Byrnes v Kendle

JACKMAN J: 1 The plaintiffs seek an order under s 57(1) of the Federal Court of Australia Act 1976 (Cth) that the first plaintiff, Stephen John Michell, be appointed receiver and manager of the property, assets and undertakings of the Walker Brick & Block Family Trust (Trust), and for consequential orders flowing from that appointment. 2 The second plaintiff (the Company) was incorporated on 9 July 2016. It operated a bricklaying business in the Australian Capital Territory from about 1 July 2019 until it ceased trading in December 2022. 3 On 9 August 2023, the Supreme Court of Victoria ordered that the company be wound up and that Mr Michell be appointed its liquidator. Those orders were made because of the company's failure to comply with a creditor's statutory demand issued by On Deck Capital Australia Pty Ltd. 4 Mr Michell's investigations have revealed that the Company was the trustee of the Trust and that since the establishment of the Trust on 1 April 2019, the Company had carried on substantially all of its activities as trustee of the Trust. 5 The trust deed, dated 1 April 2019, defines the company as the trustee and, relevantly, provides that the trustee shall be: (a) disqualified from holding office if such trustee is a company and enters liquidation (cl 21); and (b) indemnified out of the trust assets against liabilities incurred by virtue of being trustee (cl 16). 6 Mr Michell's investigations have revealed that: (a) the Company had no cash-at-bank at the time of his appointment; (b) the Company owns two motor vehicles as trustee of the Trust; (c) the Trust's financial statements as at 30 June 2022 recorded other assets in the form of a director loan account and trade debtors, but Mr Michell has thus far been unable to verify those assets or effect their recovery; and (d) creditors' claims total $638,846.92, comprising $54,666.55 in secured debts and $579,200.31 in unsecured debts. 7 The appointors under the trust deed are Jonathan Lyle James Walker and Madeleine Kay Fry. Mr Walker has been the Company's sole director and shareholder since its incorporation, and Ms Fry is understood to be Mr Walker's wife. 8 Mr Michell is not aware of any person or entity having been appointed as trustee of the Trust since the Company entered liquidation. By reason of cl 21 of the trust deed, upon the company being wound up and Mr Michell being appointed as liquidator, the Company was disqualified from acting as trustee of the Trust and was removed as trustee. 9 The former corporate trustee in liquidation holds the trust assets as bare trustee: Jones v Matrix Partners Pty Limited; re Killarnee Civil & Concrete Contractors Pty Ltd (in liq) [2018] FCAFC 40; (2018) 260 FCR 310 at [85] (Allsop CJ), [142], (Siopis J), [198] (Farrell J) (Jones v Matrix Partners Pty Ltd). The expression "bare trust" has been said to be plagued by terminological indeterminacy: Fischer v Nemeske Pty Limited [2016] HCA 11; (2016) 257 CLR 615 at [107] (Gageler J), citing Byrnes v Kendle [2011] HCA 26; (2011) 243 CLR 253 at [21] (French CJ). However, in this context, the term "bare trust" is used in its strict sense of referring to a trust in which the trustee holds property without any interest therein, other than that existing by reason of the office and the legal title as trustee, and without any duty or further duty to perform, except to convey it to the beneficiaries or other appropriate parties: Herdegen v Federal Commissioner of Taxation (1988) 84 ALR 271 (Gummow J); CGU Insurance Limited v One.Tel Limited (in liq) [2010] HCA 26; (2010) 242 CLR 174 at [36] (French CJ, Heydon, Crennan, Kiefel and Bell JJ). 10 As the Full Court explained in Jones v Matrix Partners Pty Ltd, the trustee's right to indemnity, supported by an equitable lien or charge over the assets, continues to exist, but the trustee no longer has the power to sell or otherwise deal with the trust assets; a former trustee company in liquidation must obtain either a court order to sell or an order for the liquidator's appointment as a receiver: per Allsop J at [44] and [85]-[92], Siopis J at [142]-[147], and Farrell J at [198]. The common course is to appoint the liquidator as receiver and manager over all trust property for the purpose of realising the assets for the benefit of creditors, and that is clearly the appropriate course in the present case. 11 Mr Parrish, who appears for the plaintiffs, submits, and I accept, that the orders are necessary to enable the sale of the Company's two motor vehicles. The first vehicle is a 2022 Nissan Patrol. The Company appears to have financed its purchase by way of a chattel mortgage with Volkswagen Financial Services which records that the Company entered into it in its capacity as trustee of the Trust. 12 The second is a 2019 Isuzu truck. Whilst no document has been located which directly establishes that the Isuzu truck was held by the Company as trustee, Mr Michell submits, and I accept, that the following matters tend to show that the Isuzu truck is likely to be an asset of the Trust: (a) the Company's income tax return for the year ended 30 June 2022 recorded that the Company was no longer trading, and that its total asset value was $8,744; (b) the Trust's income tax return for the year ended 30 June 2022 recorded that the Trust was still trading, and that its total asset value was $252,310; (c) the Trust's balance sheet for the year ended 30 June 2022 recorded that the Trust had non-current assets consisting of motor vehicles with an "at cost" value of $234,720; (d) the Trust's profit and loss statement for the year ended 30 June 2022 recorded various expense items for "M/V commercial" (ie motor vehicles); and (e) Mr Michell obtained a "sight unseen assessment" of the Isuzu truck of $30,000. 13 It should be noted that not all of the Company's creditors are creditors of the Trust. 14 GIO Worker's Compensation (GIO) has proved in the Company's liquidation for $255,982 in relation to unpaid insurance premiums arising from an audit. Of that debt, $166,996 is claimed for the two years ending 30 March 2018 and 2019 (ie before the Trust was established), and the balance of $88,985 is claimed (with the exception of two days) for the period since the Trust was established. It follows that GIO is a creditor of the Trust for at most $88,985, and possibly less, depending on exactly when the Company ceased carrying on its business in its own name. 15 On Deck Capital Australia Pty Limited has not lodged a proof of debt. Its debt seems to have arisen from a loan advance to the company under the terms of a document entitled "Business Loan Agreement Supplement" dated 28 June 2021. Oddly, the company is recorded as the borrower in its capacity as trustee for the "Brick & Block Trust", and a different ABN to that registered to the Trust is recorded. Mr Michell's inquiries indicate that the Company was not the trustee of any such Trust. 16 Mr Parrish submits, and I accept, that these matters should not dissuade the court from making the order sought. As things stand, the Company is merely a bare trustee with no power to sell vehicles. Their sale is an essential step in the winding up of the Company and the appointment of Mr Michell as receiver is the most appropriate solution. There is no reason why the creditors' claims against the Company as former trustee of the Trust cannot be resolved in the usual proof of debt process. If appointed, Mr Michell proposes to charge his firm's standard hourly rates which appear to me to be reasonable and appropriate. I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Jackman.