McKerracher J went on to consider the terms of section 60-5(1) of the IPS and noted the following:

  • section 60-5(1) of the IPS provides for a general entitlement to remuneration for “necessary work properly performed” by an external administrator “in relation to the external administration”;
  • importantly, section 60-5(1) does not condition an external administrator’s entitlement to remuneration by reference to the availability of a company’s assets or the discretion of the Court;
  • however, the quantum of any such entitlement would be within the discretion of the Court, pursuant to any determination made under section 60-10 having regard to the matters set out in section 60-12.

McKerracher J ultimately held that the Administrators would be entitled to remuneration for “any necessary work properly performed” in respect of the administration of AMS, although His Honour noted that there were significant questions as to what work would satisfy this description in the unusual circumstances of the case.  McKerracher J also noted that the Administrators should have sought directions from the Court which could have avoided these issues.

The Court made an order that the Administrators were entitled to remuneration out of AMS’ assets, but sent the question of quantum to mediation at first instance. 

Lavan Comment

This is an important case as it highlights the broad nature of an external administrator’s right to remuneration under section 60-5(1).  If McKerracher J’s interpretation is upheld and widely adopted, this could cut through a lot of the historical complexity that attaches to questions of remuneration in respect of the administration of insolvent trustees.

The case also provides an important reminder about the use of applications for directions in complex and/or potentially controversial appointments.

However, while this decision provides some clarification as to the interface between the existing caselaw on remuneration in respect of the administration of corporate trustees and the provisions of the IPS, appointments in relation to trustees and trust assets are highly complex and will continue to raise difficult issues.  If you have questions in relation to these types of matters, the experienced Lavan team is ready to assist you.