Brealey v Shields

INTRODUCTION 1 Before the Court is an originating process filed on 7 June 2022. The application is made under s 90-15 of the Insolvency Practice Schedule (Corporations) ("Insolvency Practice Schedule") contained in Schedule 2 of the Corporations Act 2001 (Cth) ("the Act"), and s 488(2) of the Act, for orders determining questions arising in the external administration of Wengen Pty Ltd (in liquidation) (ACN 005 341 846) ("the Company"). 2 As well as certain affidavits mentioned below, on 18 July 2022 the applicants filed detailed and comprehensive written submissions in support of the application. I have drawn from these submissions extensively in the preparation of these reasons. 3 The matter was listed for hearing on 22 July 2022. However, upon consideration of the relevant evidence and the written submissions, and noting that no person had filed an appearance indicating that they intended to appear at the hearing, on 21 July 2022 the Court informed the applicants that the matter could be determined on the papers pursuant to s 20A of the Federal Court of Australia Act 1976 (Cth). The applicants supported this course, thereby obviating the need for any appearance. 4 For the reasons that follow orders will be made substantially in the terms sought by the applicants.

OVERVIEW 5 The Company is the trustee of the Robison Family Trust ("the Trust"). The liquidators of the Company have realised all of the Trust property, paid all of the Company's creditors, and are left with a surplus ("the Surplus Funds"). They seek special leave to distribute the Surplus Funds to the beneficiaries of the Trust, being Jodie Maree Robison and Emma Jane Robison, pursuant to s 488(2) of the Act. 6 The Trust was settled in 1974. The books of the Company indicate that it was varied from time to time. However, variations made on 29 March 1991 and on 24 March 2008 do not appear to have been executed correctly. In that context, the liquidators also seek directions under s 90-15(3) of Insolvency Practice Schedule to ensure that they have the power to distribute the Surplus Funds to the beneficiaries.

PROCEDURAL HISTORY 7 The originating process is supported by the following affidavits: (a) affidavit of Glenn John Spooner affirmed on 3 June 2022 ("Spooner affidavit"); (b) affidavit of service of Makenzee Emily Braddy affirmed on 23 June 2022; (c) affidavit of Meghan Louise Sullivan sworn on 8 July 2022, which exhibits a Form 15 - Notice of application for leave to distribute a surplus, which was published in The Age newspaper on 7 July 2022; (d) affidavit of Meghan Louise Sullivan sworn on 8 July 2022, which exhibits correspondence from Ms Lorraine Jones and Ms Joan Robison; and (e) affidavit of service of Makenzee Emily Braddy affirmed on 13 July 2022. 8 The application has been served on Emma Robison and Jodie Robison as beneficiaries of the Trust, Lorraine Jones who was appointed as executor of the estate of Alan Robison (the sole director of the Company), Joan Robison who is an appointer and guardian of the Trust, and Westpac Banking Corporation, a potential creditor of the Company.

BACKGROUND 9 The Company was incorporated on 20 June 1977. According to the records maintained by ASIC, the sole director and shareholder of the Company is Alan John Robison ("Mr Robison"). 10 On 14 February 2016, Mr Robison died. Lorraine Jones was subsequently appointed executrix and trustee of the deceased estate. 11 On 17 June 2016, Mr Bruno Anthony Secatore and Mr Glen John Spooner were appointed as joint and several liquidators of the Company pursuant to s 461(1)(k) of the Act. 12 The investigations undertaken by the liquidators reveal that: (a) on 1 April 1974 the Trust was settled, with the children of Mr Robison as its primary beneficiaries; (b) the Trust Deed provided, amongst other things, that the trustee was empowered to vary the terms of the trust, within prescribed limitations, provided any such variation was executed by the trustee and done with the consent of the guardians; (c) the guardians of the trust were Mr Robison and Joan Maree Robison ("Joan Robison"), who was Mr Robison's wife at the time of settlement; (d) on 19 July 1983 the Company replaced the initial trustees as the trustee of the Trust; (e) on 18 October 1984 the Trust Deed was varied to add a new clause 24 which granted an indemnity to the Company from trust assets for any liabilities incurred by the Company in execution of its duties as trustee ("First Variation Deed)"; (f) the First Variation Deed was executed by: (i) the Company; (ii) Mr Robison; and (iii) Joan Robison; (g) on 29 March 1991 and on 24 March 2008 further variations to the Trust Deed were purportedly executed ("Second Variation Deed" and "Third Variation Deed") respectively); (h) in summary: (i) the Second Variation Deed purports to vary the Trust Deed by including Mr Robison as a primary beneficiary and removing Joan Robison as an appointer and guardian. (ii) the Third Variation Deed purports to vary the Trust Deed by redefining the term "Vesting Day" from the date of death of the survivor of Mr Robison and Joan Robison to the date of Mr Robison's death. (i) the Second Variation Deed is executed by Raymond Patrick Rubino, the Company and Mr Robison; (j) the Third Variation Deed is executed by the Company and Mr Robison; (k) neither the Second Variation Deed nor the Third Variation Deed is executed by Joan Robison. 13 Following their appointment, the liquidators realised the assets of the Company, including the property situated at 23/43 Haines Street, North Melbourne and a share portfolio comprising shares or options in 28 companies. 14 On 8 July 2021 the liquidators called for proofs of debt, and in early September 2021 a distribution was made to all unsecured creditors, who received their claims in full, plus interest on their debts pursuant to section 563B of the Act. 15 As at 2 June 2022, the sum of $193,002.53 (i.e. the Surplus Funds) was held in the liquidation account.

Directions 16 Section 90-15(1) of the Insolvency Practice Schedule provides that the Court may make such orders as it thinks fit in relation to the external administration of a company. The power is broad: see Re Lewis (as liquidators of Concrete Supply Pty Ltd) (2020) 145 ACSR 459 at [31]-[32] (White J). 17 Section 90-15 of the Insolvency Practice Schedule applies to ongoing external administrations, being administrations that started before the commencement of the Insolvency Law Reform Act 2016 (Cth).

Special leave under s 488(2) of the Act 18 Section 485(2) of the Act is concerned with the distribution of surplus assets in a court-ordered winding up. It provides that the Court must adjust the rights of the contributories among themselves and distribute any surplus among the persons entitled to it. Section 488(1) of the Act then permits the relevant rules or regulations to provide for the liquidator to perform specified powers and duties of the Court in respect of, amongst other things, the distribution of any surplus among the persons entitled to it, subject to the supervision of the Court. Rule 7.10 of the Federal Court (Corporations) Rules 2000 (Cth) ("the Corporations Rules") provides for a general delegation. 19 Section 488(2) of the Act operates to limit the scope of the delegation under s 488(1) of the Act and r 7.10 of the Corporations Rules. It provides that a liquidator may distribute a surplus only with the Court's special leave. The phrase "special leave" requires that an application be made to the Court, rather than the matter being dealt with as part of some other administrative process: see Maertin v Klaus Maertin Pty Ltd (in liq) (2009) 232 FLR 239 at [40] (Austin J). 20 It may be accepted that the requirement for special leave to be obtained serves two purposes. It is designed to ensure that there is in fact a surplus (i.e. that all creditor claims have been identified and paid in full). And it ensures that the correct relativities amongst the contributories have been taken into account. 21 In making an application to distribute a surplus a liquidator must comply with r 7.9 of the Corporations Rules, which provides that: (1) the affidavit in support of an application for special leave to distribute a surplus in relation to a company must state how the liquidator intends to distribute the surplus including the name and address of each person to whom the liquidator intends to distribute any part of the surplus; (2) at least 14 days before the date fixed for hearing of the application, the liquidator must publish a notice of the application in a daily newspaper circulating generally in the State or Territory where the company has its principal, or last known, place of business; (3) the notice must be in accordance with Form 15. 22 The Court may dispense with the requirements in r 7.9 of the Corporations Rules and make any order it considers just, pursuant to r 1.32 of the Federal Court Rules 2011 (Cth) ("the Rules"). 23 Regulation 5.6.71 of the Corporations Regulations 2001 (Cth) ("the Regulations") provides that: (1) an order in a winding up by the Court authorising the liquidator to distribute any surplus to a person entitled to it must, unless the Court otherwise directs, have annexed to it a schedule in accordance with Form 551; (2) the liquidator must send to each person to whom any surplus is distributed a notice in accordance with Form 552. 24 The Court may dispense with the requirements in reg 5.6.71 and make any order it considers just, particularly in a simple case where there is no need for adjustments of rights between contributories: see Re Hawden Property Group Pty Ltd (in liq) (ACN 003 528 345 (2018) 125 ACSR 355 at [63] (Gleeson JA); Re Sakr Bros Pty Ltd (in liq) [2019] FCA 547 at [26] (Griffiths J); Brealey v Shields [2009] NSWSC 1148 at [14] (Barrett J).

The application for directions in respect of the Trust 25 I accept that the Second Variation Deed and Third Variation Deed were not executed in accordance with clause 20 of the Trust Deed because they were not executed by both appointers (Alan Robison and Joan Robison). The liquidators have obtained legal advice in relation to this matter, and in light of that advice have sought directions from the Court that they would be justified and acting reasonably in proceeding on the basis that the Second Variation Deed and Third Variation Deed are ineffective. I accept that the liquidators would be so justified. 26 If the Second Variation Deed and Third Variation Deed are ineffective, then the liquidators seek a further direction that they would be justified and acting reasonably in executing two deeds: a proposed deed of decision appointing a vesting date and a proposed deed of decision to distribute trust fund. The proposed deeds: (a) have been prepared on the basis that the Second Variation Deed and Third Variation Deed are ineffective; (b) acknowledge that Joan Robison is the only surviving guardian of the Trust; and (c) would appoint a new Vesting Day under clause 1(5) of the Trust Deed, so as to enable the Surplus Funds to be distributed to the primary beneficiaries. 27 In essence, the purpose of the proposed deeds is to bring forward the Vesting Day so as to allow the Company to make a distribution to the primary beneficiaries: Jodie Robison and Emma Robison. 28 The applicants submit that it is appropriate to do so for the following reasons: (a) the Company was wound up in circumstances where there were no living directors or members to pass a resolution to appoint a new director; (b) the liquidators have now realised all of the trust assets and paid all liabilities such that there is a surplus available and it is desirable for it to be distributed so that the liquidation can be brought to an end; and (c) Joan Robison has been provided with the proposed deed of decision and has told Mr Spooner that she will execute those documents if it is necessary for her to do so to facilitate the distribution of the Surplus Funds to her children, Jodie and Emma Robison. 29 I accept that the liquidators would be justified and acting reasonably in executing the proposed deed of decision appointing a vesting date and a proposed deed of decision to distribute trust fund. 30 The liquidators seek a direction that they are justified and acting reasonably in distributing the Surplus Funds to Jodie and Emma Robison. For the reasons that follow I am satisfied that it is appropriate both to give special leave to distribute the Surplus Funds and for the final direction sought to be given.

Special leave 31 In accordance with r 7.9(1) of the Corporations Rules, Mr Spooner has deposed in his affidavit in support that he intends to distribute the surplus to Jodie and Emma Robison. Mr Spooner does not, in his affidavit, set out the addresses of Jodie and Emma Robison, however their addresses are in evidence in material filed in support of the application. I do not regard the omission of the addresses from the Spooner affidavit as significant in all the circumstances and am prepared to dispense with this requirement pursuant to r 1.32 of the Rules. 32 On 7 July 2022 the liquidators published a notice in accordance with Form 15 in The Age newspaper, as required by r 7.9(2) and r 7.9(3) of the Corporations Rules. 33 Having regard to the matters set out in the Spooner affidavit, the Court is satisfied that the liquidators have identified and paid in full all creditor claims. The liquidators did identify Westpac as a potential creditor, however Westpac did not lodge a proof of debt, in spite of a specific invitation to do so on 9 August 2021. 34 The Court is also satisfied that it is appropriate to pay the Surplus Funds to Jodie and Emma Robison because they are the primary beneficiaries of the Trust. As there are only two beneficiaries and there is no need to make an adjustment between them, I am satisfied that it is appropriate to dispense with the requirement in reg 5.6.71 of the Regulations.

Directions in respect of the costs of deregistration 35 Finally, I accept that it is appropriate for the Court to make a direction that the liquidators would be justified and acting reasonably in retaining from the Surplus Funds the amount of $12,075 (including GST) to cover the costs of applying to the Court for an order that they be released and that ASIC deregister the Company under s 480(d) of the Act. 36 The liquidators have disclosed to the Court the basis on which the amount is sought. Mr Spooner considers the estimate to be reasonable, and it is appropriate for the Court to make such a direction so that the beneficiaries are aware of the basis on which part of the surplus has been retained. 37 There will accordingly be orders as set out at the commencement of these reasons. I certify that the preceding thirty-seven (37) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice McEvoy.