Bolwell (Liquidator), in the matter of Mandalay Road Holdings Pty Ltd (in liq) v Goldsmith-Medd

FACTUAL BACKGROUND 3 The Trust was established by a Deed of Settlement made on 4 January 2013. Mandalay was incorporated about one month later, on 5 February 2013, and on the same day it was appointed as the trustee of the Trust. The defendant's husband, Mr Stephen Barber, was the appointor of the Trust and he was, and remains, the sole director and shareholder of Mandalay. 4 Since its incorporation, Mandalay has not carried on business in its own right and instead has only served as trustee of the Trust. On or about 5 February 2013, in that capacity, Mandalay purchased a house property located at 111 Lone Hand Road, Eumundi Queensland (the Property) for the sum of $1,840,000. 5 On 27 July 2018, BMW Australia Finance Limited (BMW) obtained a default judgment in the sum of $287,331.93 against Mandalay in the District Court of Queensland. That judgment related to a claim for monies owing under two chattel mortgages that Mandalay entered into as trustee of the Trust with BMW, one in September 2014 and the other in January 2016. 6 On 6 November 2018, Mr Barber, as the appointor of the Trust, appointed Ms Goldsmith-Medd to replace Mandalay as its trustee. On the same day, the title to the Property was transferred from Mandalay to Ms Goldsmith-Medd. 7 This Court ordered that Mandalay be wound up in insolvency on 16 November 2018 and that Ms K Kelson be appointed as its liquidator. Mr Bolwell replaced Ms Kelson in that role pursuant to a resolution passed at a meeting of the creditors of Mandalay on 30 June 2020. Since his appointment, Mr Bolwell's investigations have revealed that BMW is the only creditor of Mandalay and that Mandalay itself has no assets. 8 On 10 May 2019, Mr Barber entered into an agreement to pay the BMW debt and the remuneration costs and expenses of the liquidation by two instalments, the last of which was to be made on 30 June 2019. He did not pay either of those instalments. 9 Importantly for the present application, on 5 June 2020, a mortgage was registered on the Property to ASF Custodians Pty Ltd. That mortgage included the following term: You (the Mortgagor) acknowledge giving this Mortgage and incurring obligations and giving rights under it for valuable consideration of $180,000.00 received from Us (the Mortgagee) which You agree to repay together with interest and Expenses in accordance with the Memorandum of Common Provisions. 10 The present proceeding was filed on 31 August 2020. Early in its life (on 13 November 2020), Ms Goldsmith-Medd applied to terminate the winding up on the ground that she had "made arrangements … to pay in full all creditors of [Mandalay] and all the costs of the liquidation up to the date of the Court Order terminating the liquidation". That application was dismissed on 17 March 2021 after it emerged that Ms Goldsmith-Medd had failed to pay all the creditors of Mandalay as she had promised. 11 At the same time, Mr Bolwell's present application was set down for hearing on 23 April 2021. In late March 2021, that hearing was adjourned to 29 April 2021. Notwithstanding that she had, in the meantime, filed written submissions in opposition to the application, Ms Goldsmith-Medd failed to appear on the latter date. After several unsuccessful attempts by Court staff to contact her by email and telephone, the hearing proceeded in her absence.

LEGAL PRINCIPLES AND RELATED MATTERS 12 The liquidator of a company that has acted within its powers as the trustee of a trading trust has a right, or power, of indemnity out of the assets of the trust with respect to any debts incurred by it in that capacity (see Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth (2019) 368 ALR 390; [2019] HCA 20 (Carter) at [29]-[30] per Kiefel CJ, Keane and Edelman JJ). 13 In this matter, because Mandalay did not pay BMW's judgment debt from its own resources, its right of indemnity is properly characterised as a right to be exonerated with respect to that unpaid debt (see Carter at [31]). It is important to note that this right of exoneration is exercisable only for the purpose of paying trust creditors (see Carter at [34]-[35] and Jones v Matrix Partners Pty Ltd; Re Killarnee Civil & Concrete Contractors Pty Ltd (in liq) (2018) 260 FCR 310; [2018] FCAFC 40 (Matrix) at [47]-[48] and [79] per Allsop CJ). 14 There are three sources of this right of indemnity: equitable principle, the terms of the trust deed and statute (see Carter at [131] per Gordon J and Matrix at [37] per Allsop CJ). The relevant statutory provision in this matter is s 72 of the Trusts Act 1973 (Qld). It provides: A trustee may reimburse himself or herself for or pay or discharge out of the trust property all expenses reasonably incurred in or about the execution of the trusts or powers. 15 As for the terms of the trust deed, here the relevant provision is cl 15 as follows: The settlor and the trustee are entitled to be indemnified out of the trust fund against all liabilities arising out of the trust fund, but the trustee's right of indemnity is limited to the income and assets of the trust fund and does not extend to assets set aside for beneficiaries of the trust or their dependants, and is not enforceable against any member of the specified class or other beneficiary. 16 I interpolate to note that, in her written submissions mentioned earlier, Ms Goldsmith-Medd raised a question about the latter provisions of this clause and whether this affected Mandalay's right of indemnity. It is, however, unnecessary to consider this issue because, apart from the assertion of that fact in those submissions, there is no evidence that the Property has been set aside for any of the beneficiaries of the Trust and Mr Bolwell is not seeking to enforce Mandalay's right of indemnity against any member of the specified class mentioned above. 17 Subject to various constraints that are not pertinent in this matter, a trustee's right of indemnity continues to exist even after the company has been removed from its role as Trustee (see the discussion in Caterpillar Financial Australia Ltd v Ovens Nominees Pty Ltd [2011] FCA 677 at [18]-[27] per Gordon J, summarised in Re Suncoast Restoration Pty Ltd (in liq) (2013) 211 FCR 203; [2013] FCA 355 at [27(c)]). Hence, Mandalay's removal as trustee of the Trust in November 2018 did not extinguish its rights to seek exoneration in respect of the debts it incurred on behalf of the Trust. 18 However, in order to exercise this right of indemnity, Mr Bolwell, as the liquidator of Mandalay, needs to sell the sole asset of the Trust, namely the Property. He cannot rely on the power of sale contained in s 477(2)(c) of the Corporations Act 2001 (Cth) because, as explained by Allsop CJ in Matrix at [89], that power does not allow a liquidator in Mr Bolwell's position to sell trust assets. Accordingly, he requires a court order (see Matrix at [44] and Carrello, in the matter of Gembrook Investments Pty Ltd (in liq) [2019] FCA 1143 (Carrello) at [21] per Colvin J and the cases cited therein). 19 Section 57 of the Federal Court Act has long been used for this purpose (see Walley, in the matter of Royal National Capital Alliance Ltd (Administrators Appointed) [2020] FCA 1574 (Royal National) at [32]). That section provides that "[t]he 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". This discretion has been widely construed (see, for example, Porter v Australian Prudential Regulation Authority (2010) 184 FCR 382; [2010] FCA 125 at [27]-[28], Burrup Fertilisers Pty Ltd (Receivers and Managers Appointed) v Oswal (No 4) [2011] FCA 1503 at [5] and Coeclerici Asia (Pte) Ltd v Gujarat NRE Coke Limited [2013] FCA 882 at [107]-[108]).

CONSIDERATION 20 The draft orders that Mr Bolwell has sought in this application are as follows: 1. Pursuant to s 57(1) of the Federal Court of Australia Act 1976 (Cth), [Mr Bolwell] be appointed without security as receiver and manager (Receiver) over the assets of the [Trust] including all of that land described in Lot 5 on Survey Plan 167227, Title Reference: 50500922, the address of which is 111 Lone Hand Road, Eumundi, Queensland, 4562 (Property). 2. The need for the Receiver to file a guarantee under r 14.21(b) and r 14.22 of the Federal Court Rules 2011 be dispensed with. 3. The Receiver have in respect of the assets of the [Trust] and the Property the powers that a receiver has in respect of the business and property of a company under s 420 of the [Corporations Act 2001 (Cth)] as if the reference in that section to "the corporation" were a reference to the [Trust] including without limitation, the power to do all things necessary or convenient to: (a) investigate transactions made using funds derived from the assets of the [Trust] and the Property; (b) demand the books and records of the [Trust] from any person; (c) sell the assets of the [Trust], including the Property; (d) bring any claim against any party on behalf of the [Trust]; (e) determine and make payment of claims against the assets of the [Trust], including the Property; (f) distribute the proceeds of sale of the assets of the [Trust], including the Property (after payment of the remuneration, costs and expenses of [Mr Bolwell] as liquidator of [Mandalay] and of [Mr Bolwell] as receiver and manager of the [Trust]) to pay the creditors of the [Trust] pursuant to the priorities prescribed under the provisions of the Act; (g) distribute any surplus to the new trustee of the [Trust], or, if there is no trustee, to the beneficiaries of the [Trust]; and (h) execute any documents relating to the [Trust]. 4. The remuneration, costs and expenses of the liquidation and the remuneration, costs and expenses of the Receiver as receiver and manager of the [Trust] (including the costs of this proceeding) be paid from the assets of the [Trust]. 5. Pursuant to r14.24 of the Federal Court Rules 2011, or alternatively in the inherent jurisdiction of the Court, the future remuneration, costs and expenses of [Mr Bolwell] incurred in connection with the receivership is approved in the amount of $57,250 plus GST. 6. Liberty is granted to the Receiver to apply to the Court for orders discharging and releasing him as receiver and manager on 7 business days' notice by sending an email to the Associate to the Judge. 7. There be liberty to apply to any person who can demonstrate sufficient interest on not less than 48 hours written notice to [Mr Bolwell]. (Emphasis in original) 21 The facts of this matter outlined above demonstrate that it lacks almost all of the complications that commonly arise where a liquidator is seeking to recover debts incurred by a corporate trustee of a trading trust. Specifically: BMW is the sole creditor of Mandalay; Mandalay has no assets of its own; Mandalay acted solely as the trustee of the Trust and not in its own capacity; the Trust is the only trust involved; and the Property is the only asset of the Trust. It is therefore difficult to see why these draft orders propose that Mr Bolwell have a far more extensive role as receiver and manager of the Trust than is necessary to address this straightforward set of circumstances. 22 The orders to which I refer are 3(a), 3(b), 3(d) and 3(e) above. While it is not entirely clear, the necessity for those orders may stem from the subsistence of the mortgage that was granted over the Property in June 2020 (see at [9] above). This assumption would appear to be confirmed by the contention counsel for Mr Bolwell made at the hearing of this matter that Ms Goldsmith-Medd did not have the power, as trustee of the Trust, to grant that mortgage. While Mr Bolwell may have legitimate concerns about Ms Goldsmith-Medd's conduct with respect to that mortgage, there is no evidence before me to suggest that the mortgagee, ASF Custodians Pty Ltd, is not an arms' length third party with genuine interests in the Property. That being so, I do not consider it is "just and convenient" - to use the terms of s 57 of the Federal Court Act - to give Mr Bolwell the power to determine its validity as these draft orders seem to imply. Nonetheless, the fact that that mortgage is registered on the title to the Property clearly needs to be addressed in connection with any sale of the Property. That being so, rather than giving Mr Bolwell the powers mentioned above, I consider the most just and efficient course is to deal with that issue in this application. To that end, I consider Mr Bolwell should be required to notify the mortgagee of this application and offer it the opportunity to become a party to this proceeding in order that it may, if it wishes to, file materials and make contentions as to how its interests in the Property as mortgagee should be treated in the sale of the Property. 23 Before concluding, it is appropriate to add the following brief observations about the balance of the draft orders Mr Bolwell has sought. First, the orders set out in 3(c), 3(f) (excluding the reference to priorities because none arises in this matter), 3(g) and 3(h) (provided that the latter power is limited to the aforementioned purpose) are appropriate and sufficient to allow Mandalay to exercise its right of indemnity. 24 Secondly, draft order 4 appears to provide an entitlement to legal costs that is at large. On ordinary principles, Mr Bolwell should only be entitled to his reasonable legal costs calculated in accordance with the apposite Rules of this Court. 25 Thirdly, because Mr Bolwell's proposed orders anticipate a far more extensive role for him as receiver and manager of the Trust, it necessarily follows that his future costs estimate of performing that role is based on a false premise. That being so, I would not be willing to approve that estimate in advance as sought by order 5 of the draft orders. 26 Fourthly, if Mr Bolwell's role is confined to selling the Property, exonerating Mandalay with respect to the BMW debt, recovering the costs of the liquidation, the receivership and the sale of the Property, and distributing the balance of the proceeds to the trustee, I do not consider draft order 6 is necessary.

CONCLUSION 27 For these reasons, at this stage, the only order necessary is that Mr Bolwell should submit a draft set of orders to my Chambers that reflects the contents of these reasons. I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Reeves.