Bastion v Gideon Investments Pty Ltd

Supreme Court of NSW|2017-07-19|Before: Brereton J

Solicitors: Stacks Champion (plaintiff) File Number(s): 2017/137921

Jurisdiction

(CTH) Corporations Act 2001, s 479(3), authorises a liquidator in a court-ordered winding up to seek, and the court to give, directions in relation to any particular matter arising under the winding up. The jurisdiction is concerned with the manner in which a liquidator should act in carrying out an aspect or aspects of his or her functions as such, and the effect of such a direction (other than to render the liquidator liable to appropriate sanctions if a direction in mandatory or prohibitory form is disobeyed) is to protect the liquidator from liability to a creditor or contributory or the company in respect of anything done by him or her in accordance with the direction, so long as there has been full and fair disclosure of the material facts. [3] Generally speaking, the cases appropriate for directions fall into four (non-exhaustive) categories, namely guidance on matters of law, guidance on questions of legal procedure, whether a liquidator should postpone a sale in order to achieve a better price, and where there are two competing offers for assets and a liquidator wishes to gain court directions in order to avoid a subsequent allegation that he or she has acted improperly in choosing one over the other. [4]
Section 479 is repealed, in its entirety, by (CTH) Insolvency Law Reform Act 2016, Sch 2, Part 2. Although there may be some scope for debate as to whether the Insolvency Practice Schedule (Corporations), s 90-15, will fully replace it, that need not presently be resolved, because while the commencement date for Sch 2 Part 2 is stated to be 1 March 2017, [5] that commencement has been deferred to 1 September 2017. [6] Accordingly, s 479(3) remains available until 1 September 2017. [7]

Did Worthbrook hold its interest as trustee?

Subject to the Court's direction, the Liquidator has, on the available information, formed the view that Worthbrook traded only in its capacity as trustee of the Giovannini Family Trust, and held its interest in the Properties in its capacity as such trustee. The Liquidator has formed that view having regard to a number of matters, in particular that: 1. various partnership accounts show that distributions were made to the Giovannini Family Trust, through Worthbrook, in respect of the Green Square partnership and the Benzcorp partnership; 2. a small number of tax invoices for the properties show that both Worthbrook and Rolcross issued invoices in their capacities as trustees for their respective trusts; 3. ANZ bank records show that the name of the account recorded the operator as Worthbrook and Rolcross, in their capacities as trustees of trusts; 4. a number of leases show that the lessor was Worthbrook and Rolcross, in varying ownership proportions; 5. documentation from the Office of State Revenue suggests that Worthbrook held its interest in the properties as trustee for the Giovannini Family Trust; and 6. documents from the secured creditor, St. George, suggest that Worthbrook held its interest in the properties in its capacity as trustee.
The Liquidator properly points out that there are also a number of documents which are silent as to Worthbrook's capacity. In particular: 1. in the litigation in relation to the separation of the interests of Mr Prendergast and Mr Muriti, Worthbrook was named as the third defendant, without any reference to the Giovannini Family Trust; 2. the heads of agreement by which Mr Prendergast and Mr Muriti separated their interests makes no reference to Worthbrook in its capacity as trustee; 3. payments made by Mr Muriti to Worthbrook pursuant to those heads of agreement do not refer to Worthbrook as trustee; and 4. in an affidavit of 16 May 2005, Mr Prendergast deposes to the acquisition of the Properties but makes no mention of Worthbrook in its capacity as trustee for the Giovannini Family Trust.
However, in my view, the documents that refer to the company's trustee capacity are much more significant than those that do not. It is often unnecessary - or even inappropriate - to disclose a trustee's status as such in a dealing with a third party; of this, the land titles register is perhaps the paradigm, in which equitable interests are not recorded. In short, documents which do not refer to trustee capacity do not tell against the company having and acting in that capacity, whereas documents that do refer to that capacity point firmly in favour of it. The Liquidator's conclusion that, more likely than not, Worthbrook held its interest in the Properties (and thus in their proceeds) as trustee for the GFT, and had no function other than as such trustee, is amply warranted.
Accordingly, the Liquidator would be justified in proceeding on the basis that the company Worthbrook Pty Limited held its interest in the properties at 22 O'Riordan Street Alexandria, 340A Botany Road Alexandria, and 326-332 Church Street Granville (and in the proceeds of their sale), as trustee of the Giovannini Family Trust, and had no function other than as such trustee.

Remuneration

As Worthbrook acted only as trustee of the GFT, and in no other capacity, it follows that all of the work in the liquidation of Worthbrook is referable to its capacity as trustee, and that the Liquidator's remuneration is payable from the trust fund. This is because the liquidator of a company which is the trustee of a trading trust and has no other activities is entitled to be paid costs and expenses, whether for administering the trust assets or for 'general liquidation work', out of the trust assets. [8]
Although the Liquidator has adduced some evidence of his claimed remuneration on a time-cost basis, the Court is not in this application asked to approve the methodology of calculating, or the quantum of, the Liquidator's remuneration.
The Liquidator would therefore be justified in paying his reasonable expenses, and remuneration when duly approved, of the Worthbrook liquidation, from the assets of the Giovannini Family Trust.

The bank accounts

There are four bank accounts in the joint names of Worthbrook and Rolcross. Two of them (respectively the 0317 account and the 9484 account) the Liquidator has, for reasons set out in his affidavit, considered to be referable to the Green Square Partnership and the Benzcorp Partnership respectively, and the Liquidator proposes to treat them as assets of the respective partnership, and applied and apportioned in accordance with the methodology for distribution of partnership assets referred to below. Those views of the Liquidator represent conclusions which are rational, reasonable and appropriate based on the available evidence to which he has referred, and require no further comment.
The other two bank accounts (referred to as the 0511 Account and the 6625 Account) are, in the Liquidator's view, not referable to any of the partnerships, but are joint assets of Rolcross and Worthbrook. Again, that view is a rational, reasonable and appropriate conclusion based on the available evidence.
The Liquidator proposed to divide the balance standing to the credit of each of the 0511 Account ($216,142.69) and the 6625 Account ($193,644.82) equally between Rolcross and Worthbrook, but then to permit Rolcross to prove in Worthbrook's liquidation as a creditor for a sum which represents that part of the closing balance which equates to the difference between 50% and Rolcross' assessed proportionate contribution to the account (which in each case exceeds 50%). This is based on a view that payments into and from a joint account by or on behalf of one joint holder should be taken into account in determining whether it has a claim against the other.
In order to assess the relative contributions of each of Rolcross and Worthbrook to those accounts, the Liquidator has conducted an analysis of each account. Observing that, given the large number of transactions on each account and the period of time since they have occurred, it would be cost-prohibitive and of little utility to endeavour to examine every transaction, he has concentrated on the more substantial amounts in coming to the views that he has about how each account should be apportioned. In respect of the 0511 account, based on a review of a limited number of deposits (and none of the withdrawals) he has concluded that about 85.78% of the deposits were by or on behalf of Rolcross and 14.22% by or on behalf of Worthbrook. However, he has not been able to identify the source or purpose of the single latest transaction which, on a first-in first-out basis, accounts for practically the entire current credit balance. Nor has he been able to ascertain the reason for or application of significant withdrawals from the account, and so cannot say whether they would impact on the proportions in which Worthbrook and Rolcross have contributed in net terms. He proposes that the balance in the account be equally divided between them ($108,071.34 each), but that Rolcross should prove in the liquidation of Worthbrook for the difference between the amount it receives (50%) and its proportional interest in the deposits (85.78%), which would be $77,335.86.
Similarly, in respect of the 6625 Account, the Liquidator has concluded, from a review of "significant transactions" on the account, that about 76.16% of the net deposits were by or on behalf of Rolcross and 23.84% by or on behalf of Worthbrook, and proposes that the balance in the account be equally divided between them ($96,822.41 each), but that Rolcross should prove in the liquidation of Worthbrook for the difference between the amount it receives (50%) and its proportional interest in the deposits (76.16%), which would be $50,657.48. Once again, there are numerous transactions which, if their nature and purpose was known, might affect this.
During the hearing I expressed some difficulty in principle with this approach, and on further consideration I do not consider that the solution I then proffered answers them.
A sum standing to the credit of a joint account is a debt owed to the holders of that account jointly. [9] That is to say, it is a chose of action, held jointly [10] - and upon severance, equally. It follows that, in the present case, the chose in action represented by the balance in each joint account was the property of both Worthbrook and Rolcross, jointly, and the Liquidator is correct in concluding that the closing balance should be divided equally between the two holders. The question is whether there should be any adjustment to that result by reason of apparently disparate contributions to the account.
In Re Bishop (dec'd); National Provincial Bank Ltd v Bishop, [11] Stamp J held that where spouses opened a joint account on terms that cheques might be drawn by either, then in the absence of indications that the account was kept for a specific or limited purpose, each spouse could draw on it for his or her own benefit and did so with the authority of the other, and any chattel or investment purchased belonged to the person in whose name it was purchased; there was no equity in the other spouse to displace this legal ownership of the one in whose name the investment was purchased; and similarly, if one spouse made a purchase in their joint names, there was no equity to displace the joint legal ownership. This is because, as Stamp J explained: "What is purchased is not to be regarded as purchased out of a fund belonging to the spouses in the proportions in which they contribute to the account or in equal proportions, but out of a pool or fund of which they were, at law and in equity, joint tenants". [12] Numerous Australian authorities [13] that endorse or support this principle are collected, summarised and considered by Campbell J, as he then was, in West v Mead. [14] His Honour notes the doubt expressed by Finkelstein J in Ebner v Official Trustee in Bankruptcy, [15] that it can be correct that the joint owner who reaches the bank first can divert jointly owned funds to the purchase of investments in which the other will have no interest: [16] [79] In Ebner v Official Trustee in Bankruptcy (2003) 196 ALR 533; [2003] FCA 73; BC200300253 at [27] Finkelstein J said that: In any event, to the extent that Mrs Ebner relies upon Re Bishop I think the case is of doubtful authority. In Rathwell v Rathwell [1978] 2 SCR 436 Dickson J, who delivered the leading judgment of the Supreme Court of Canada said of the case (at 459): I have difficulty in understanding the basis upon which it can be said that the joint owner who reaches the bank first can divert jointly-owned funds to the purchase of investments upon which the other joint owner will have no claim. In a decision of this court Re Daly; Daly v Brown, at p148, a joint bank account case, McLellan J said: "In a case of joint tenancy neither party is exclusive owner of the whole. Neither can appropriate the whole to himself". [Footnotes omitted].
Campbell J said of this: [17] [80] I share, with respect, his Honour's doubts that it can be correct that "the joint owner who reaches the bank first can divert jointly owned funds to the purchase of investments upon which the other joint owner will have no claim." However, the concern arises from the notion of "diversion" - that assumes that there is some limitation on the authority on the party who has reached the bank first, which does not enable him or her to use the funds in the way he or she has in fact used them. That concern is fully catered for in Stamp J's statement of principle, because his rule applies only "in the absence of facts or circumstances which indicate that the account was intended, or was kept, for some specific or limited purpose".
His Honour's response, that there could only be a complaint of diversion in a case where there was a limitation on the authority of a party to draw on the account is, in my respectful view, a complete answer to the reservation expressed in Rathwell v Rathwell, [18] and repeated by Finkelstein J in Ebner.
The issue in most of the cases has concerned entitlement to the closing balance upon breakdown of the relationship, or entitlement to investments purchased with moneys drawn by one party from the joint account. In Jones v Maynard, [19] however, there appears to have been a suggestion that an account be taken of the respective contributions made by each party - which was rejected by Vaisey J: The husband also referred to the moneys as being "our joint savings," but, in what I have ventured to call an antediluvian conception of the relationship of a husband with regard to his wife, he seems to have thought that some sort of account ought to be taken crediting him with all the money which was paid in from his salary as a schoolmaster, and that any moneys which came from his side should be set against the comparatively small amount of moneys which were contributed by the wife, amounting to not more than some £50 a year. I am told that there is no real authority with regard to this point, and I, therefore, act on such guidance as is afforded to me by the Court of Appeal's observations in Re Rogers' Question. In my judgment, where there is a joint purse between husband and wife - a common pool into which they put all their resources - it is not consistent with that conception that the joint account should thereafter (in this case in the event of a divorce) be divided up with reference to the respective contributions of husband and wife, crediting the husband with the whole of his earnings and the wife with the whole of her dividends. I do not believe that when once the joint pool has been formed it ought to be, and can be, dissected in any such manner. I take the view that when spouses have a common purse and a pool of their resources, the husband's remuneration is earned on behalf of them both, and the idea that years afterwards one can dissect the contents of the pool by taking an elaborate account as to how much was paid in by the husband and how much was paid in by the wife is not consistent with the original fundamental idea of a joint purse or a common pool. When the money goes into the pool it is there as joint property.
It might be argued that this approach has less to commend it outside the matrimonial context, and that in the case of a joint account held by two related corporate entities a different approach should apply: each movement on the joint account could be treated as an advance by or repayment to (or for the benefit of) one or other (or sometimes both) of the holders, so that within the joint account there are in effect two loan accounts, one for each holder, to which deposits made by or for the holder are credited, and withdrawals by of for that holder are debited. Such an analysis might result in one account holder being indebted to the other - although this would not depend on their proportionate deposits, but on the net balance of each internal loan account. [20]
However, such an approach would be inconsistent with the theory of a joint account as explained in the cases to which I have referred, which is that - absent express or implied limitation - each holder, being a joint owner of the whole account balance, is authorised by the other to draw on all the moneys in the account from time to time for its own purposes, without liability to account to the other. Moreover, while it is true that these principles have developed in the context of husband and wife, I respectfully do not agree with Menzies J (in dissent, in Croton) that they depend entirely on the special relationship of husband and wife; [21] rather, they are a consequence of the nature of joint ownership, and the authority conferred by each joint holder on the other through the account mandate, in the absence of an express or implied limitation. As explained by Campbell J (emphasis added): [22] When husband and wife have money in a joint bank account, that is, in law, a debt which the bank owes to the two of them jointly: Russell v Scott at 448, 450, 457; Fadden v Deputy Federal Commissioner of Taxation (1943) 68 CLR 76 at 82-83. If the bank is to be discharged from its legal obligation to pay that debt, it must act in accordance with an authority which the two of them have given to the bank. If the two of them have given authority to the bank entitling it to honour cheques or other documents seeking payment which are signed by one of them alone, then the bank will be discharged from its debt if it acts in accordance with that authority. By the very act of joining in signing an authority to the bank whereby either may withdraw from the joint account, the spouses are also conferring on each other authority to withdraw from the joint account. If there is nothing more than the spouses conferring that authority on each other, then either spouse will be able to withdraw the whole of the money contained in the joint account. However, there is no legal necessity for the scope of the authority which exists as between the spouses, to be the same as the authority which the spouses confer on the bank. It is perfectly possible for the spouses to agree, as between themselves, that, even though the bank is given authority to pay out the whole or any part of the money in the joint account on the request of either of them, that authority will be used only in limited circumstances, or for limited purposes. Even if there is no expressly stated limitation as between the spouses on the authority which they have, it might be the case, depending on the facts in a particular instance, that the court will imply or infer some limitations on the authority which the spouses give to each other to draw money from the account and apply it for their own purposes; if such limitations are proved to exist, and those limitations are exceeded, property purchased with funds from the joint account remain, in equity's eyes, subject to the joint ownership. It is at the level of fact-finding, about whether there is any limitation on the authority of one spouse to withdraw money from the joint account, that any consideration of whether legally binding relations are intended to arise from dealings between husband and wife may find a role: Balfour v Balfour [1919] 2 KB 571; Gage v King [1961] 1 QB 188 at 192-3. Thus, withdrawals can be made by either spouse from a joint account for matters within the mutually intended course of dealing with that account, and any property purchased for a spouse's own purposes with such a withdrawal will belong to the spouse who has made the withdrawal.
Thus where a joint account mandate requires only one signature, and in the absence of an express of implied limitation, then each account holder is entitled to draw on the account for his, her or its own purposes, and to retain the money withdrawn - and any property purchased with it - as his, her or its own beneficial property, without incurring liability to account to the other. In this case, nothing appears that would limit the right of either joint holder to draw for its own purposes on the joint accounts. There is no reason to treat the joint accounts as anything other than a pooling of funds on which either was at liberty to draw for its own purposes. And even if there were an express or implied provision that each would account for any excess drawn by it over its contributions, that cannot now be done, for passage of time and want of evidence. In my judgment, in those circumstances, the preferable course, consistent with the authorities to which I have referred, is that the accounts be divided equally between Rolcross and Worthbrook, and that there be no further adjustment by reason of disparate contributions to, or drawings from, them.

Application of partnership assets

In paragraph 8 of his affidavit of 1 May 2017, the Liquidator sets out in a table his proposed distribution of the partnership assets between Rolcross and Worthbrook. In simplified form, that table is as follows: (a) Benzcorp (b) Green Square (c) Rosehill (d) Vidal (1) Amount initially held 814,649 4,538,755 939,399 3,244,742 (2) Amount held after repayment of inter-partnership loans 3,024,740 [23] 6,454,980 [24] 0 0 (3) Less, payments to Worthbrook for contributions 752,772 0 0 0 4,363,481 (4) Less, payments to Rolcross for contributions 238,887 26,083 0 0 81,642 (5) Surplus available for distribution 2,033,130 1,983,773 0 0 (6) To Rolcross 1,509,593 [25] 5,859,848 [26] 0 0 (7) To Worthbrook 1,515,146 [27] 595,131 [28] 0 0

Thus the Liquidator proposes to apportion the assets of each of those partnerships between Worthbrook and Rolcross in the following manner: 1. first, any external liabilities of the relevant partnership, including inter-partnership loans, will be paid out of the assets of that partnership; 2. secondly, amounts which a partner has contributed in excess of its proportionate partnership interest will be refunded to that partner; and 3. thirdly, the remaining balance will be distributed between Worthbrook and Rolcross in proportion to their respective equity interests in that partnership, to then be distributed within the separate liquidations of those companies.
Effectively, what is proposed is the out-of-court winding up of the partnerships. The circumstance that each partner is a company in liquidation with a common liquidator means that this can be achieved effectively as a consensual winding up of the partnerships, without resorting to, and incurring the cost of, appointment of a receiver of each partnership.
Upon dissolution of a partnership, the property of the partnership is to be applied first in payment of the debts and liabilities of the partnership, and the surplus applied in payment of what may be due to the partners respectively, after deducting what may be due from them as partners to the firm. [29] Losses and deficiencies of capital are paid first out of profits, next out of capital and last by the partners individually in the proportion in which they were to share profits. The assets of the firm are to be applied first in paying the external debts and liabilities of the firm; secondly in paying to each partner what is due by the firm to the partner for advances as distinct from capital, ratably if the assets are insufficient to do so in full; thirdly, in paying to each partner ratably what is due from the firm to the partner in respect of capital; and finally, any ultimate residue is divided among the partners in the proportion in which profits are divisible. [30]
Where the partnership assets are sufficient to pay external debts and liabilities, but not to repay to the partners their respective advances, those advances (to the extent they remain unpaid) are treated as a debt of the firm, payable to one of the partners rather than to a stranger. This was explained by Young CJ in Eq in Cavasinni v Cavasinni: [31] [45] Had the excess of Frank's capital contribution over the capital contribution of the others been an "advance", then it would have ranked as a partnership liability and would have been paid out of the partnership funds before anything was distributed between the partners. As a partnership liability, it effectively would have been paid three ways. Whilst there are some logical problems about this, that is the way in which the authorities would treat such an advance; see particularly the decision of the Court of Appeal in British Columbia in Klaue v Bennett (1989) 62 DLR (4th) 367.
Thus in such a case, the advance is notionally repayable by the partnership; in the event of a shortfall the partners are notionally liable to contribute to the loss according to their partnership interest; the unpaid partner's claim against the other would not be for the whole of the shortfall, but for the other partner's pro-rata share of it.
The Liquidator currently holds Benzcorp Partnership assets of $814,649, and Green Square Partnership assets of $4,538,755.
The first step in the Liquidator's proposal is the repayment of partnership external liabilities, including inter-partnership loans. Treating inter-partnership loans as external liabilities (and assets), they are repaid out of partnership assets of the debtor partnership to the extent that its assets permit, and thereupon enhance the available funds of the creditor partnership. The Liquidator has reasonably formed the view that an inter-partnership loan by Benzcorp to Green Square of $1,322,882 (recorded in the 2003 accounts) remains outstanding. In addition, the Liquidator has reasonably formed the view that a loan by Benzcorp to the Rosehill Partnership of $584,550 remains outstanding, as does a loan by Benzcorp to the Vidal Partnership of $1,136,562. The application of the proceeds of sale of the Church Street property and the Botany Road property to the discharge of the St George facility resulted in movements on the inter-partnership loans, with the consequences that: 1. Benzcorp now owes Green Square $725,986; 2. Rosehill now owes Benzcorp $1,527,910 and Green Square $274,551; and 3. Vidal now owes Benzcorp $2,215,647 and Green Square $1,144,301.
While there are sufficient assets in Benzcorp to repay Green Square, there are insufficient assets in Rosehill and Vidal to repay Benzcorp or Green Square in full; the Liquidator proposes that Worthbrook prove in the liquidation of Rolcross (the sole remaining partner in Rosehill and Vidal) for its proportionate interest in the unpaid loans, being 37.5% (Benzcorp) and 30% (Green Square) respectfully. This accords with the liability of a partner (Rolcross) to contribute to losses according to its proportion interest (100% in the case of Rosehill and Vidal), and is referred to further below in connection with unsecured creditors. [32]
The repayment of inter partnership loans will result in the Liquidator holding Benzcorp Partnership assets of $3,024,740, and Green Square Partnership assets of $6,454,980. From these sums any other external liabilities of those partnerships must be paid. The Liquidator intends to seek further information from creditors to determine whether the debts relate to a particular partnership, or are ordinary unsecured debts in the liquidation of the relevant company; to the extent that a debt is a partnership debt, he proposes to pay it from the partnership assets before distributing the balance between the two partner companies. [33] This accords with step 1 in the order prescribed in s 44.
The second step in the Liquidator's proposal is to repay to a partner who has contributed more than its partnership interest, the amount of its excess contribution, provided that where the partnership assets are insufficient to meet a claim against the partnership, then either Rolcross or Worthbrook may have a claim against the other "as an unsecured creditor", which claim would be provable in the liquidation of the other.
The Liquidator has identified that, as a result of the settlement of the heads of agreement, Worthbrook and Rolcross have received or paid more than their respective partnership interest, and that as a result Worthbrook has contributed $752,772 more than its proportionate interest in respect of Benzcorp, $3,139 in respect of Rosehill and $13,083 in respect of Vidal; whereas Rolcross has contributed $26,083 in excess of its proportionate interest in respect of Green Square. In addition, payment by Rolcross of interest instalments under the St George facilities results in further excess contributions by Rolcross of $238,887 to Benzcorp and $81,642 to Green Square; and the application of the proceeds of the Alexandria property and the Botany Road property results in a further contribution of $4,363,481 by Rolcross to Green Square.
Although he uses the term "contribution", the Liquidator in effect proposes to treat contributions in excess of a partner's proportionate partnership interest as advances. In the absence of evidence that partners were to contribute capital other than in accordance with their partnership interest, that is a reasonable and appropriate course. Because there are no remaining funds available in the Rosehill and Vidal partnerships, and consistently with the rule, referred to above, that where the partnership assets are insufficient to repay to the partners their respective advances, those advances (to the extent they remain unpaid) are treated as a debt of the firm, the Liquidator proposes to treat amounts owing to Worthbrook by the Rosehill and Vidal partnerships as provable debts in the liquidation of Rolcross (the sole partner in those partnerships); again, this is referred to further below in connection with unsecured creditors.
The second step therefore accords with step 2 referred to in Partnership Act, s 44.
The third step in the Liquidator's proposal is the distribution of the balance between the partners according to their respective partnership interests. As it appears that their interest in capital and income is the same, this reflects the requirements of steps 3 and 4 in s 44, the repayment of capital and profits in accordance with the interests of the partners.
Accordingly, the course proposed by the Liquidator for the application of partnership assets is consistent with the principles applicable to the winding up of partnerships: first, partnership external liabilities will be paid; secondly, amounts due from a partner to the firm in excess of a partner's proportionate contribution will be treated as advances and repaid, and if the assets are insufficient treated as a liability of the partnership to be borne by the partners according to their respective partnership interests; and thirdly, the balance will be paid to the partners according to their partnership interests. Thus the methodology proposed by the liquidator for the application and distribution of the partnership assets accords with law, and I am satisfied that there is a reasonable basis for the factual conclusions on which he proposes to proceed.
Accordingly, the Liquidator would be justified in distributing the proceeds of sale of the assets of the Green Square Partnership and of Benzcorp Partnership, first in payment of all external debts of the relevant partnership, and then in the manner set out in paragraph 8 of the Liquidator's affidavit sworn 1 May 2017. In so advising the Liquidator, it is not intended to prescribe the precise amounts referred to in the table, but to ensure the methodology and underlying assumptions on which it is founded; it is appreciated that the precise amounts may vary according to the provision required for external creditors, the accrual of interest, and possibly other factors.

Unsecured creditor claims

Worthbrook's 2003 financial statements record Mr Prendergast as a creditor for $4,230,162. The Liquidator has reasonably formed the view that the debt has not been repaid, except to the extent of $21,570, and that Mr Prendergast should therefore be admitted as a creditor of Worthbrook in the sum of $4,208,591.
Rolcross's 2003 financial statements record Mr Prendergast as a creditor for $6,513,832. The Liquidator has reasonably formed the view that the debt has not been repaid, except to the extent of $100,663, and that Mr Prendergast should therefore be admitted as a creditor of Rolcross for $6,413,168.
Rolcross's 2003 financial statements include as a receivable "moneys held on trust by Giovannini Family Trust" in the sum of $1,841,072. Worthbrook's financial statements for the same period refer to these funds not as a loan from the GFT but as "vested funds". The Liquidator has reasonably concluded that these funds represent an accumulation of profits generated by the operations of the GFT that may have been declared as distributions to the PFT, but not paid and instead retained by GFT. For the same reasons as have informed his conclusion that Worthbrook has not repaid Mr Prendergast, the Liquidator has reasonably formed the view that it is unlikely that the GFT has repaid the PFT, and accordingly that subject to any set-off that Worthbrook might have against Rolcross, Rolcross is a creditor of Worthbrook for $1,841,072.
In stating that those views of the Liquidator are reasonable, I mean that they are rational, reasonable and appropriate conclusions based on the evidence available, after making reasonable but unsuccessful endeavours to obtain further information. While the evidence is imperfect, due to lack of information from Mr Prendergast (the NSW Trustee and Guardian has been unable to produce any vouching evidence from Mr Prendergast), the time and expense that would be incurred in endeavouring to re-create the accounts from such bank statements as are available would not be warranted.
The Liquidator considers that Worthbrook has a (net) claim against Rolcross for $242,277.35, the effect of admitting which would be to reduce Rolcross' claim against Worthbrook from $1,841,072 to $1,598,794. This arises from the inabilty of the Rosehill and Vidal partnerships to satisfy partnership debts from partnership assets, referred to above, [34] totaling $493,276.77; less amounts totaling $127,993.34 arising from the claim which the Liquidator considered Rolcross had against Worthbrook for its greater contribution to the 0511 Account and the 6625 Account. For the reasons explained above, I do not consider that provision should be made for such a claim by Rolcross, and accordingly Worthbrook's claim against Rolcross should be allowed for $493,276.77, not $242,277.35. The result is that the net claim provable by Rolcross in the Worthbrook liquidation should be $1,347,795.49 - not $1,598,794 as proposed by the Liquidator.
Accordingly, the Liquidator would be justified in: 1. admitting Rolcross (as trustee for the Prendergast Family Trust) as a creditor in the liquidation of Worthbrook, in the amount of $1,347,795.49, being the net unsecured claim between the entities; and 2. admitting Mr John Prendergast as a creditor in the liquidations of Rolcross and Worthbrook, in the respective amounts of $6,413,168.67 and $4,208,591.80.

Conclusion

My conclusions may be summarised as follows:
Although (CTH) Corporations Act 2001, s 479 is repealed, in its entirety, by (CTH) Insolvency Law Reform Act 2016, Sch 2, Part 2, the relevant commencement has been deferred to 1 September 2017, and accordingly s 479(3) remains available until 1 September 2017.
The documents that refer to the company's trustee capacity are much more significant than those that do not. The Liquidator's conclusion that, more likely than not, Worthbrook held its interest in the Properties (and thus in their proceeds) as trustee for the GFT, and had no function other than as such trustee, is amply warranted. As Worthbrook acted only as trustee of the GFT, and in no other capacity, it follows that all of the work in the liquidation of Worthbrook is referable to its capacity as trustee, and that the Liquidator's remuneration is payable from the trust fund.
A sum standing to the credit of a joint account is a debt owed to the holders of that account jointly. Where a joint account mandate requires only one signature, and in the absence of an express of implied limitation, then each account holder is entitled to draw on the account for his, her or its own purposes, and to retain the money withdrawn - and any property purchased with it - as his, her or its own beneficial property, without incurring liability to account to the other. In this case, nothing appears that would limit the right of either joint holder to draw for its own purposes on the joint accounts. There is no reason to treat the joint accounts (that is, the 0511 Account and the 6625 Account) as anything other than a pooling of funds on which either was at liberty to draw for its own purposes. And even if there were an express or implied provision that each would account for any excess drawn by it over its contributions, that cannot now be done, for passage of time and want of evidence. In those circumstances, the preferable course, consistent with the authorities, is that the accounts be divided equally between Rolcross and Worthbrook, and that there be no further adjustment by reason of disparate contributions to, or drawings from, them.
The methodology proposed by the liquidator for the application and distribution of the partnership assets accords with law, and there is a reasonable basis for the factual conclusions on which he proposes to proceed.
The Liquidator's conclusions that Mr Prendergast remains a creditor of Worthbrook for $4,208,591, that Mr Prendergast remains a creditor of Rolcross for $6,413,168, and that subject to any set-off that Worthbrook might have against Rolcross, Rolcross is a creditor of Worthbrook for $1,841,072, are reasonable, as is the conclusion that Worthbrook is a creditor of Rolcross for $493,276 arising from the inability of the Rosehill and Vidal partnerships to repay liabilities of those partnerships. However, no provision should be made for a claim by Rolcross against Worthbrook arising from any disparity in their respective contributions to the 0511 Account and the 6625 Account, and Worthbrook's claim as an unsecured creditor of Rolcross should be allowed for $493,276, not $242,277. As a result, the net claim provable by Rolcross in the Worthbrook liquidation is $1,347,795.
For those reasons, I would be inclined to make orders to the effect that: 1. Pursuant to (CTH) Corporations Act 2001, s 479(3), David Ian Mansfield, in his capacities as liquidator of Worthbrook Pty Limited and as liquidator of Rolcross Pty Limited, would be justified in: 1. proceeding on the basis that the company Worthbrook Pty Limited held its interest in the properties at 22 O'Riordan Street Alexandria, 340A Botany Road Alexandria, and 326-332 Church Street Granville (and in the proceeds of their sale), as trustee of the Giovannini Family Trust, and had no function other than as such trustee; 2. paying his reasonable expenses, and remuneration when duly approved, of the Worthbrook liquidation, from the assets of the Giovannini Family Trust; 3. distributing the funds held in bank account 112-879 127 750 511 between Rolcross and Worthbrook as to 50% each, being $108,071.34 each (plus any interest accruing on the principal amount); 4. distributing the funds held in bank account 112-879 428 496 625 between Rolcross and Worthbrook as to 50% each, being $96,822.41 each (plus any interest accruing on the principal amount); 5. distributing the assets of the Green Square Partnership and of Benzcorp Partnership, first in payment of all external debts of the relevant partnership, and then in the manner set out in paragraph 8 of the Liquidator's affidavit sworn 1 May 2017 (plus any interest accruing on the principal amount); 6. admitting Rolcross (as trustee for the Prendergast Family Trust) as a creditor in the liquidation of Worthbrook, in the amount of $1,347,795.49, being the net unsecured claim between the entities; and 7. admitting Mr John Prendergast as a creditor in the liquidations of Rolcross and Worthbrook, in the respective amounts of $6,413,168.67 and $4,208,591.80.
As this departs in some respects from what was discussed during the hearing, I will at this stage merely publish these reasons, in order to afford the Liquidator an opportunity to make further submissions if so desired, and otherwise to bring in short minutes to give effect to them, at a time to be appointed.

Endnotes

It appears that Mr Giovannini eschews any further interest in the Giovannini Family Trust.
The agreement was subsequently the subject of a rectification suit: Muriti v Prendergast [2005] NSWSC 281 (White J, as his Honour then was), to which reference may be made for a more fulsome explanation of the background.
Re GB Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674 at 679; 5 ACSR 673 at 678; 9 ACLC 1291.
Sanderson v Classic Car Insurances Pty Ltd (1985) 10 ACLR 115 at 117 (Young J); In the matter of One.Tel Limited [2014] NSWSC 457 at [34]; (2014) 99 ACSR 247.
(CTH) Insolvency Law Reform Act 2016, s 2(1), Table item 5.
(CTH) Insolvency Law Reform Act 2016, s 1634; (CTH) Corporations Regulations 2001, reg 10.25.02.
For a full negotiation of the legislative maze which leads to this result, see Re Glengrant Civil Pty Ltd (In Liq) [2017] NSWSC 843 at [11]-[27] (Robb J).
In the matter of Independent Contractor Services (Aust) Pty Limited ACN 119 186 971 (in liquidation) (No 2) [2016] NSWSC 106 at [27], citing Re Suco Gold Pty Limited (1993) 33 SASR 99; (1993) 7 ACLR 873; Grime Carter & Co Pty Limited v Whytes Furniture (Dubbo) Pty Limited [1983] 1 NSWLR 158; Re Sutherland; Re French Caledonia Travel Service Pty Ltd (in liq) [2003] NSWSC 1008; (2003) 59 NSWLR 361; 48 ACSR 97 at [201]; Bastion v Gideon Investments Pty Ltd [2000] NSWSC 939; (2000) 35 ACSR 466 at 480 [70]; In the matter of North Food Catering Pty Ltd [2014] NSWSC 77; In the matter of AAA Financial Intelligence Ltd (in liquidation) ACN 093 616 445 [2014] NSWSC 1004 at [13].
Russell v Scott (1936) 55 CLR 440, 448 (Starke J), 457 (McTiernan J); Fadden v Deputy Federal Commissioner of Taxation (1943) 68 CLR 76, 82-83 (Williams J); West v Mead [2003] NSWSC 161; (2003) 13 BPR 24431 at [81]; Fidock v Legal Profession Complaints Committee [2013] WASCA 108 at [63].
Russell at 448; Fidock at [63].
[1965] Ch 450; [1965] 1 All ER 249 at 252.
Re Bishop (dec'd); National Provincial Bank Ltd v Bishop [1965] Ch 450; [1965] 1 All ER 249 at 252.
Re Fogarty (1976) 27 FLR 257 at 264-5 (Wood J); Re EH & K Pickard (1981) 7 Fam LR 636 at 643 (Nygh J); Re Reid; Clark v Reid (1998) 85 FCR 452 at 456 (Heerey J); Russell v Scott (1936) 55 CLR 440 at 454 (Dixon and Evatt JJ); Croton v R (1967) 117 CLR 326 at 334 (Barwick CJ); Palmer v Bank of New South Wales (1975) 133 CLR 150 at 157 (Barwick CJ, with whom Gibbs, Stephen and Mason JJ agreed).
[2003] NSWSC 161; (2003) 13 BPR 98254 at [70]-[79].
(2003) 196 ALR 533 at [27].
13 BPR 24,431 at 24,448; see also Fidock v Legal Profession Complaints Committee [2013] WASCA 108 at [70].
13 BPR 24,431 at 24,448-9.
[1978] 2 SCR 436 at 459
[1951] Ch 572; [1951] 1 All ER 802 at 803.
Even if appropriate, it would not support the Liquidator's approach here, because the entitlement of one joint holder to an account against the other would not be an entitlement to a proportion of the closing balance according to their respective gross or net contributions, but to an account in respect of the excess drawings by the other over its contributions to the account. This cannot be done here, because it has not been possible to establish how - and for the benefit of which holder - withdrawals from the joint accounts were applied.
Croton v R (1967) 117 CLR 326 at 338 (Menzies J).
West v Mead [2003] NSWSC 161; (2003) 13 BPR 24,431 at 24,449 [81].
Subject to any external partnership liabilities.
Subject to any external partnership liabilities.
Being $238,887.19 (4a) plus $1,270,706.46, being $2,033,130.34 (5a) x 62.5% (Rolcross' interest in Benzcorp).
Being $4,471,207.25 (4b) plus $1,388,641.14, being $1,983,773.06 (5b) x 70% (Rolcross' interest in Green Square).
Being $752,722.80 (3a) plus $762,423.88, being $2,033,130.34 (5a) x 37.5% (Worthbrook's interest in Benzcorp).
Being $1,983,773.06 (5b) x 30% (Worthbrook's interest in Green Square).
(NSW) Partnership Act 1898, s 39.
(NSW) Partnership Act 1898, s 44; see Cavasinni v Cavasinni [2007] NSWSC 619 at [43].
[2007] NSWSC 619 at [45].
Because Rolcross has a 100% interest in Vidal and Rosehill, it must bear the whole of Worthbrook's proportion of the outstanding claim.
While the Liquidator has projected external creditor claims in the liquidation of Worthbrook at $4,425,493.56, and in Rolcross at $13,218,579.84, he has not yet adjudicated proofs of debt, and is of the view that some of the creditors listed may have been paid.
See [44] and [48] above. 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: 08 August 2017

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