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[2012] NSWSC 846
Supreme Court of NSW
2012-07-16
Black J
Original judgment source is linked above.
Judgment 1Mr David Mansfield, in his capacity as liquidator of Rolcross Pty Limited (in liq) ("Rolcross") seeks directions under s 479(3) of the Corporations Act 2001 (Cth) that he would be justified in treating specified real property assets and the proceeds of realisation of those assets ("relevant assets") as held on trust for the Prendergast Family Trust ("Trust"). That direction is sought because there is a question whether those assets are held by Rolcross in its own right or as trustee for the Trust. 2Mr Mansfield was appointed as liquidator of Rolcross on 17 November 2009 by this Court, following an application by the Office of State Revenue in respect of unpaid stamp duty. Rolcross' assets exceed $9 million and it is solvent. Various commercial properties owned by Rolcross have now been sold, either by the mortgagee of the properties or by Mr Mansfield, and he now holds the sum of approximately $6.7 million in cash at bank. The Originating Process was served on Mr John Prendergast, who was a director of Rolcross and the beneficiary of the Trust, by his financial manager, the NSW Trustee and Guardian. It appears that Mr Prendergast is presently unable to manage his own affairs. The solicitors acting for the NSW Trustee and Guardian, as manager of his estate, have advised that it does not assert that the relevant assets were not held as trustee for the Trust and does not seek to be heard in respect of the application. Factual background 3Mr A.G. Martin, who appears for Mr Mansfield, has provided a helpful summary of the relevant facts as they emerge from Mr Mansfield's affidavit and the documents available to Mr Mansfield and tendered in the application. I have drawn upon Mr Martin's summary and upon that affidavit and those documents for the description of the relevant facts which follow. 4Mr Mansfield has made substantial inquiries to seek to determine Rolcross' assets but has been hampered in those inquiries by Mr Prendergast's failure to provide any books or records. Mr Mansfield has issued numerous notices under s 530B of the Corporations Act and made written requests for documentation from Mr Prendergast and third parties, some of which have resulted in the production of some documents by third parties. It is plain that the documentation available to Mr Mansfield is significantly incomplete, and it is therefore necessary to draw inferences from those documents that are available. 5A business bank account was opened with ANZ Bank in 1992 in the name of "Rolcross as Trustee of the Prendergast Family Trust" and another entity. Documentation relating to an interest held by Rolcross in an entity known as The Botany Road Unit Trust in 2001 indicates that interest was acquired on trust for the Trust. The Trust held an Australian Business Number, suggesting that it was carrying on business. The financial accounts for the Trust for the year ending 30 June 2002 disclosed that it generated revenue from ordinary activities of $7.38 million which was distributed to beneficiaries and held interests in a number of other partnerships, including in respect of the relevant assets. Similar information is contained in a version of the Trust's accounts for the year ending 30 June 2003. A property revaluations worksheet dated 30 June 2004 records the Trust as having an interest valued at $4.48 million in partnerships holding the relevant assets. The financial accounts for the relevant partnerships for the years ending 30 June 2002 and 30 June 2003 also record distribution of incomes to the partners including the Trust. 6One of the former directors of Rolcross, Mr Muriti, produced a corporate structure diagram dated June 2004 in response to a notice issued by Mr Mansfield under s 530B of the Corporations Act that also refers to Rolcross as trustee for the Trust and identifies its holdings in, inter alia, various property partnerships. Documents produced by Rolcross' former accountants include a tax invoice issued by Rolcross as Trustee for the Trust to another entity relating to rental for an 18 month period from 31 July 2004-19 January 2006 in respect of a property as to which Rolcross was recorded as registered proprietor and was party to a lease of that property to that other entity. That invoice supports an inference that, at least at that time, Rolcross held that property in its capacity as trustee of the Trust. Documents produced by the Office of State Revenue also record notices of assessment for land tax on the basis that Rolcross was a special trust within the meaning of the Land Tax Management Act 1956 (NSW) and the taxpayer was Rolcross as Trustee for the Trust in respect of the relevant assets. 7On 4 August 2004, a Heads of Agreement was entered into between Mr Prendergast, Rolcross and other entities in relation to the separation of business interests of Mr Prendergast from those other entities. That Heads of Agreement was the subject of subsequent proceedings in this Court. The Heads of Agreement refers to the properties but does not state that they were (or were not) held on trust or refer to the Trust. A schedule of payments made in implementing the Heads of Agreement was also prepared and does not indicate that those payments were (or were not) made to Rolcross in its capacity as trustee for the Trust. Mr Mansfield raises the possibility that the documents prepared in respect of those matters may support a contention that the properties were owned beneficially by Rolcross rather than held on trust for the Trust. On balance, I would regard them as neutral. 8In further litigation in 2005, Mr Prendergast swore an affidavit in which he set out the history of the various businesses and noted that Rolcross' former accountants had set up various companies for operating the businesses in which he was involved and to purchase property and that he relied on his solicitors and accountants to structure the group and the entities concerning the acquisition of those properties. There is no reference to the Trust in that affidavit. The affidavit gives the impression that Mr Prendergast did not have a detailed understanding of, or possibly any particular interest in, the legal structures in which the relevant assets were held. 9Mr Mansfield has properly drawn attention to other documents which raised a question in his mind as to whether the inference which would otherwise be drawn from the documents to which I have referred above was correct. A liquidator was appointed to Rolcross by this Court in August 2007 on the application of the Office of State Revenue. The liquidator was provided with a report as to affairs by the then directors, including Mr Prendergast, which identified the assets of Rolcross and did not indicate that the relevant assets were (or were not) held on trust for the Trust. That liquidator's report to creditors dated January 2008 noted that Rolcross was trustee of the Trust and that books and records of Rolcross had not been provided to him and did not refer to the properties being held (or not being held) on trust by Rolcross for the Trust. Mr Mansfield recognised the possibility that these documents could support a contention that the properties were held beneficially by Rolcross rather than on trust for the Trust. In my view, those documents are also properly regarded as neutral, because the existence of the Trust was noted in the liquidator's report and there is no reason to assume that Mr Prendergast would necessarily have paid attention to the question whether the relevant assets were held by Rolcross beneficially or on trust for the Trust in completing the report as to affairs, particularly given his lack of focus on the legal structures in which the properties were held. 10Documentation in relation to a borrowing of funds by Rolcross and another entity from St George, and security granted in favour of that borrowing, in 2007 refers to the borrowing being made, and the security being given, by Rolcross in its own right and as trustee for the Trust. That documentation indicates that the Trust still existed and, presumably, that interests in the relevant assets were held by it at that time, since there would otherwise have been no reason to refer to the Trust in respect of the borrowings and security documents. Those documents also leave open the possibility that Rolcross may have had an interest in one or more of the relevant assets in its own right. 11Mr Mansfield indicates that he has formed the view that: "The principal activity of Rolcross was acting as Trustee of the [Trust]. In so acting, Rolcross carried on the [T]rust's business, namely the acquisition and leasing of commercial Properties either individually or as part of a partnership with other corporate entities." I consider that the view that Mr Mansfield has formed is supported by the documents which are available to him and which have been tendered before the Court. There is no reason to infer that the position changed after the date of the documents available to Mr Mansfield to which I have referred above in the absence of subsequent documentation indicating a change in that position. Court's jurisdiction to give directions 12Section 479(3) of the Corporations Act allows a liquidator to apply to the Court for directions in relation to a matter arising under a winding up. The function of a liquidator's application for directions under this section is to give the liquidator advice as to the proper course of action for him or her to take in the liquidation: Sanderson v Classic Car Insurances Pty Ltd (1985) 10 ACLR 115 at 117; (1986) 4 ACLC 114; Re Ansett Australia Ltd (admins apptd) and Korda [2002] FCA 90; (2002) 115 FCR 409; 40 ACSR 433 at [46]. The Court will typically not give directions 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, but may do so where a legal issue or attack on the propriety of the decision is raised: Sanderson v Classic Car Insurances Pty Ltd above at 117; Re GB Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674 at 686-7; 5 ACSR 673; 9 ACLC 1291; Re Ansett Australia Ltd above at [65]. A liquidator is protected against a claim for breach of duty if he or she acts in accordance with a direction given by the Court under s 479(3) of the Corporations Act and he or she has made full disclosure to the Court in the relevant application. 13I consider that the inferences which should be drawn from the documents to which I have referred above raise a legal question which is properly the subject of a direction under s 479(3) of the Corporations Act where Mr Mansfield could otherwise be exposed to an attack on the propriety of his acting on incomplete information. Claim for remuneration and expenses 14Mr Mansfield also seeks directions under s 479(3) of the Corporations Act that he is justified in paying, from the relevant assets, his remuneration and other expenses of the winding up of Rolcross and his legal fees and expenses in relation to these proceedings. 15Creditors of Rolcross had previously approved Mr Mansfield's remuneration of approximately $109,000 for present and future work on 18 May 2010, at a time that the question whether Rolcross was trustee for the Trust had not been identified. Mr Mansfield has subsequently prepared detailed information concerning his remuneration, which apportions that remuneration between work relating to the administration of the Trust, disbursements in relation to the Trust and a small amount of work which is possibly not directly related to the Trust. 16It is well established that a trustee has a right of indemnity out of trust assets for expenses or liabilities properly and reasonably incurred in the administration of the trust: Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 at 367. A liquidator appointed to a trustee of a trading trust may be paid his or her remuneration from trust assets, to the extent that that remuneration is incurred in relation to the trust: Re Suco Gold Pty Ltd (in liq) (1983) 33 SASR 99; 7 ACLR 873; 1 ACLC 895; Re French Caledonia Travel Service Pty Ltd (in liq) [2003] NSWSC 1008; (2003) 59 NSWLR 361; 48 ACSR 97. On the other hand, where a company is trustee of a trading trust and also conducts other activities, a liquidator may be indemnified out of trust assets for his or her reasonable costs and expenses in identifying, recovering, realising, protecting, administering and distributing trust assets, but may not recover the costs of work which could not be fairly described as administering the trust from trust assets: Re GB Nathan & Co Pty Ltd (in liq) above at NSWLR 868-7; 13 Coromandel Place Pty Ltd v CL Custodians Pty Ltd (in liq) [1999] FCA 144; (1999) 30 ACSR 377; 17 ACLC 500; Re French Caledonia Travel Service Pty Ltd (in liq) above at [206]-[210], [213]; Grossman v E Katz Manufacturing Jewellers (ACT) Pty Ltd [2004] NSWSC 1224; (2004) 213 ALR 373; 52 ACSR 198. A liquidator who is appointed to a company which holds assets on trust must act responsibly with respect to the fund in order to be allowed his or her remuneration from the fund: Re Crest Realty Pty Ltd (in liq) and the Companies Act [1977] 1 NSWLR 664; (1977) 2 ACLR 502; Re Maureen Michael Management Pty Ltd [2005] NSWSC 1044; (2005) 55 ACSR 539; 24 ACLC 33. 17A liquidator will generally need to lead evidence quantifying the remuneration which would be properly chargeable against trust assets to establish his or her entitlement to that remuneration: Re French Caledonia Travel Service Pty Ltd (in liq) above at [217]. Mr Mansfield has provided detailed evidence of the allocation of his remuneration across the various heads of activity set out in the decision in 13 Coromandel Place Pty Ltd v CL Custodians Pty Ltd (in liq) above. 18I consider that this is a proper case for a direction that Mr Mansfield's remuneration and expenses of the winding up of Rolcross and the costs of these proceedings be paid out of the Trust, where the evidence supports the inference that Rolcross had no other role than as trustee of the Trust and the whole of its trading and other activities was undertaken in its capacity as trustee, and the work done can properly be characterised as realising and preserving the Trust property 19Accordingly, I make the following directions under s 479(3) of the Corporations Act:
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 10 August 2012
13 Coromandel Place Pty Ltd
CL Custodians Pty Ltd
(1979) 144 CLR 360
(2002) 115 FCR 409
(2003) 59 NSWLR 361
(1991) 24 NSWLR 674
(1983) 33 SASR 99
(2004) 213 ALR 373