(1987) 5 ACLC 278
Re Stansfield DIY Wealth Pty Limited (in liq) (2014) 291 FLR 17
(2014) 103 ACSR 401
(2014) 32 ACLC 14-065
(2014) 9 BFRA 663
Judgment (6 paragraphs)
[1]
Introduction
These reasons concern an application by the liquidator of a company for a declaration that the company holds certain real property on trust, and an order appointing the liquidator as receiver and manager of the property, assets, and undertaking of that trust, with powers that include a power of sale. The liquidator also seeks orders permitting him (as receiver) to pay trust creditors and his own remuneration (as liquidator) out of the proceeds of sale of the trust assets.
[2]
Salient facts
Salvestrin Enterprises Pty Limited ACN 652 772 284 (in liquidation) was incorporated on 12 August 2021 (the Company). Mr Aaron Salvestrin is the Company's sole director and shareholder.
The Salvestrin Enterprises Trust is a discretionary trust established by deed dated 4 September 2017, pursuant to which Mr Salvestrin was appointed as the trustee (the Trust and the Trust Deed).
An undated Deed of Ratification and Amendment in relation to the Trust provided for the removal of the "Old Trustee" and the appointment of the "New Trustee". However, those terms were defined by reference to a schedule which was not attached to that deed.
A further Deed of Amendment in relation to the Trust dated 23 June 2022 names the Company as the trustee.
On 1 February 2022, the Company entered into a contract to purchase land at 39 Brooks Street, Griffith, New South Wales, in its capacity as trustee of the Trust (the Property). The transfer of the title to the Property to the Company was registered on 4 April 2022.
I infer from the evidence referred to above that the Company became the trustee of the Trust at some time between 12 August 2021 and 1 February 2022.
On 27 October 2022, the Company entered into liquidation in a creditors voluntary winding up. Mr Gavin Moss was appointed as the liquidator of the Company (the Liquidator). This resulted in the termination of the Company's appointment as trustee of the Trust pursuant to clause 49 of the Trust Deed.
Mr Moss has also been appointed as the liquidator of several related companies of the Company, including Sans Pareil Estate Pty Limited ACN 624 731 031 (in liquidation) (Sans Pareil). Mr Salvestrin is the sole director, and the Company is the sole shareholder, of Sans Pareil.
In his affidavit affirmed on 10 October 2023, the Liquidator has given evidence that Mr Salvestrin has not provided a Report on Company Activities and Property, and has failed to provide all books and records of the Company. Nevertheless, the Liquidator believes on the basis of his investigation that the Company acquired the Property as trustee of the Trust. Most importantly, the contract for sale dated 1 February 2022 names the purchaser as the Company in its capacity as trustee for the Trust. The Liquidator has given evidence that his investigations indicate that Sans Pareil provided the funds for the Company's purchase of the Property. Business records of the solicitor who acted for the Company on its purchase of the Property record Sans Pareil as the source of the funds paid into the solicitor's trust account to complete the transaction. A balance sheet for "Salvestrin Enterprises" records that entity's current assets as "Property Acquisition", and records that entity's non-current liabilities as including a loan in the same amount as the value of the "Property Acquisition".
A title search for the Property tendered by the Liquidator shows that the Company remains the registered proprietor of the Property, that there is no mortgage registered on the title, and that Sans Pareil has a lodged a caveat on that title. The Liquidator did not tender a copy of the caveat, and did not adduce any other evidence of the interest claimed by Sans Pareil in the caveat.
On 27 January 2023, the Liquidator issued a statutory report to creditors of the Company and its related companies, including Sans Pareil. According to the Liquidator's report, the Company is the parent company of the other companies within the group, including Sans Pareil, which is the main trading entity within the group. The Property is the only asset that the Liquidator has identified as being held by the Company, other than its shares in subsidiary companies.
There is no evidence before the Court about whether the Company carried on any activities other than as trustee of the Trust.
On 23 October 2023, Mr Salvestrin was served with the Liquidator's originating process filed on 10 October 2023, together with the supporting affidavit of the Liquidator and the exhibit to that affidavit. As referred to in more detail below, the only opposition that Mr Salvestrin has expressed to the application in his correspondence with the Liquidator's solicitors and with the Court relates to the appointment of the Liquidator as receiver and manager. In the relatively short time since being served with the Liquidator's originating process and affidavit, Mr Salvestrin has expressly stated that he would have no objection to the appointment of a different person as receiver and manager. Mr Salvestrin has not expressed any dispute or raised any doubt about whether the Company acquired and held the Property in its capacity as trustee of the Trust.
[3]
Orders sought by the Liquidator and Mr Salvestrin's response
The Liquidator seeks:
1. a declaration that the Property is an asset of the Trust;
2. in the alternative to (1), an order pursuant to s 90-15 of the Insolvency Practice Schedule (Corporations), as set out in Schedule 2 of the Corporations Act 2001 (Cth), that the Liquidator would be justified in treating the Property as an asset of the Trust;
3. an order pursuant to s 67 of the Supreme Court Act 1970 (NSW) appointing the Liquidator as receiver and manager, without security, of the property, assets, and undertaking of the Trust (the Receiver);
4. an order conferring on the Receiver the following powers:
1. the powers set out in s 420 of the Corporations Act as if references therein to "the corporation" were references to the Trust;
2. the power to take possession of, preserve, maintain, and sell the assets comprising the Trust property, including the ability to execute a contract for sale of the Trust property and receive the sale proceeds from any such property into a separate bank account maintained by the Receiver for that purpose;
3. to investigate transactions made using funds from the Trust property;
4. to demand books and records of the Trust from any person; and
5. to determine and make payment of any creditor claims against the Company in its capacity as trustee of the Trust conformably with s 556 of the Corporations Act;
1. an order that the Receiver is to be paid remuneration on a time-spent basis to be calculated at the standard rates set out in the Liquidator's affidavit affirmed on 10 October 2023;
2. an order that, within 14 days of the completion of the receivership, the Receiver is to lodge verified accounts with the Court, and may apply to the Court for approval of the Receiver's remuneration and expenses;
3. a direction pursuant to s 90-15 of the Insolvency Practice Schedule (Corporations) that the Liquidator would be justified in paying his fees and expenses of the liquidation from the account held in the name of the Receiver and/or the net sale proceeds of the Property; and
4. an order that the Liquidator's costs of these proceedings be costs and expenses in the receivership or, alternatively, in the winding up of the Company.
As I have already mentioned, Mr Aaron Salvestrin was served with the Liquidator's originating process filed on 10 October 2023, together with the supporting affidavit of the Liquidator and the exhibit to that affidavit. Mr Salvestrin was also notified that the Liquidator's application was listed for hearing on 2 November 2023. This was confirmed by email sent by my Associate to the Liquidator's solicitor and to Mr Salvestrin notifying the precise time and place of the hearing on 2 November 2023. Mr Salvestrin sent an email to my Associate shortly before the commencement of the hearing stating that he did not object to the appointment of an independent receiver by the Court, but that he did object to the appointment of the Liquidator as receiver and manager due to his "concern" about unspecified actions of the Liquidator after his appointment. Mr Salvestrin had expressed similar sentiments in an email sent to the Liquidator's solicitor on 24 October 2023, the day after he had received the Liquidator's application and supporting affidavit. Mr Salvestrin did not appear at the hearing on 2 November 2023 to adduce evidence about his claimed concern or about his objection to the appointment of the Liquidator as receiver and manager. Mr Salvestrin did not propose any alternative receiver and manager.
[4]
Consideration and determination
I have considered the written and oral submissions made by counsel for the Liquidator.
The declaration sought by the Liquidator is consistent with the description of the purchaser in the contract for sale of land as the Company as trustee of the Trust. However, I decline to make the declaration sought by the Liquidator in circumstances where Sans Pareil has claimed an interest in the Property by lodging the caveat referred to at [11] above, there is no evidence of the nature of that claimed interest and the Court is therefore unable to determine whether Sans Pareil's rights or interests may be affected by the declaration sought by the Liquidator, Sans Pareil was not joined as defendant to the proceedings, and there was no contradictor to the Liquidator's claim for the declaration.
I am satisfied, however, that it is appropriate to exercise the power under s 90-15 of the Insolvency Practice Schedule (Corporations) to order that the Liquidator would be justified in treating the Property as an asset of the Trust. I do so on the basis of: (a) the evidence that has been adduced; (b) the limited records available to the Liquidator to satisfy himself that the Company held the Property on the terms of the Trust as at the date of winding up, albeit that his investigations have not revealed any reason to believe that it did not; (c) clause 49 of the Trust Deed, which had the effect that the Company became a bare trustee of the Property when the Company entered into liquidation; and (d) an assumption that Sans Pareil did not claim any interest in the Property other than a charge or mortgage securing the loan to the Company referred to in the Liquidator's evidence. I am prepared to make that assumption for the purpose of making an order under s 90-15 because: (a) unlike declaratory relief, the order does not determine any substantive rights of Sans Pareil in relation to the Property; and (b) if the interest claimed by Sans Pareil in the Property is relevant to the question of whether the Property is an asset of the Trust, the Liquidator's failure to disclose that claimed interest will have the consequence that he will not be protected by the order under s 90-15. [1]
Subject to one qualification, I am satisfied that it is appropriate to exercise the discretionary power to appoint the Liquidator as receiver and manager of the property, assets, and undertaking of the Trust with the powers set out in proposed order (4) above by way of enforcement of the Company's equitable lien over the Trust assets securing its right as former trustee to be indemnified out of those assets in respect of any liabilities that it incurred in its capacity as trustee. That right of indemnity, and the equitable lien, vested in the Liquidator when the Company entered into winding up. [2]
[5]
Orders
For the foregoing reasons, the orders of the Court are:
1. Order pursuant to s 90-15 of the Insolvency Practice Schedule (Corporations) in Schedule 2 of the Corporations Act 2001 (Cth) that the liquidator of Salvestrin Enterprises Pty Limited ACN 652 772 284 (in liquidation) (the Company and the Liquidator) would be justified in treating the property described in land title reference 12/1104189 known as 39 Brooks Street, Griffith, New South Wales (the Property) as an asset of the Salvestrin Enterprises Trust (the Trust).
2. Order pursuant to s 67 of the Supreme Court Act 1970 (NSW) that the Liquidator is appointed as receiver and manager, without security, of the property, assets, and undertaking of the Trust (the Receiver), with the following powers:
1. the powers set out in s 420 of the Corporations Act 2001 (Cth), as if references therein to "the corporation" were references to the Trust;
2. the power to take possession of, preserve, maintain, and sell the assets comprising the Trust property, including the ability to execute a contract for sale of the Trust property and receive the sale proceeds from any such property into a separate bank account maintained by the Receiver for that purpose;
3. to investigate transactions that were undertaken using funds or assets that formed part of the assets of the Trust;
4. to demand books and records of the Trust from any person; and
5. to determine and make payment of any creditor claims against the Company in its capacity as trustee of the Trust conformably with s 556 of the Corporations Act 2001 (Cth).
1. Order that the Receiver is not to distribute any surplus funds or assets of the Trust without further order of the Court.
2. Order that the Receiver is to be paid remuneration on a time-spent basis to be calculated at the standard rates set out in the Liquidator's initial remuneration notice to creditors dated 10 November 2022 at pages 176-179 of Exhibit GM-1 to the Liquidator's affidavit affirmed on 10 October 2023, provided that the Receiver is not to draw remuneration from the Trust assets except with the prior approval of the Court and in an amount fixed by the Court.
3. Order that, within 14 days of the completion of the receivership, the Receiver:
1. is to lodge verified accounts with the Court; and
2. may apply to the Court for approval of the Receiver's remuneration and expenses.
1. Order that the Liquidator's costs of the originating process filed on 10 October 2023 be costs in the winding up of the Company.
[6]
Endnotes
One T Development Pty Ltd v Krejci in his capacity as liquidator of ENA Development Pty Ltd [2023] NSWCA 120 at [28]-[45] (Ward P, Leeming and Mitchelmore JJA).
Trustee Act 1925 (NSW), s 59(4); Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth (2019) 268 CLR 524; (2019) 93 ALJR 807; (2019) 368 ALR 390; (2019) 17 ABC(NS) 1; [2019] HCA 20 at [29]-[33] (Kiefel CJ, Keane and Edelman JJ); [80], [83]-[85], [92] (Bell, Gageler, and Nettle JJ); [128]-[142] (Gordon J); Jones v Matrix Partners Pty Ltd; Re Killarnee Civil & Concrete Contractors Pty Ltd (in liq) (2018) 260 FCR 310; (2018) 354 ALR 436; (2018) 124 ACSR 568; (2018) 36 ACLC 18-017; (2018) 70 AILR 102-937; [2018] FCAFC 40 at [100]-[101] (Allsop CJ); Re Independent Contractor Services (Aust) Pty Limited (in liq) (No 2) (2016) 305 FLR 222; (2016) 34 ACLC 16-004; (2016) 11 BFRA 355; [2016] NSWSC 106 at [24] (Brereton J); Re Stansfield DIY Wealth Pty Limited (in liq) (2014) 291 FLR 17; (2014) 103 ACSR 401; (2014) 32 ACLC 14-065; (2014) 9 BFRA 663; [2014] NSWSC 1484 at [6]-[7], [10], [19], [31]-[33] (Brereton J); Re Indopal Pty Ltd (1987) 12 ACLR 54; (1987) 5 ACLC 278 at 12 ACLR 57 (McLelland J); In Re Suco Gold Pty Ltd (in liquidation) (1983) 33 SASR 99; (1983) 7 ACLR 873; (1983) 1 ACLC 895 at 7 ACLR 877 and 881-883 (King CJ).
See above at [13].
See above at [16].
In re IMF Global Australia Ltd (in liq) (No 2) [2012] NSWSC 1426 at [55] (Black J); In the matter of North Food Catering Pty Limited (2014) 32 ACLC 14-049; [2014] NSWSC 77 at [9] (Brereton J).
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 09 November 2023
The powers to be conferred on the receiver and manager under proposed order (4) above include in proposed order (4)(e) a power to investigate and determine claims of creditors of the Trust, and to pay such claims out of the proceeds of sale of the Trust assets conformably with s 556 of the Corporations Act. That will include Sans Pareil, if the further investigations confirm that Sans Pareil loaned to the Company in its capacity as trustee of the Trust the funds required to complete the acquisition of the Property. It will also include any other creditor to whom the further investigations reveal the Company incurred a liability under transactions entered into in its capacity as trustee of the Trust.
The qualification referred to above relates to the Liquidator's proposed order (4)(c), the terms of which are ambiguous. If proposed order (4)(c) is intended to confer power on the receiver and manager to use funds derived from the sale of Trust property to investigate transactions made by the Company (irrespective of whether the Company made, or purported to make, those transactions in its capacity as trustee of the Trust), this would not be appropriate, in my opinion. Such an order would potentially authorise the use of Trust assets for non-trust purposes because, as I have mentioned earlier in these reasons, there is no evidence that all of the Company's activities were undertaken in its capacity as trustee of the Trust. [3] However, proposed order (4)(c) is appropriate if it is intended only to empower the receiver and manager investigate transactions that were undertaken using funds or assets that formed part of the assets of the Trust. I will include an order to that effect in order (4).
It is apparent from the Liquidator's reports to creditors to date that the Liquidator has developed considerable knowledge about the Company, its related companies, and the assets and transactions of each such company. For that reason, and in the absence of any evidence of the nature of and basis for the concerns referred to in Mr Salvestrin's correspondence with the Liquidator's solicitor and with the Court, I consider that it is appropriate to appoint the Liquidator as the receiver and manager. As I have noted above, no alternative appointee was proposed by Mr Salvestrin. [4]
The Liquidator's evidence and submissions did not address the possibility that, depending on funds realised from the sale of Trust assets and on the outcome of the receiver and manager's investigations undertaken to determine amounts owing to Trust creditors, there may be a surplus of Trust assets over Trust liabilities. It is appropriate to include an order requiring the receiver and manager to apply for an order of the Court in relation to the distribution of any such surplus.
Proposed order (5) above concerns the basis of the receiver and manager's remuneration. The rates identified in the Liquidator's affidavit affirmed on 10 October 2023 are the rates set out in his initial remuneration notice to creditors dated 10 November 2022 at pages 176-179 of Exhibit GM-1 to the Liquidator's affidavit affirmed on 10 October 2023. I am satisfied that those rates are within the range of rates charged by insolvency practitioners for work in the nature of the work that is likely to be required of the receiver and manager. I will make an order in substantially the terms of proposed order (5) above, subject to the proviso that the receiver and manager is not to draw remuneration from the Trust assets except with the approval of the Court and in an amount fixed by the Court. Rule 26.4 of the Uniform Civil Procedure Rules 2005 (NSW) confers power to approve and fix the remuneration of a court-appointed receiver, which is then able to be drawn from the assets to which the receiver has been appointed.
Proposed order (6) above is appropriate in the circumstances, and reflects the requirement for Court approval of any remuneration to be paid to the receiver and manager.
I decline to make proposed order (7) above for two reasons. First, in the absence of evidence that the Company conducted no business or activities except as trustee of the Trust, I cannot be satisfied that it would be appropriate for the whole of the Liquidator's remuneration and expenses to be paid out of the Trust assets. Second, the appointment of the receiver and manager does not absolve the Liquidator from the need to obtain an order from the Court in the exercise of its inherent equitable jurisdiction permitting payment of the Liquidator's remuneration out of the Trust assets in an amount determined by the Court to be reasonable remuneration. [5]