Caterpillar Financial Australia Limited v Ovens Nominees Pty Ltd - [2021] FCA 1243 - FCA 2021 case summary — Zoe

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Caterpillar Financial Australia Limited v Ovens Nominees Pty Ltd

[2021] FCA 1243

Federal Court of Australia|2021-10-14|Before: Anderson J

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Source facts

Court

Federal Court of Australia

Decision date

2021-10-14

Before

Anderson J

Source

Original judgment source is linked above.

Judgment (9 paragraphs)

[1]

Pursuant to section 90-15 of Schedule 2 of the Corporations Act 2001 (Cth) that the Liquidators are justified and acting reasonably in proceeding on the basis that: (a) LXNDR carried on business in its capacity as trustee of the LXNDR Group Investments Trust (Trust); and (b) all assets and undertakings of LXNDR are properly characterised as property held by LXNDR in its capacity as trustee of the Trust (Trust Property).
Pursuant to section 63 of the Trustee Act 1958 (Vic) that LXNDR shall have the power to act as trustee of the Trust in accordance with terms of the Trust Deed and to deal with, hold, apply and/or distribute the Trust Property in accordance with Parts 5.5 and 5.6 of the Corporations Act 2001 (Cth).
Pursuant to section 90-15 of Schedule 2 of the Corporations Act 2001 (Cth) that the Liquidators are justified and otherwise acting reasonably in proceeding on the basis that they can deal with, hold, apply and/or distribute the Trust Property in accordance with Parts 5.5 and 5.6 of the Corporations Act.
Under section 1318 of the Corporations Act 2001 (Cth) and/or section 67 of the Trustee Act 1958 (Vic) that the Liquidators be relieved from any liability for: (a) having dealt with or realised the Trust Property; (b) having made payments from the proceeds of any such realisations, between the date of their appointment as administrators of LXNDR and the date of this order.
Pursuant to section 90-15 of Schedule 2 of the Corporations Act 2001 (Cth) that the Liquidators are justified and otherwise acting reasonably in proceeding on the basis that: (a) The Liquidators are entitled to be paid from the Trust Property their remuneration, costs and expenses properly incurred in preserving, realising or getting in the Trust Property, or in distributing the Trust Property, or in conducting the administration and liquidation of LXNDR (Remuneration and Expenses); and (b) the Remuneration and Expenses include the remuneration, costs and expenses of and incidental to this application and are to be paid in accordance with the priority specified in section 556(1) of the Corporations Act 2001 (Cth).

[3]

background 6 The background to the proceeding is set out in the affidavit of Mr Lawrence sworn on 29 September 2021 (First Lawrence Affidavit). The Liquidators were initially appointed to the Company (and a related entity) on 28 April 2021 as its voluntary administrators. 7 Trading as "Coffee Group Australia", the Company rented and serviced coffee machines and supplied related coffee and café products. The Liquidators' assessment is that the Company operated exclusively as trustee of the Trust and is not the beneficial owner of any property or assets in its own right. That assessment is based upon a review of corporate records (including financial statements, tax returns and bank statement) as well as a Discretionary Trust Deed dated 1 July 2015 (Trust Deed). 8 Pursuant to cl 36 of the Trust Deed, the trustee of the Trust is entitled to be indemnified out of the assets of the Trust "in respect of any liability incurred in connection with acting as trustee of the trust" (save for liability arising from fraud, gross negligence or breach of trust). 9 Upon appointment, the assets of the Trust comprised cash, debtors, motor vehicles, inventory (primarily coffee machines and coffee roasters), warehouse equipment and computer and office equipment. 10 The Trust Deed also provides, at cl 48, for the automatic termination of a trustee if: the trustee enters into compulsory or voluntary liquidation (except for the purposes of amalgamation or reconstruction), or has an administrator, receiver, official manager, or receiver and manager appointed to any part of its assets. 11 As noted above, the Liquidators were appointed to the Company as administrators on 28 April 2021. No replacement trustee has been appointed to the Trust. 12 As a consequence of the operation of cl 48 of the Trust Deed, the Company appears to have been a bare trustee of the Trust since 28 April 2021. As the authorities considered below serve to confirm, 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. 13 In the period since 28 April 2021: (a) The Liquidators (in their capacity as administrators of the Company) decided to "trade on" the business conducted by the Trust, on the basis that ongoing trading of the business would preserve the value of the Trust's assets and maximise the return for creditors. (b) On 18 June 2021, the Company executed a Deed of Company Arrangement (DOCA) which provided for the day-to-day management and control of the Company to return to its then director. (c) On 20 July 2021, the DOCA was terminated and the Company was placed into liquidation. (d) Since 20 July 2021, the Liquidators have conducted the winding up of the Company, including by negotiating and entering into an asset sale agreement (Asset Sale Agreement), collecting debtors and selling a motor vehicle. 14 The sole potential beneficiary of the Trust identified by name is Michael Alexander. At the time of the Liquidators' appointment, Mr Alexander was the sole director and shareholder of the Company. Mr Alexander is now bankrupt. Both Mr Alexander and the trustee of his bankrupt estate (Mr Mark Roufeil) have been provided with notice of the relief sought by the Liquidators. Mr Alexander has informed the Liquidators' lawyers that he consents to the Liquidators' application. 15 The Liquidators have advised creditors of the Company that an application would be made to obtain orders enabling them to deal with assets of the Trust. No objection has been received from any creditor.

[4]

orders sought 16 This application raises legal issues about the powers of the Company and the Liquidators to deal with assets of the Trust. Given the popularity of trading trusts, the present scenario is a common one. An analogous situation arose in Caterpillar Financial Australia Limited v Ovens Nominees Pty Ltd [2011] FCA 677 (Caterpillar Financial), in which Gordon J at [26] summarised the rights and powers of a bare trustee (that had been removed as trustee by virtue of an equivalent disqualification clause in a trust deed) and its liquidator. Amongst 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 Trust assets". 17 As was observed recently in Old Port Road at [16]: applications of this kind are necessary when, by virtue of an "ipso facto" clause in the relevant deed of trust, a trustee company is automatically removed from office on the occurrence of a particular event, such as the appointment of a liquidator. 18 As was observed in Cremin, in the matter of Brimson Pty Ltd (in liq) [2019] FCA 1023 at [49]-[50]; 136 ACSR 649 (Cremin): 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: see Jones & Matrix at [44] per Allsop CJ (Farrell J agreeing at [196]); Re Stansfield DIY Wealth Pty Ltd (in liq) (2014) 291 FLR 17 at [10]; Apostolou v VA Corporation of Aust Pty Ltd [2011] FCAFC 103 at [45]. 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 & Matrix 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: see Jones & Matrix at [91]. 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…"

[5]

Orders 1-2 in the Originating Process: confirming ability of the Liquidators to deal with Trust assets 19 The Liquidators seek orders, in equivalent form to those made in cases such as Asten, Old Port Road and Jess, confirming that they are justified and acting reasonably in proceeding on the basis that: (a) the Company carried on business in its capacity as trustee of the Trust; and (b) all of the Company's assets are properly characterised as property held by the Company in its capacity as trustee of the Trust. 20 The relief sought can be granted pursuant to s 90-20 of the Insolvency Practice Schedule (Corporations) of the Act (Practice Schedule), which enables a liquidator to apply to the Court for orders under s 90-15 in relation to the external administration of a company: Rathner at [6]; Old Port Road at [14]. The Court's power to make orders under s 90-15 is broad. 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 give a direction in the form sought at paragraph 1 of the Originating Process, which is: 1. An order pursuant to section 90-15 of Schedule 2 of the Corporations Act that the Liquidators are justified and acting reasonably in proceeding on the basis that: (a) LXNDR carried on business in its capacity as trustee of the LXNDR Group Investments Trust (Trust); and (b) all assets and undertakings of LXNDR are properly characterised as property held by LXNDR in its capacity as trustee of the Trust (Trust Property). 21 I am also satisfied that it is appropriate to authorise the Company to act as trustee of the Trust. Section 63(1) of the Trustee Act provides: 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. 22 In Caterpillar Financial, Gordon J set out at [30] the above provision and observed: As a result, 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. 23 No replacement trustee has been appointed to the Trust. I am satisfied that the order sought 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].

[7]

Order 4 in the Originating Process: relieving Liquidator from potential liability for past conduct 26 The Liquidators (in their capacity as administrators) continued to trade the business of the Trust, a course that necessarily entailed dealing with property of the Trust. Mr Lawrence's evidence is that, in trading the business, he and his staff were "required to deal with the assets of the Trust, in particular the coffee machines, stock and funds which were utilized to pay creditors". The Liquidators' dealings with the assets of the Trust are described, by reference to the different phases of the Company's external administration since 28 April 2021, at [43]-[53] of the First Lawrence Affidavit. The conduct has relevantly entailed the realisation of assets (such as pre-appointment debtors and a motor vehicle) and the application of the proceeds to meet trading costs (such as wages and tax liabilities). 27 On 13 August 2021, the Liquidators entered into the Asset Sale Agreement, which included a "pre-condition" requiring the Liquidators to obtain the orders sought via this proceeding to deal with the subject assets. Mr Lawrence's evidence is that the Asset Sale Agreement was entered into prior to obtaining the orders sought via this proceeding on account of concerns that the Liquidators "would not get the same or better offer … at a later date". The purchase price payable under the Asset Sale Agreement is being held on trust pending the Liquidators obtaining the relief now sought from the Court. 28 In light of those dealings with trust property (at a point in time when, it is now apparent, the Company has 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 that the Liquidators be relieved from any potential liability arising from their dealings with trust property. 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 the environment involving risk in commercial decision-making: Matthew Forbes at [24]; see also: Re Mackie Group Pty Ltd (in liq) [2017] VSC 477 at [72]-[75]. Referring to s 67 of the Trustee Act, Gordon J stated in Caterpillar Financial that the section "empowers the Court to excuse a breach of trust by a trustee who has acted honestly and reasonably": Caterpillar Financial at [33]. 29 Where the Liquidators' conduct has been both honest and reasonable (and explicable by reference to priority being afforded to the interests of the Company's creditors), I am satisfied that it is appropriate to make an equivalent order to that made in cases such as Caterpillar Financial, Cremin, Matthew Forbes and Asten: see, for instance, Cremin at [55], Asten at [31].

Caterpillar Financial Australia Limited v Ovens Nominees Pty Ltd

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Judgment (9 paragraphs)

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