Bendigo and Adelaide Bank Limited, in the matter of Reborn Enterprises Pty Ltd (Trustee) v Reborn Enterprises Pty Ltd

MCEVOY J: 1 Before the court is an originating application filed on 16 September 2024 by Fabian Kane Micheletto who was appointed the liquidator of Rogers Property Holdings Pty Ltd ACN 624 219 325 (the Company) in its own right and as trustee for the Rogers Property Trust ABN 91 469 440 858 (Trust). That appointment was pursuant to orders of the court made in proceeding VID120/2024 on 24 May 2024. 2 By his originating application the liquidator seeks: (a) an order that the liquidator be appointed as receiver and manager (without security) of the property of the Trust and any other property held by the Company on trust (Trust Property); (b) a direction that the liquidator is justified in treating the Trust Property as assets beneficially held by the Company as bare trustee and that all of the debts and liabilities incurred by the Company in the conduct of its business as liabilities of the Trust; (c) orders as to the order of distributions of Trust Property by the receiver; and (d) orders that provide for the receiver's remuneration in acting as the receiver and the liquidator to be paid out of the Trust Property. 3 In support of his application, the liquidator relies on: (a) the affidavit of Fabian Kane Micheletto affirmed 13 September 2024 (liquidator's affidavit); and (b) his outline of submissions dated 25 October 2024. 4 In his Initial Report to Creditors dated 21 June 2024, the liquidator gave notice to the creditors of the Company that he intended to make an application to the court so that he could deal with the assets and undertakings held by the Company in its capacity as bare trustee of the Trust. 5 Sealed copies of the originating application filed on 16 September 2024 and the liquidator's affidavit were served on the Australian Securities and Investments Commission on 19 September 2024. 6 For the reasons that follow the court will make the orders and directions substantially as sought in the originating application.

The Company 7 The Company was incorporated on 5 February 2018. Since its incorporation: (a) Mena Kudos was appointed as the director and secretary of the Company from 5 February 2018 to 31 October 2018; (b) Carol Rizk was appointed as director and secretary of the Company from 23 October 2018 and was the Company's sole director and secretary at all times after 31 October 2018; and (c) Ms Rizk currently holds all of the 10 fully paid ordinary shares issued by the Company. 8 At all times since its incorporation, the Company was the trustee of the Trust pursuant to a discretionary trust deed dated 5 February 2018 (Trust Deed). 9 Based on the liquidator's investigations, it appears the Company carried on a business by acquiring and disposing of various residential property interests (the Business).

Rogers Family Trust 10 Under the terms of the Trust Deed, and upon the appointment of the liquidator on 24 May 2024, the Company was removed as trustee of the Trust by operation of an ipso facto clause at clause 49 of the Trust Deed. 11 The appointors of the Trust, Carol Rizk and Mena Kudos, have the power to appoint an additional or replacement trustee by a written statement under clause 47 of the Trust Deed. The liquidator is not aware of any replacement trustee being appointed. 12 The Trust Deed empowers the Trust to purchase, acquire, sell, transfer, hire, lease, dispose of, manage, divide, encumber or otherwise deal with any real or personal property of the Trust. 13 Because the Company is in liquidation, the liquidator is unable to exercise any of the powers conferred by the Trust Deed as the Company has been reduced in status to a "bare trustee" by reason of the ipso facto clause.

Liquidator's Investigations 14 Based on his investigations, the liquidator believes that the Company: (a) operated the Business; (b) did not act in any other capacity other than trustee of the Trust; and (c) carried on the Business solely in its capacity as trustee of the Trust. 15 The liquidator's investigations have also discovered that: (a) as at the date of his appointment as liquidator, the Company in its capacity as trustee of the Trust operated bank accounts, notably a Flexible Rate Loan with the National Australia Bank (NAB), which as at 3 June 2024 had a debit balance of ($1,137,500); and (b) the Company is the registered proprietor of a property comprising eight residential apartments located at 8 Sydney Road, Albion in the State of Victoria (Property).

Property 16 The Property is encumbered by a mortgage in favour of NAB. 17 5 of the 8 units that comprise the Property are currently tenanted. Since his appointment as liquidator, the liquidator has collected rental income in the amount of $17,648.67 (as at 13 September 2024). 18 The liquidator has obtained 5 market appraisals for the Property. The average of range of the market appraisals is $1,760,000 to $1,900,000.

Company and Trust Financial Position 19 The liquidator has obtained the management accounts for the Company and the Trust. The management accounts for the Company reveal that: (a) there is a related party loan owing to the Company by the Trust in the amount of $468,265; (b) a beneficiary entitlement from the Trust in the amount of $460,345; (c) income tax payable by the Company in the amount of $311,500; (d) the Company has not recorded any income for the financial years ending 30 June 2021 and 30 June 2022; and (e) the Company generated a net loss totalling ($32,917) for the financial years ending 30 June 2021 and 30 June 2022. 20 The management accounts for the Trust reveal that: (a) the Trust recorded rental income receipts of: (i) $84,500 for the financial year ending 30 June 2021; and (ii) $93,300 for the financial year ending 30 June 2022; (b) the Trust had losses of: (i) ($36,192) for the financial year ended 30 June 2021; and (ii) ($15,428) for the financial year ending 30 June 2022; (c) the Trust had a cash at bank overdrawn balance of ($3,929) for the financial year ending 30 June 2022; (d) the Trust had non-current assets totalling $2,993,084 as at 30 June 2022 which included an amount of $2,985,959 for "Property, Plant and Equipment" which the liquidator expects includes the Property; (e) the Trust had current liabilities totalling $1,631,433 as at 30 June 2022, including: (i) GST liabilities in the amount of $348,595; (ii) a loan owing to NAB in the amount of $960,000 (NAB Loan) (however the liquidator believes this loan amount was repaid on or about 11 September 2023 following the sale of one of the Company's former properties located at Maidstone in the State of Victoria); (f) the Trust had non-current liabilities totalling $3,697,533 including beneficiary/shareholder accounts totalling $928,610 and the NAB Loan which as at 30 June 2022 was in the amount of $1,137,500; and (g) a net liability position of ($34,941) as at 30 June 2021 which increased to a net liability position of ($50,369) as at 30 June 2022.

Reasons for Appointment 21 The liquidator seeks orders appointing him as the trustee of the Trust so that he can: (a) sell the Property; (b) account to the creditors of the Trust; and (c) distribute any remaining assets to the beneficiaries of the Trust. 22 If the Property is not sold, it is unlikely that there will be any significant asset recoveries. 23 The liquidator also seeks orders for his remuneration and disbursements for the period 24 May 2023 to 12 September 2024 and his further costs, expenses and remuneration in acting as the liquidator and the receiver to be paid from the Trust Property.

RELEVANT PRINCIPLES 24 The court can appoint a receiver by interlocutory order in any case in which it appears to be "just or convenient to do so": section 57 of the Federal Court of Australia Act 1976 (Cth). 25 The circumstances in which the court may be satisfied that these conditions are met are many, but the general ground upon which a court appoints a receiver is to protect or preserve property for the benefit of the person or persons who have an interest in it: Bendigo and Adelaide Bank Limited, in the matter of Reborn Enterprises Pty Ltd (Trustee) v Reborn Enterprises Pty Ltd (Trustee) [2016] FCA 1197 at [6] (White J) citing Martyniuk v King [2000] VSC 319 at [14] (Warren J) and University of Western Australia v Gray (No 6) [2006] FCA 1825 at [71]-[72] (French J). 26 The principles relevant to an application for the appointment of a liquidator of a corporate trustee as receiver of trust property were summarised in Hughes in their capacity as joint and several liquidators of Substar Holdings Pty Ltd (in liq) [2020] FCA 1863 at [26] - [29] (McKerracher J): [26] The liquidator of a corporate trustee is entitled to apply assets of the trust to satisfy debts properly incurred by the company in performance of its duties as trustee. The company as trustee has a right of indemnity or exoneration out of trust assets secured by an equitable lien or charge over those assets… [27] Where a corporate trustee is removed by operation of a disqualification clause in the trust deed… the company assumes the position of a bare trustee. Its powers are limited to protecting the trust assets. The right of indemnity or exoneration persists, albeit that the company's lien does not confer a power of sale to realise that right… … [29] Although in certain circumstances, particularly where all the trust property will be exhausted by the liabilities, it is appropriate for the liquidator to be given a discrete power of sale, the common course is to appoint the liquidators as receivers over all trust property for the purpose of realising the assets for the benefit of creditors… (citations omitted). 27 In Re Western Peeled Pty Ltd (in liq); Ex parte Quin [2024] WASC 374 (Hill J) (Re Western Peeled), the first plaintiffs sought to be appointed as receiver and managers of the trust and also sought orders under s 90-15 of the Insolvency Practice Schedule (Corporations) (sch 2 of the Corporations Act 2001 (Cth)) (IPS) to facilitate their dealing with the assets of the company to enable the winding up of the company, as well as the trust to proceed (see generally at [10] to [26]). Justice Hill held that it was appropriate to make orders appointing the liquidators to have the power to sell the property of the trust and that it was appropriate to appoint them as receivers and managers of the assets of the trust without security. Her Honour noted that her orders were in accordance with relevant legal principles and would protect the company's right of indemnity as well as the position of creditors. 28 Generally speaking, it will be appropriate for the costs of such an application to be costs in the winding up of the company, and otherwise that they be paid from the trust property: see Re Western Peeled at [26] (Hill J). 29 In applications such as these the court will afford procedural fairness to any creditors who wish to be heard in relation to the orders made by making an order that any creditor of the corporate trustee or the trust who can demonstrate a sufficient interest to vary the orders sought by the liquidator be granted liberty to apply to vary the court's orders upon the giving of notice to the application liquidator.

DETERMINATION 30 The principles that apply to a liquidator's application to be appointed the receiver and manager of trust assets are well-established. Consistently with these principles, and provided that the application is appropriately made, the court will generally exercise its discretion to order that the liquidator of a bare corporate trustee will be appointed as a receiver over the assets of the trust so that he or she can deal with those assets and so as to protect and preserve them for the benefit of the person or persons who have an interest in them. 31 Here the Company was removed as the trustee of the Trust pursuant to the terms of the Trust Deed. The Trust holds a valuable asset in the Trust Property, however the liquidator is not empowered to deal with the Trust Property. 32 The liquidator's Affidavit provides the evidentiary basis upon which the liquidator submits that the Company: (a) operated the Business; (b) did not act in any other capacity other than trustee of the Trust; and (c) carried on the Business solely in its capacity as trustee of the Trust. 33 The liquidator thus submits, and I accept, that it in all the circumstances it is appropriate that an order be made that the liquidator be appointed as the receiver of the Trust Property so that he can: (a) sell the Trust Property; (b) account to the creditors of the Trust; and (c) distribute any remaining assets to the beneficiaries of the Trust. 34 I accept that it is also appropriate and consistent with the relevant authorities for there to be orders that: (a) the liquidator be appointed as receiver of the Trust without security; (b) the liquidator's costs of this application be costs in the winding up of the Company, and otherwise that they be paid from the proceeds of the sale of the Trust Property on an indemnity basis. 35 I also accept that there is an appropriate basis for the court to make a direction pursuant to s 90-15 of the IPS that the liquidator is justified in treating: (a) all of the assets of the Trust Property as assets held by the Company, as bare trustee, subject to any charge or lien that the Company has over the assets of the Trust to secure the payments of any debts properly incurred by the Company as trustee; and (b) all of the debts and liabilities incurred by the Company in the conduct of its business as liabilities of the Trust. 36 As has been mentioned, the liquidator also seeks: (a) a direction that (provided he is appointed the receiver of the Trust Property) he is justified in distributing the Trust Property as follows: (i) first, paying the amount of his costs of this application on an indemnity basis; (ii) secondly, paying his further expenses and remuneration in his capacity as liquidator of the Company and in his capacity as receiver of the Trust from 24 May 2024 to the conclusion of the receivership and liquidation of the Company on a time basis according to the hours during which he, or any employee of his firm, SV Partners, engage or have engaged in work necessary for and relevant to the purpose of the receivership or liquidation after 24 May 2024, such remuneration to be calculated at the standard hourly rates of SV Partners from time to time for work of that nature, together with all reasonable out of pocket expenses; (iii) thirdly, distributing the balance, after payment of the amounts above, the admitted creditors of the Company in accordance with the priority regime established by ss 555, 556, 560 and 561 of the Corporations Act 2001 (Cth) and distribute any surplus thereafter to the beneficiaries of the Trust; and (b) an order that the costs, expenses and remuneration of: (i) acting as the liquidator of the Company; and (ii) acting as the receiver of the assets and undertakings of the Trust, be paid from the Trust Property. 37 The liquidator has deposed that: (a) he has obtained approval from the creditors of the Company for his remuneration for acting as the liquidator of the Company in the total amount of $63,600.50 plus GST and disbursements of $1,000 plus GST (including the amount of $17,850.50 excluding GST for work that was completed by him and his staff for the period 24 May 2024 to 20 June 2024); and (b) he seeks ancillary orders that provide for: (i) his remuneration for the period 24 May 2024 to 12 September 2024 to be determined in the amount of $49,023.70 including GST; and (ii) his disbursements for the period 24 May 2024 to the date that orders are made in this proceeding to be determined in the amount of $184.28 including GST. 38 The liquidator has also deposed as to the work that he has completed since his appointment as liquidator on 24 May 2024. The liquidator has received approval from the Company's creditors for remuneration and disbursements exceeding the amount that he seeks to have the court determine. 39 I accept that where a company's sole function was to act as the corporate trustee of a trust, as here, the liquidator is entitled to recover the general costs of the liquidation out of the sale of trust property: see In the matter of Stansfield DIY Wealth Pty Limited (in liquidation) [2014] NSWSC 1484 at [45] (Brereton J) and Dixon (Liquidator), in the matter of Better Spaces Design Pty Ltd (in liq) [2023] FCA 611 at [24] (Anderson J). 40 Payment of the liquidator's costs (both in his capacity as receiver of the Trust and as liquidator of the Company) out of the proceeds of the sale of the Trust Property is appropriate. 41 The liquidator accepts that it is appropriate that orders be made requiring: (a) a copy of the court's sealed orders to be sent to the creditors of the Trust and the creditors of the Company; and (b) reserving liberty to apply to any creditor of the Company or the Trust that has a demonstrable interest in a variation of the orders provided they give reasonable notice to the liquidator (see, in this regard, Morton (as Liquidator of Best Golf Balls Pty Ltd (In Liq)) v Best Golf Balls Pty Ltd (In Liq) [2024] FCA 793 (Derrington J)). 42 There will be orders as set out at the commencement of these reasons. I certify that the preceding forty-two (42) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice McEvoy.