Solicitors:
Craddock Murray Neumann (plaintiffs/applicants)
Summer Lawyers Pty Ltd (third respondent)
William James Law (fourth and fifth respondent)
Holman Webb Lawyers (sixth respondent)
File Number(s): 2016/190046
[2]
Judgment
The first plaintiff Adam Bernard Preiner is the liquidator of the second plaintiff MINMXT Holdings Pty Limited, which was wound up by order of the Federal Court of Australia on 15 June 2016. The liquidator ascertained that the company was the trustee of a discretionary trust, called the Minmxt Holdings Trust, and had no other function, and that it had entered into a contract dated 13 May 2016 for the sale of certain land at Bella Vista at a price of $2.1 million to the fourth defendants Peter Bernard Shade and Emily Long. By originating process filed on 30 June 2016, the liquidator sought:
1. a declaration that the disposition of the Bella Vista land was void, pursuant to (CTH) Corporations Act 2001, s 468; and
2. an order appointing him as receiver of the trust property.
The first defendant Nichole Paula Schlebusch was a director of MINMXT and the appointor of the trust, and she (and any spouse - namely her husband Morney Schlebucsh, who is the second defendant - or child) was a potential beneficiary of the trust. On 1 August 2016, on the plaintiff's application, the Court:
1. joined Winghouse Australia Pty Ltd as third defendant (in circumstances where upon going into liquidation, MINMXT was disqualified from holding the office of trustee, but there was documentation which bore the date 1 October 2015, the purport of which was that when MINMXT resigned as trustee, it was replaced by Winghouse);
2. joined Mr Shade and Ms Long, the purchasers of the Bella Vista land, as fourth defendants;
3. declared the disposition of the Bella Vista land void; and
4. appointed the liquidator as receiver of the trust property of MINMXT in its capacity as trustee of the MINMXT Holdings Trust.
On 28 October 2016, the liquidator completed the resale of the Bella Vista land, to the same purchasers, but at a superior price ($2.5 million); the deposit originally paid was applied to the new contract. The registered mortgage to National Australia Bank, and a caveat by the Commissioner of State Revenue (in respect of land tax), were discharged on completion of the sale. The liquidator procured the removal of caveats which had been lodged by Prospa Advance Pty Ltd, Hoot Townsville Pty Ltd (in liquidation), Hoot Gold Coast Pty Ltd (in liquidation), Andrew Kent Osborne, and Prime Capital Securities Pty Limited, by agreeing to hold the net proceeds intact pending determination of the competing claims to the proceeds.
By interlocutory process filed on 2 December 2016, the liquidator sought directions from the Court, determining the extent of his entitlement to resort to the fund resulting from the sale for remuneration and expenses as liquidator and receiver, the relative priority of his claim, and payment into court of the balance. Prospa was joined as third respondent, Hoot Townsville as fourth respondent, Hoot Gold Coast as fifth respondent, Mr Osborne as sixth respondent, and Prime as seventh respondent. On 14 March 2017, Barrett AJA made orders and declarations to the effect that: [1]
1. the liquidator pay the costs to date of Prospa, Hoots and Osborne in respect of the interlocutory process;
2. the liquidator's remuneration and recoverable expenses as liquidator and receiver be determined to be $138,621.49, plus his costs of the said interlocutory process;
3. the liquidator was justified in retaining out of the trust assets reimbursement of out-of-pocket expense of $6,281.04 (being part of the said sum of $138,621.48);
4. the liquidator was entitled to be indemnified out of the assets of the trust for the remuneration and expenses referred to in order 2 and the costs the subject of order 1, (a) as to $60,323 of remuneration and $8,274.47 of expenses, in priority to any other application of those assets, and (b) as to the balance, after satisfaction of such entitlements if any of the respondents and other persons as may be determined by the Court to enjoy priority over the interests of the beneficiaries of the trust, but in priority to the interests of those beneficiaries;
5. the liquidator was justified in retaining for his own use out of the said assets the sums referred to in order 4(a), and that so much of those assets as is not retained be paid by him into court to abide the determination envisaged by order 4(b); and
6. the liquidator be discharged as receiver of the trust property, upon making the payment into court referred to in order 5.
Directions were also made for the filing and service of interlocutory processes by any person claiming any part of the money paid into court, and for the exchange of affidavit evidence in support of such claims, and the proceedings were adjourned to 1 May for directions.
The amount of $60,323 of remuneration and $8,274.47 of expenses for which the liquidator was accorded priority over any other application of the assets represented the amount to which he was found entitled under the Universal Distributing Co principle, [2] including "so much of his remuneration and expenses as was related to care, preservation and realisation of the Bella Vista land", which included that related to the proceedings for avoidance of the disposition of that land. [3]
Pursuant to those orders of Barrett AJA, on or about 24 March 2017, the liquidator paid into court to the credit of these proceedings the sum of $844,285.08.
On 1 May, the proceedings were consensually adjourned to 29 May, with an extension of time for the filing of applications. On 22 May, however, proposed "consent orders" signed on behalf of Prospa, Hoots and Osborne were submitted, to the effect that
1. the funds in court be paid out:
1. $548,000.00 to Prospa;
2. $80,000.00 to Hoots;
3. the balance of $216,285.08 to Osborne; and
1. all prior costs orders made against the first plaintiff remain enforceable by the third to sixth defendants;
2. no order as to costs with the intention that each party bear their own costs in respect of the balance of the proceedings;
3. the proceedings be otherwise dismissed.
Before ordering payment out of funds in court, it is incumbent on the Court to be satisfied that all those with a claim on the funds in court have been given notice and an opportunity to be heard, and that the entitlement of those to whom payment is to be made is established. The procedures applicable to payment into and out of court are intended to achieve these ends. Entitlement to payment out of funds in court must be strictly proved. Thus the Court must be informed, by admissible evidence, of:
1. the amount of the funds in court;
2. the circumstances in which they were paid in and by whom;
3. the name and address of each person who has an interest in or claim to the funds, and notice to each of them; and
4. the basis on which the party claiming the funds is entitled to them.
On 2 June, in response to a requisition from the Court addressed to certain of those matters, affidavit evidence was provided which deposed that:
1. the names and addresses of each person who had an interest or claim were contained in the interlocutory process;
2. only Prospa, Hoots and Osborne had filed appearances; and
3. letters had been sent to the last known address of Nichole Schlebusch and Morney Schlebucsh, and the registered office of Prime, on 29 May by express post, delivered on 30 May, enclosing a copy of the proposed consent orders, advising of the listing on 5 June, and that in the absence of an appearance the Court was likely to make the orders sought, to which there had been no response.
The parties have not provided evidence of the total amount now in court, but given that $844,285.08 was paid in on 24 March 2017, it may be inferred that some interest - perhaps about $16,000 - will have accrued; the proposed orders do not deal with the interest. Accordingly, the total funds in court, with interest, are in the order of $860,000.
The proceedings were then referred to chambers for further consideration, and the Court has since requisitioned further information and submissions.
The proposed "consent orders" proceed on the basis that:
1. there is no other claimant with priority ranking above or equal to the claims of Prospa, Hoots and Osborne;
2. the accumulated claims of Prospa, Hoots and Osborne would exhaust the available funds, so that no claim with lesser priority requires consideration; and
3. in those circumstances, in order to avoid the risks and costs of litigating their respective priorities, it is open to distribute the available funds between them on the consensual basis proposed.
The liquidator's formal position was neither to consent to nor to oppose the proposed orders, taking the view (correctly) that he had an interest only in any residue after the secured claims are determined; however, in response to the Court's indication that the liquidator had an interest (and duty) to conserve the interests of the unsecured creditors, which would be to minimise the secured claims in order to maximise any residue, and that unless the liquidator made submissions to the contrary I proposed to treat his non-opposition as indicative of acceptance on the part of the liquidator that, having made appropriate investigations, he was satisfied that the fund would be exhausted by legitimate secured claims, and that I could disregard the potential interest of the liquidator or unsecured creditors, the liquidator made submissions, to assist the Court, as a contradictor. The Court has been greatly assisted by the submissions of Mr Narayan. Mr White of counsel, for Mr Osborne, made equally helpful submissions in response.
The Bella Vista land, the net proceeds of which now represent the funds in court, was a trust asset. Upon completion of the sale, as has been noted, the undisputed secured claims of the registered mortgagee (and, seemingly, the Commissioner, in respect of land tax) were discharged. The remaining potential claimants are the caveators (whose interest if any in the land has by agreement been converted upon sale into an interest in the proceeds), the liquidator (in respect of his lien for the balance of his remuneration and expenses, and in respect of the company's lien for its indemnity in respect of trust liabilities), and the beneficiaries (or more accurately, the new trustee for their benefit). [4]
Potential priority claims other than Prospa, Hoots, Osborne and the liquidator, included the Commissioner of State Revenue (who had lodged a caveat in respect of land tax, which was a charge on the land); the fourth defendants Peter Shade and Emily Long (the purchasers under the avoided contract) whose deposit may have been a charge on the proceeds; and the seventh defendant Prime which had lodged a caveat claiming a security interest for $10,636 under an instrument dated 1 February 2016. Further information provided in response to requisitions satisfies me that the fourth defendants do not have a lien for the deposit, as the deposit was applied to the new contract under which they ultimately acquired the land from the liquidator. Similarly, I have been satisfied that any security interest of the Commissioner in respect of land tax has been discharged, on settlement of the sale. That appears to leave only Prime, which has never appeared in the proceedings. Prime has been given notice of the proposed orders and has not responded, and I am satisfied that in those circumstances its interest can for present purposes be disregarded; its non-engagement indicates, at least, that it does not assert a claim which has priority over those of Prospa, Hoots and Osborne. I therefore accept that there is no other claimant with priority ranking above or equal to the claims of Prospa, Hoots and Osborne.
The next question is whether those claims are entitled to priority over the beneficiaries (and more particularly the liquidator, both in his own right and in right of the unsecured creditors, who ranks before the beneficiaries/new trustee). This requires examination of the claims.
Prospa claims an equitable interest as chargee pursuant a loan agreement and guarantee dated 15 May 2015 whereby the company charged the land as security for a loan of $324,474.77, the balance as at 10 February 2017 being $517,327.46. [5] Allowing that it increases at $9,713.45 per month, it would now be $587,035.06. Prospa's caveat was lodged on or about 20 July 2015, and appears to be the first registered caveat; in any event it well predates the liquidation so that no question of postponement to the liquidator arises. However, the loan agreement appears to be unstamped, though the caveat appears to be stamped. Existence of the security interest depends on the loan agreement which creates it, not on the caveat. If the loan agreement has not been stamped, it is unenforceable, [6] although if it were now stamped, albeit belatedly, it would become enforceable, retrospectively. [7] Although, as things stand, I am not satisfied that Prospa has an enforceable security interest; I am satisfied that it may be able to establish an interest to the extent of $587,035.06 by stamping.
Hoots apparently claims an interest by way of equitable charge or constructive trust or subrogation, arising from payment of certain mortgage payments and/or for the improvement of the property. [8] The claim is apparently advanced on a basis similar to that upon which Black J found an equitable lien or charge in Angus Carnegie Gordon as liquidator of Lyon Form Pty Ltd v Leon Plant Hire Pty Ltd. [9] It is not presently apparent when this interest is said to have arisen, or when it was claimed by caveat. I am not at this stage able to form any view as to its enforceability or priority.
Mr Osborne claims an interest pursuant to a written loan agreement between the AKO No 2 Trust (of which he is trustee) and MINMXT dated 1 September 2015, [10] by which he advanced $240,183.19 on 1 September 2015, upon terms that included that it was secured by the Bella Vista land. He subsequently advanced a further $100,000 on 23 March 2016, and a further $20,000 on 1 June 2016, on the same terms and conditions. He lodged a caveat on 15 July 2016 (after the commencement of the winding up). The loan agreement is stamped with duty on $360,183, although it was not stamped until 23 February 2017. Although the liquidator has submitted that Mr Osborne's claim should be accepted only to the extent referred to in proposed order (1)(c) - namely $216,285.08 - the rationale for that is not apparent.
Under the orders of Barrett AJA, the liquidator is entitled, in priority to beneficiaries (but ranking after the other secured creditors), to the balance of his remuneration and expenses, [11] being $70,024, plus indemnity for the costs payable by him pursuant to order 1. In addition, he is entitled to priority over the beneficiaries in respect of MINMXT's lien as outgoing trustee for indemnity in respect of unsecured trust creditors. [12]
The liquidator submitted that by reference to the principles in Heid v Reliance Finance Corporation Pty Limited, [13] Mr Osborne's equity should be postponed in whole or in part to the liquidator's, on account of his failure to lodge a caveat, and the liquidator's commencement of costly proceedings to prevent the sale of the Bella Vista property pursuant to a void contract where the caveators' claims amounted to some $512,145.13, which subsequently increased to $1,130,795 with the consequence that there would be no funds available for the benefit of the unsecured creditors. It was submitted that had the liquidator known the full extent of the caveators' claims, he might well not have embarked on expensive unfunded litigation intended to benefit the unsecured creditors.
Given that an instrument which is unenforceable for want of stamping can be made retrospectively enforceable by belated stamping, I do not accept that mere failure to stamp is postponing conduct. Postponement is, as explained in Heid, associated with acts or omissions which it is reasonably foreseeable will allow a later equitable interest to be created upon the assumption that the earlier interest does not exist. The relevant timeline is that:
1. Mr Osborne's interest arose on 1 September 2015, was increased on 23 March 2016 and further increased on 1 June 2016;
2. the winding up order was made on 15 June 2016;
3. the liquidator commenced the proceedings to avoid the disposition by originating process filed on 30 June 2016;
4. Mr Osborne lodged his caveat on 15 July 2016; and
5. the liquidator's application was heard and determined, as a short undefended matter in the Monday Corporations list, on 1 August 2016.
While it is true that the liquidator may have been unaware of Osborne's claim at the commencement of the winding up and when he commenced the proceedings, he was aware of it within a fortnight of commencing the proceedings, and had ample opportunity to abandon them once learning of the claim. He did not do so. In any event, under the orders of Barrett AJA, the liquidator has been allowed priority for his remuneration and expenses in connection with the avoidance proceedings. In those circumstances, I do not consider that considerations of fairness and justice require that Mr Osborne's equity be postponed to that of the liquidator. [14]
Thus, I am satisfied that:
1. subject to stamping its loan agreement, Prospa has a security interest which is entitled to priority over the liquidator and the beneficiaries to the extent of $587,035.06; and
2. Osborne has a security interest which is entitled to priority over the liquidator and the beneficiaries to the extent of $360,183.06.
Even if one disregards Hoots, those claims together exceed $947,000 and would exhaust the funds in court, and it would be open to proceed on the basis that the funds can be distributed without regard to claims of lower priority. Accordingly, upon being satisfied that Prospa's claim is not unenforceable for want of stamping, I would be prepared to make order (1) of the proposed consent orders. However, the proposed consent orders do not address the accrued interest, which if the orders are made in that form will remain in court.
I am not inclined to make proposed order (2), as it appears superfluous. So far as concerns proposed order (4), it is not apparent what is to be dismissed: both the originating process of 30 June 2016, and the interlocutory process filed on 2 December 2016, have been heard and determined, and orders made on them; and there is no formal application pending before the Court, although directions have been made for filing of applications for payment out of the funds in court.
I will defer making orders until:
1. the third respondent Prospa provides evidence that its loan agreement has been duly stamped;
2. the parties have indicated what they propose should be done in respect of the interest; and
3. seven days have elapsed from publication of these reasons, so that any party may make submissions arising out of this judgment.
[3]
Endnotes
See In the matter of MINMXT Holdings Pty Ltd [2017] NSWSC 156 and In the matter of MINMXT Holdings Pty Ltd (No 2) [2017] NSWSC 231.
Re Universal Distributing Co Ltd (in liq) (1933) 48 CLR 171.
In the matter of MINMXT Holdings Pty Ltd [2017] NSWSC 156 at [30]-[34].
Although the orders of Barrett AJA refer to "the beneficiaries", a discretionary trust of this kind has no beneficiaries with an equitable interest in the trust property, only potential discretionary beneficiaries. If there were any residue for the beneficiaries, it would be necessary either to be satisfied that Winghouse had been duly appointed and is acting as trustee, or to appoint another trustee. However, this complexity need not be addressed, as the available funds are exhausted by higher ranking claims.
Prospa's claim is stated in an affidavit of its solicitor Paul Nathan Reese of 10 February 2017.
(NSW) Duties Act 1997, s 211; ACN 075 911 470 Pty Ltd v Almaty Pty Ltd [2011] NSWSC 333 at [15]-[18]; In the matters of Beechworth Land Estates Pty Ltd and Griffith Estates Pty Ltd (Admin Apt) (No 2) [2015] NSWSC 336 at [94]-[159].
Electricity Meter Manufacturing Coy Ltd v Manufacturers' Products Proprietary Ltd (1930) 30 SR(NSW) 422 at 430; Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359 at 384; Westpac Banking Corporation v Mousellis (1985) 37 NTR 1 at [6]-[7]; In the matter of C & L Cameron Pty Ltd [2012] NSWSC 676 at [57]. While there is authority that later stamping of an instrument cannot retrospectively validate a caveat lodged when the instrument was unenforceable [Neoform Developments & Interiors Pty Ltd v Town & Country Marketing Pty Ltd [2002] NSWSC 344 at [31]-[32]; McKensey v Hewitt (2004) 61 NSWLR 54; Boral Recycling v Wake [2009] NSWSC 712 at [10]-[17]; Bellissimo v JCL Investments Pty Ltd [2009] NSWSC 1260; Beechworth Land Estates Pty Ltd and Griffith Estates Pty Ltd [2015] NSWSC 336 at [94]-[159]], the issue here is not the sustainability of the caveat, but the existence and priority of the underlying equitable interest which depends on the loan agreement, and the authorities recognise the retrospective effect of late stamping to achieve this.
There is no evidence supporting Hoots' claim. This summary is taken from the submissions of the liquidator's solicitor.
[2015] NSWSC 397 at [65]-[66].
Osborne's claim is stated in an affidavit made by him on 10 April 2017.
The liquidator's entitlements to the extent that they have priority over the remaining secured creditors have been retained by him before payment into court.
As the company had no function other than as trustee of the trust, all its liabilities would be trust liabilities in respect of which the right of indemnity would apply.
(1983) 154 CLR 326 at 335-337.
Cf Heid v Reliance Finance Corporation Limited at 341-2; Barlin Investments Pty Ltd v Westpac Banking Corporation (2012) 16 BPR 30,671 at [31]-[32].
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Decision last updated: 01 December 2017