Apostolou v VA Corporation of Aust Pty Ltd

GLEESON J: 1 The plaintiff ("liquidator") is the liquidator of Business Aptitude Pty Ltd (in liquidation) ("company"). By originating process dated 28 September 2016, the liquidator applied to be appointed as receiver and manager of the property, assets and undertaking of the Crosby Family Trust ("trust") pursuant to s 57(1) of the Federal Court of Australia Act 1976 (Cth) ("the FCA Act"), and for ancillary orders. 2 Section 57(1) of the FCA Act provides that: The Court may, at any stage of a proceeding on such terms and conditions as the Court thinks fit, appoint a receiver by interlocutory order in any case in which it appears to the Court to be just or convenient so to do. 3 After hearing submissions from the plaintiff, I made the orders sought. These are my reasons for making the orders.

Background Facts 4 On 31 August 2016, the liquidator was appointed liquidator of the company pursuant to a resolution of the company in accordance with s 491(2) of the Corporations Act 2001 (Cth) ("Act").

Crosby Family Trust 5 From his inquiries of the company's director, Dorothy Crosby, the liquidator has discovered that, on or about 1 July 2002, the company was appointed as trustee of the trust pursuant to a trust deed of the same date ("trust deed"). The liquidator has an unsigned copy of the trust deed, the original being held by the National Australia Bank. At all times since its appointment as trustee, the company has carried on business, incurred liabilities and held assets solely in its capacity as trustee of the trust. 6 The trust is a discretionary trust. The named beneficiaries of the trust are Dale and Dorothy Crosby, three of their children and a child of Dorothy Crosby from a previous marriage. 7 Consents to the liquidator's appointment as receiver and manager were obtained from each of the named beneficiaries. In the case of two minor children, the consent was provided by Mrs Crosby on their behalf. 8 The financial statements for the trust for the 12 months ended 30 June 2014 disclose distributions only to the named beneficiaries. The liquidator was informed by a director of the company that there have been no distributions to any other parties. 9 Clause 11(F) of the trust deed provides, relevantly, that "the office of a Trustee shall ipso facto be determined and vacated if the Trustee ... being a Corporation … passes a resolution for its winding up …". 10 Accordingly, it appears that the company ceased to be the trustee of the trust upon the appointment of the plaintiff as liquidator of the company. 11 To the best of the liquidator's knowledge, no replacement has been appointed as trustee of the trust. 12 The liquidator wishes to realise the assets of the trust and apply the proceeds to discharge the liabilities incurred by the company in its capacity as trustee. The liquidator currently expects that the proceeds of realising the identified assets will be insufficient to discharge all of the company's liabilities.

Trust assets and liabilities 13 As at 31 August 2016, the company held the following assets as a bare trustee of the trust: (1) 09/2008 Toyota Kluger GSU45R Grande AWD Wagon, the estimated value of which is $13,000; (2) 2007 Alfa Romeo 156 Sedan, the estimated value of which is $1,600; (3) various items of IT equipment, the estimated value of which is $750 to $1,500; (4) fifty per cent shareholding in What Product Pty Ltd, the value of which is unknown; (5) the domain name, www.trainingbeyondaccounting.com.au, the value of which is unknown; (6) the domain name, www.bizaptitude.com.au, the value of which is unknown; (7) a customer database; (8) trade debtors from which the liquidator anticipated to realise up to $10,000. 14 The liquidator has identified liabilities to creditors in the sum of $150,791.08, which he considers to have been incurred by the company in its capacity as trustee of the trust. The liabilities include a debt to the Australian Taxation Office, various trade creditors and debts to banks. 15 At the hearing on 4 November 2016, Mr Blackie, who represented the liquidator, informed the Court that a purchaser had been located for the shares in What Product Pty Ltd. That purchaser is willing to pay $2,200 for the shares. Further, the trade debtors have been realised for the sum of $3,223. 16 Mr Blackie also informed the Court that the liquidator had recently obtained MYOB accounts for the trust up to 30 June 2016, which disclosed loans to trust beneficiaries totalling over $600,000. The liquidator proposes to investigate the true position about the loans. Initial inquiries suggest that the true amount of the loans might be closer to $100,000 because the MYOB accounts do not take into account distributions for the 2014 and 2015 years.

Legal Principles 17 The general ground upon which the Court appoints a receiver is the protection or preservation of property for the benefit of persons who have an interest in it: QBE Insurance (Australia) Ltd v WA Metal Recycling Pty Ltd, in the matter of WA Metal Recycling Pty Ltd (in Liq) [2016] FCA 238 ("QBE Insurance") at [13], citing Sapphire (SA) Pty Ltd v Ewens Glen Pty Ltd [2011] FCA 600 at [15]. 18 Where a trustee is removed, it retains a right of indemnity from the trust assets secured by an equitable charge over them for its liabilities incurred by reason of acting as trustee: In the matter of Stansfield DIY Wealth Pty Ltd (in liquidation) [2014] NSWSC 1484; (2014) 291 FLR 17 ("Re Stansfield") at [10]. 19 There is a conflict of authority as to whether the liquidator of a corporate trustee, which has ceased to be trustee, has the power to sell trust assets to enforce the (former) trustee's right of indemnity. In Apostolou v VA Corporation of Aust Pty Ltd [2010] FCA 64; (2010) 77 ACSR 84, Finkelstein J held, at [48]-[50], that the liquidator of a corporate trustee which held legal title to trust property in which it also had an equitable interest could sell the subject property pursuant to the power of sale conferred by s 477 of the Act and that this survived the removal of the corporate trustee. 20 However, in Re Stansfield, Brereton J disagreed with the decision of Finkelstein J and held (at [10],[16]-[20],[30],[33]) that, if a trustee company ceases to be trustee of a trust it can no longer exercise the trustee's power of sale under the trust instrument or general law and that s 477(2)(c) of the Act does not empower the liquidator to sell property held by the trustee company on trust, even if the trustee company has an equitable charge over it, because the property is not in itself "property of the company". 21 Notwithstanding this conflict of authority, it is well-established that a receiver and manager can be appointed over trust property to secure the trustee's right of indemnity out of the assets of the trust: SMP Consolidated Pty Ltd (in liquidation) v Posmot Pty Limited [2014] FCA 1382 ("SMP Consolidated") at [7] citing Re Indopal Pty Ltd (1987) 12 ACLR 54 at 57; Kerr, in the matter of Angel's Castle Pre-School Pty Ltd (In Liquidation) [2010] FCA 786 ("Angel's Castle Pre-School") at [25]; In the matter of Gramarker Pty Ltd; Clifford Sanderson (as liquidator of Gramarker Pty Ltd) v Kerr [2014] NSWSC 243 at [6]-[7]; Re Stansfield at [31], [33], [45]. 22 This Court has exercised its power under s 57(1) of the FCA Act for the purpose of appointing a liquidator of a former trustee company as receiver and manager of the trust, for example, in QBE Insurance and in Kite v Mooney, in the matter of Mooney's Contractors Pty Ltd (in liq) [2016] FCA 886.

Consideration 23 The liquidator sought to be appointed as receiver and manager of the trust so that he can realise the assets of the trust referred to in [13] above and apply the proceeds of the same to discharge the liabilities referred to in [14], which were incurred solely in its capacity as trustee. 24 The application arises from the liquidator's uncertainty about whether, the company having ceased to be the trustee of the trust, he has a power of sale over the assets of the trust. 25 I was satisfied that the liquidator should be appointed as receiver and manager to ensure that he is in a position to convey a secure title to the assets of the business: cf. Angel's Castle Pre-School at [31]. 26 There is no obvious conflict between the duties of the liquidator as liquidator and as receiver and manager because both the company and the trust appear to be insolvent. In any event, the beneficiaries of the trust consent to the appointment of the liquidator as receiver and manager.

Costs 27 The liquidator sought to recover the costs of the receivership and the general costs of the liquidation from the proceeds of the sale of the assets: cf. Re Stansfield at [45]. In SMP Consolidated, Yates J fixed the liquidator's remuneration as receiver and manager on the basis of his estimated remuneration, to avoid the additional costs involved in making a separate application for remuneration at a later time. In QBE Insurance, Farrell J made a capped order for payment of the receiver's remuneration. 28 I was satisfied that I should make an order for payment of remuneration in respect of the receivership, capped at the amount estimated by the liquidator. I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gleeson.