Burness (as liquidator of Index Options Australia Pty Ltd (in liq)) v Belousoff [2006] VSC 302

1 Index Options Australia Pty Limited ("Index Options") is in liquidation. Its liquidator is Paul Andrew Burness. Index Options was wound up in insolvency by an order made in this proceeding on 17 August 2005. The liquidator now makes application by an interlocutory process filed on 14 June 2006 for a number of orders, the pertinent one being for his appointment as receiver of the Index Options Trust.

2 The interlocutory process itself contains two errors. It purports to be an application under s.479(3) of the Corporations Act 2001 (Cth) when the order sought could not be made under that provision, and it purports to name as a respondent "The Index Options Trust". In the event, no point was made about these shortcomings.

3 The sole officer and shareholder of Index Options is Mr Paul Belousoff.

4 Index Options is registered as proprietor of properties in Geelong, being Volume 10589, Folios 845, 847 and 848, and in Adelaide, being Volume 5766 Folio 784. The liquidator has deposed that default notices under the Transfer of Land Act 1958 (Vic), and its South Australian equivalent, have been served on Index Options by creditors holding security over each of these properties. Mr Burness as liquidator took steps to realise these properties or some of them.

5 On 4 May 2006, two days prior to an auction Mr Burness had arranged of two of the Geelong properties, he received a facsimile transmission from Gadens Lawyers. That facsimile transmission advised that Gadens Lawyers acted for a company named Valmann Pty Ltd ("Valmann"), that Index Options had entered into a deed of trust in July 2000 pursuant to which it had been appointed trustee of the Index Options Trust, and that all the assets over which Index Options was registered as proprietor were assets of that trust. The letter advised that Index Options was disqualified as trustee, pursuant to Clause 13.2 of the trust deed, and that on 4 May 2006 the unitholders entitled to vote had passed a resolution appointing Valmann as trustee. The fax enclosed a copy of the trust deed and demanded the transfer to Valmann of all trust assets currently under Index Options' control.

6 Clause 13.2 of the enclosed copy trust deed does provide that the trustee is disqualified from holding office if it goes into liquidation. The unitholders named in the deed are: Mr Paul Belousoff, Index Options itself, a company named Buxton Management Pty Ltd, a company named Danbowl Pty Ltd and a company named Stratis Consulting (Australia) Pty Ltd. All those entities, and Valmann, are respondents to the interlocutory application. An appearance was filed on all of their behalves by Gadens Lawyers. They were all represented on this application before me by Mr Stuckey of counsel.

7 Pursuant to Clause 6 of the copy trust deed enclosed in the facsimile transmission of Gadens Lawyers, and the second and third schedules of that deed, the only unitholder with voting rights appears to be Mr Belousoff.

8 Company searches of the other unitholders were tendered on the application. Buxton Management Pty Ltd is a company whose sole director is Mr Paul Belousoff's wife, Jacoba Belousoff, and whose sole shareholder is named as "Coby" Belousoff. Stratis Consulting (Australia) Pty Ltd is a company of which Mr Gavin McLean is the sole office bearer and shareholder. Mr McLean is Mr Belousoff's accountant. Danbowl Pty Ltd is a company whose sole officer is one Nathan Nirens and whose sole shareholder is one Geoffrey Nirens. No further information is contained in the material before me as to Danbowl Pty Ltd or the Nirens.

9 Valmann itself, the purported new trustee, is a company incorporated on 3 March 2006. Since 13 April 2006 its sole officer and shareholder has been Mr Paul Belousoff. Its paid-up share capital is $12.

10 The liquidator does not accept that Gadens Lawyers' assertions as to the trust and the trust property are correct. But consequent upon receipt of their facsimile transmission the auction which the liquidator had arranged was cancelled.

11 The liquidator has deposed to steps which are now being taken by the secured creditors to realise the properties.

12 Much of the material relied upon by the liquidator in this application was directed to establishing that any assets under the control of Mr Belousoff would be in jeopardy. In view of the submissions made on behalf of the respondents before me, it is not necessary to address that matter in any detail. It suffices to say that in my view the liquidator's material establishes that Mr Belousoff was responsible for a serious failure to keep proper books and records and that there are grounds for serious concern that he was also responsible for the payment over of substantial funds of Index Options or the Index Options Trust in a most improvident manner.

13 The liquidator's material also establishes that substantial funds, perhaps as much as $10m, have been raised from investors who are now unsecured creditors and that the company and/or the trust, depending upon the as yet unresolved issue of in what capacity the debts were incurred, is hopelessly insolvent.

14 The submission put on behalf of the unitholder respondents, including Mr Belousoff, and on behalf of Valmann, was that there is no relevant jeopardy, as the legal title to the properties remains in Index Options and Valmann does not seek, and has not sought, to compel transfer of the properties to it notwithstanding the demand made in the Gadens Lawyers facsimile transmission of 4 May 2006. It was submitted that the liquidator should first make a decision as to whether he accepts that the assets are trust assets and that no further steps should be taken until that is done. It was submitted that the liquidator's own position is secure, as Index Options would be entitled to a lien over the trust assets to meet properly incurred trust debts. It was submitted that in the circumstances the appointment of the liquidator as receiver would be tantamount to an order winding up the trust and would inevitably result in the sale of the trust assets.

15 Counsel for the respondents made it clear that he did not contend, on the basis of the material before me, that the assets should be under the control of the new trustee, Valmann. Counsel proffered an undertaking on behalf of the respondents not to deal, or purport to deal, with the assets.

16 The Court will appoint a receiver of trust assets where it is necessary to do so to safeguard the property for the benefit of those entitled to it. The principles applicable were set out in some detail by Warren J (as she then was) in Martyniuk v King.[1]

17 If the assets in issue here are trust assets, those with claims on them include Index Options as the old trustee, and through it the trust creditors, and the unitholders.

18 Where a trustee or former trustee is in liquidation it may still be appropriate for the liquidator to continue to administer the trust assets, through the administration of the corporate trustee if the company remains the trustee,[2] or as receiver of the trust assets.[3] There is always the real potential for conflicts of duty where a liquidator does perform such a dual function. This may mean that a liquidator acting in that dual role should seek directions before taking a particular course or if a significant conflict arises in fact, for example, over a matter such as his own fees, and that he will be replaced as receiver if he does not do so.[4]

19 In the particular circumstances here the purported new trustee, Valmann, does not have and does not seek control of the assets. If it were to achieve control there are grounds for serious concern that they would be jeopardised, as the assets would again fall under the stewardship of Mr Belousoff.

20 In my view the existing situation is unsatisfactory. The liquidator may in a sense have control of the assets, as counsel for respondents submitted, but his entitlement to administer them is controversial. In circumstances where the secured creditors are moving to realise their securities, this position is most unsatisfactory. It is necessary that there be someone whose authority to administer, and if necessary deal with, the assets is clear. In the circumstances that person's authority should include the power to sell the assets if he considers it appropriate to do so. Subject to the observations I make below, it seems to me that this objective of ensuring there is a reliable person with authority to deal with the assets is best achieved if the liquidator is appointed receiver of the trust assets.

21 The qualifications which I make to that conclusion are these:

At a glance

Court

Decision date

Before

Source

Judgment (14 paragraphs)

Parties