Caterpillar Financial Australia Limited v Ovens Nominees Pty Ltd

Application 1 The first plaintiffs, Messrs Deppeler and Burness (Liquidators), are the liquidators of the second plaintiff, Asten Holdings Pty Ltd (in liquidation) (Company). The Liquidators seek orders under the Corporations Act 2001 (Cth) (Act) and/or the Trustee Act 1958 (Vic) for the purpose of facilitating their dealing with, and distribution of, assets of the Company, including to enable the winding up of the Company to be completed. 2 The application is made in circumstances where the Company is presently the bare trustee of a trust described as the Clogs Unit Trust (Trust). As a consequence of the appointment of the Liquidators, the Company ceased to be the trustee of the Trust. No replacement trustee has been appointed.

Background 3 The background to the proceeding is set out in the affidavit of Mr Deppeler sworn on 28 April 2020 (Deppeler Affidavit). Prior to the appointment of the Liquidators in October 2014, the Company conducted a pizza restaurant business from leased premises in Bendigo, Victoria (Business). 4 The Liquidator's assessment is that the Company operated exclusively as trustee of the Trust: Deppeler Affidavit at [24]. That assessment is based upon financial statements, bank statements and tax returns prepared in the pre-appointment period: Deppeler Affidavit, Annexures "NLD-8", "NLD-9" and "NLD-10". 5 The Trust Deed for the Trust was annexed to the Deppeler Affidavit (Trust Deed): Deppeler Affidavit, Annexure "NLD-7". Clause 50 of the Trust Deed provided the following (among other things): … the Trustees shall be entitled to be indemnified out of the assets for the time being comprising the Trust Fund against liabilities incurred by them in the execution or attempted execution or as a consequence of the failure to exercise any of the trust authorities powers and discretions hereof or by virtue of being the Trustees hereof (emphasis added). 6 The capitalised term "Trust Fund" was defined as including: … all moneys paid to and accepted by the Trustees upon the issue of Units pursuant to Clause 8 [of the Trust Deed,] the accumulations of income hereinafter directed or empowered to be made[,] all accretions to the Trust Fund[,] and the investments and property from time to time representing the said money and accumulations or any part or parts thereof respectively[.] 7 The trustee of the Trust was in these circumstances entitled to be indemnified out of the assets comprising the trust funds against all liabilities incurred in the execution of "any of the trust authorities powers and discretions": Trust Deed at clause 50 (which is at page 177 of the Annexures to the Deppeler Affidavit). 8 Clause 55(b) of the Trust Deed also provides for the disqualification of a corporate trustee from holding office if a liquidator is appointed to the trustee (here, the Company): Trust Deed, cl 55(b) at page 177 of the Annexures. 9 As noted above, the Liquidators were appointed on 31 October 2014, consequent upon members of the Company resolving to wind up the Company: Deppeler Affidavit at [4]. No replacement trustee has been appointed to the Trust: Deppeler Affidavit at [22]. 10 As a consequence of the operation of cl 55(b) of the Trust Deed and the Company's liquidation, the Company now appears to be a bare trustee of the Trust. A bare trustee has been described as being: a trustee who has no interest in the trust assets other than that existing by reason of the office of trustee and the holding of the legal title and who never has had active duties to perform or who has ceased to have those duties with the result that in either case the property awaits transfer to the beneficiaries or at their direction (Jacobs' Law of Trusts in Australia (8th edition, 2016) at [3-15] citing Herdegen v Federal Commissioner of Taxation (1988) 84 ALR 271 at 281-282 (per Gummow J)). 11 The position here is analogous to the circumstances set out in Caterpillar Financial Australia Limited v Ovens Nominees Pty Ltd [2011] FCA 677 at [6]-[9]. In the absence of a Court order, the ability of a bare trustee (or its liquidator) to deal with trust assets, including to satisfy claims of trust creditors, is limited. 12 The Liquidators' investigations suggest that the current unitholders of the Trust are Frank Van Haandel (as trustee for the Van Haandel Family Trust) and M.D.M. Nominees Pty Ltd (as trustee for the Martin Vincent Van Haandel Family Trust) (MDM Nominees): Deppeler Affidavit at [26]; Affidavit of Hannah Louise Soar dated 17 June 2020 (Soar Affidavit), Annexure "HLS-1". 13 Those parties have been provided with notice of the relief sought by the Liquidators: Soar Affidavit, [5]-[8]. Provision of that notice generated a response to the effect that all of the units in the Trust are beneficially held by the Martin Vincent Van Haandel Family Trust: Letter from Philip J Eddy & Partners dated 27 May 2020 at Annexure "HLS-5" to the Soar Affidavit. 14 The Liquidators have previously advised creditors of the prospect of an application to "formalise their authority to deal with the Trust Property, and in turn distribute the proceeds from that property in the liquidation": Deppeler Affidavit at [25]. Following the filing of the application, a circular was issued to creditors on 14 May 2020 confirming that the application had now been made and inviting creditors to contact the Liquidators' office if they required further information regarding the application: see Advice to Creditors dated 14 May 2020 at Annexure "HLS-7" of the Soar Affidavit.

Relevant principles 15 This application raises legal issues about the powers of the Company and the Liquidators to deal with assets of the Trust. It is not a case where the Liquidators are seeking directions about commercial decisions that they ought make themselves: see Re Metrobore Australia Pty Ltd [2014] VSC 247, [8]. 16 As I have stated, this application is analogous to the situation which arose in Caterpillar Financial Australia Limited v Ovens Nominees Pty Ltd [2011] FCA 677 (Caterpillar Financial). In Caterpillar Financial, Gordon J summarised the rights and powers of a bare trustee (which had been removed as trustee by virtue of an equivalent disqualification clause in a trust deed) and its liquidator. One of the principles stated by her Honour is that, while a bare trustee may still hold trust assets, its "duties, powers and rights are limited to protecting the [t]rust assets": Caterpillar Financial at [26]; see also Re Matthew Forbes Pty Ltd (in liq) [2018] VSC 331 (Matthew Forbes) at [17] (citing CGU Insurance Ltd v One.Tel Ltd (in liq) (2010) 242 CLR 174, 182 [36] (per French CJ, Heydon, Crennan, Kiefel and Bell JJ) and FCT v Bruton Holdings Pty Ltd (in liq) (2008) 173 FCR 472, 498 [79] (per Ryan, Mansfield and Dowsett JJ)). 17 Recently, in Cremin, in the matter of Brimson Pty Ltd (in liq) [2019] FCA 1023; 136 ACSR 649 (Cremin), Moshinsky J observed (at [49]-]50]): It is now settled that the liquidator of an insolvent (former) corporate trustee cannot sell the trust's property without order of the Court, or by appointment of a receiver over the trust assets … The rationale for this position is that, on a proper understanding, the trust assets are not the "property of the company", but are instead trust property in which the corporate trustee has a proprietary interest by way of lien or charge to secure its right of exoneration: see [Jones (Liquidator) v Matrix Partners Pty Ltd, in the matter of Killarnee Civil & Concrete Contractors Pty Ltd (in liq) [2018] FCAFC 40; 260 FCR 310; 124 ACSR 568] at [89]. Thus, to the extent that the subject of a sale is the whole of a trust asset, rather than merely the company's lien or charge in respect of that asset, it is not authorised by the power of sale in s 477(2)(c). The courts are generally willing, upon an appropriate application, to make orders permitting the liquidator of a (former) corporate trustee to sell trust assets. In situations where the property of the trust will be exhausted following its sale and subsequent distribution to creditors, it may be appropriate merely to give the liquidator a power of sale … The more common course is, however, for the liquidator of the insolvent (former) corporate trustee to apply to be appointed a receiver for the purpose of selling the trust assets and distributing the proceeds among trust creditors … (citations omitted).

Orders 1-2 in the Originating Process: confirming ability of the Liquidators to deal with Trust assets 18 The Liquidators seek orders confirming that they are justified and acting reasonably in proceeding on the basis that: (1) the Company carried on business in its capacity as trustee of the Trust; and (2) all of the Company's assets are properly characterised as property held by the Company in its capacity as trustee of the Trust. 19 These orders are equivalent in form to those made in Matthew Forbes and In the matter of St George's Development Company Pty Ltd (in liq) [2018] VSC 595 (St George's). 20 The relief sought can be granted pursuant to s 90-20 of Schedule 2 - Insolvency Practice Schedule (Corporations) of the Act (Practice Schedule). Section 90-20 of the Practice Schedule enables a liquidator to apply to the Court for orders under s 90-15 in relation to the external administration of a company. 21 Having regard to the enquiries made by the Liquidators and where there is no evidence that the Company traded or held assets other than in its capacity as trustee of the Trust, I am satisfied that it is appropriate to make a direction in the form sought at paragraph 1 of the Originating Process. 22 It is also appropriate to authorise the Company to act as trustee of the Trust. Section 63(1) of the Trustee Act 1958 (Vic) provides as follows: Where in the management or administration of any property vested in trustees, any sale, lease, mortgage, surrender, release or other disposition, or any purchase, investment, acquisition, expenditure or other transaction, is in the opinion of the Court expedient, but the same cannot be effected by reason of the absence of any power for that purpose vested in the trustees by the trust instrument (if any) or by law, the Court may by order confer upon the trustees, either generally or in any particular instance, the necessary power for the purpose on such terms and subject to such provisions and conditions (if any) as the Court thinks fit and may direct in what manner any money authorized to be expended, and the costs of any transaction are to be paid or borne as between capital and income. 23 In Caterpillar Financial, Gordon J confirmed (at [30] and [35]-[36]) that it may be appropriate for this Court to confer upon a company in liquidation the power to sell trust assets pursuant to s 63 of the Trustee Act 1958 (Vic) (see also Theobald, in the matter of Finplas Pty Ltd [2014] FCA 31 where orders were made pursuant to the Trustee Act 1962 (WA), and Gleeson, in the matter of Kingston Property Holdings Pty Limited (No 2) [2017] FCA 974 at [25]). Gordon J also set out s 63 of the Trustee Act 1958 (Vic) and observed (at [30]) that the "Federal Court has the power to authorise the Company as a bare trustee to deal with trust assets and apply trust assets to meet claims under s 556 of the Act in the course of the winding up of the Company". 24 I will make the order sought in these circumstances as it will enable the affairs of the Trust to be "finalized prospectively and efficiently without the need to return to Court": St George's at [28].

Order 3 in the Originating Process: confirming operation of winding up provisions of the Act 25 The Liquidators also seek a direction pursuant to s 90-15 of the Practice Schedule that the Liquidators are justified and otherwise acting reasonably in proceeding on the basis that their possession, realisation and distribution of property of the Trust is governed by Parts 5.5 and 5.6 of the Act. 26 Such a direction accords with the conclusion of the Full Court in Jones (Liquidator) v Matrix Partners Pty Ltd, in the matter of Killarnee Civil & Concrete Contractors Pty Ltd (in liq) [2018] FCAFC 40; 260 FCR 310; 124 ACSR 568 (Jones v Matrix). Allsop CJ in that case made the following observations (at [102] and [108]) regarding the type of situation that arises in this case (namely, where "the company has only acted … as corporate trustee for one trust"): … In such circumstances, the property of the company that includes the right of exoneration and the funds obtained from its exercise is to be distributed in accordance with the statutory command: ss 501 and 556. In such circumstances, the words of the statute are to be applied to direct the distribution of the property of the company. … Where the corporation has only ever acted as trustee of one trust and that has been the totality of its affairs, there is no reason either in principle or by reference to context or text why the words of the statute setting out the order of priorities should not be followed. 27 In the period following the decision in Jones v Matrix, courts have granted relief in the form sought by the Liquidators here. An equivalent direction was made in Matthew Forbes (see [20]), St George's (see [31]) and in Deputy Commissioner of Taxation v Darwin Joinery Pty Ltd, in the matter of Darwin Joinery Pty Ltd [2018] FCA 753, where White J (at [15]) observed the following concerning the order sought by the applicant liquidator: The proposed direction that [the relevant liquidator] would be justified in paying any amount out of the assets of the Trust in accordance with ss 556(1), 560 and 561 of the [Act] is consistent with the conclusion of the Chief Justice and of Farrell J in [Jones v Matrix] and it is appropriate that it be made. 28 I am satisfied on the evidence that in the present circumstances it is appropriate to make Order 3 in the Originating Process.

Order 4 in the Originating Process: relieving Liquidators from potential liability for past conduct 29 In addition to recovering a related party loan from MDM Nominees in the sum of $317,242.17 (Deppeler Affidavit at [14]-[16]), the Liquidators took steps to sell the assets of the Business (which sale had, by December 2015, generated a recovery of $16,000): Deppeler Affidavit, [14(c)], [17]-[18]. 30 In light of that disposal of Trust Property (at a time when, it is now apparent, the Company had ceased to hold office as trustee), the Liquidators seek an order pursuant to s 1318 of the Act and/or s 67 of the Trustee Act 1958 (Vic). The order sought is that the Liquidators be relieved from any potential liability arising from their dealings with Trust Property. 31 The purpose of s 1318 is to excuse company officers from liability in situations where it would be unjust and oppressive not to do so, recognising that such officers are business persons who act in an environment involving risk in commercial decision-making: Matthew Forbes [24]; see also Re Mackie Group Pty Ltd (in liq) (in its capacity as Trustee of the Jupelina Unit Trust) [2017] VSC 477; 122 ACSR 537 (Re Mackie Group) at [72]-[75]. In Caterpillar Financial, Gordon J stated that s 67 of the Trustee Act 1958 (Vic) "empowers the Court to excuse a breach of trust by a trustee who has acted honestly and reasonably": Caterpillar Financial at [33]. Where the Liquidators' conduct has been both honest and reasonable, it is appropriate to make an equivalent order to that made in cases such as Caterpillar Financial, Cremin and Matthew Forbes: see for instance Cremin at [52]-[55]. 32 Mr Deppeler's evidence is that, to the extent that any of the Liquidators' dealings with assets of the Company went beyond the powers of the Company, any such conduct was due to inadvertence: Deppeler Affidavit at [23]. That is, the evidence before me was to the effect that there is no basis upon which it might be said that the Liquidators have acted other than honestly and reasonably. 33 I am satisfied on the evidence that it is appropriate to make Order 4 in the Originating Process.

Order 5 in the Originating Process: payment from Trust Property of the Liquidators' remuneration and expenses 34 The Liquidators seek an order confirming an entitlement to be indemnified out of the trust assets in respect of the costs and expenses that they have incurred. The proposed order is toequivalent effect to that made in Re Mackie Group (see [66]). 35 The Deppeler Affidavit contains details of the tasks undertaken and being performed by the Liquidators (as to the tasks undertaken by the Liquidators, see [27] of the Deppeler Affidavit). 36 As noted above, the sole activities of the Company were as trustee of a trust. Save for its right of exoneration and the supporting lien, the Company has no assets of its own. 37 In these circumstances, it is appropriate that the Liquidators' remuneration and expenses be paid out of trust assets: see Re Mackie Group at [48]-[62]; Freelance Global v Bensted [2016] VSC 181 at [58]; Kite v Mooney, in the matter of Mooney's Contractors Pty Ltd (in liq) (No 2) [2017] FCA 653; 121 ACSR 158; Jones v Matrix, [105]-[106]; In the matter of Houben Marine Pty Ltd (in liq) [2018] NSWSC 745, [17]; and Cremin, [54]. As was stated in In the matter of JML Property Services Pty Ltd (in liquidation) [2018] NSWSC 1069 at [10]: … the case law establishes that a liquidator of a trustee company is entitled to be paid his or her remuneration, whether for administering the trust assets or for general liquidation work, out of trust assets where that company has no assets other than its rights against the trust assets (citations omitted). 38 On the basis of the evidence before me, I am also satisfied that the Liquidators have acted reasonably and in good faith in bringing this application for advice and directions: see Re Mackie Group at [67]. 39 It is appropriate that the costs of this application be met from the property held on trust: Re Mackie Group at [67].

CONCLUSION 40 It follows from the matters deposed to in the Deppeler Affidavit and the reasons given above that the Court make the orders sought in the Originating Process. I certify that the preceding forty (40) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Anderson.