Caterpillar Financial Australia Limited v Ovens Nominees Pty Ltd - [2021] FCA 1370 - FCA 2021 case summary — Zoe

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Caterpillar Financial Australia Limited v Ovens Nominees Pty Ltd

[2021] FCA 1370

Federal Court of Australia|2021-11-05|Before: Anderson J

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At a glance

Source facts

Court

Federal Court of Australia

Decision date

2021-11-05

Before

Anderson J

Source

Original judgment source is linked above.

Judgment (8 paragraphs)

[1]

Pursuant to section 90-15 of Schedule 2 - Insolvency Practice Schedule (Corporations) (Schedule 2) to the Corporations Act 2001 (Cth) (Corporations Act), the First Plaintiff (Liquidator) is justified and acting reasonably in proceeding on the basis that: (a) the Second Plaintiff, Johnson Roofing Pty Ltd (In Liquidation) (ACN 070 870 576) (Company), carried on business in its capacity as trustee of The Johnson Unit Trust (Trust); and (b) all assets and undertakings of the Company are properly characterised as property held by the Company in its capacity as trustee of the Trust (Trust Property).
Pursuant to section 63 of the Trustee Act 1958 (Vic) (Trustee Act), the Company shall have the power to act as trustee of the Trust.
Pursuant to section 90-15 of Schedule 2 of the Corporations Act, the Liquidator is justified and otherwise acting reasonably in proceeding on the basis that he can deal with, hold, apply and/or distribute the Trust Property in accordance with Parts 5.5 and 5.6 of the Corporations Act.
Pursuant to section 1318 of the Corporations Act and/or section 67 of the Trustee Act, the Liquidator be relieved from any liability arising from having, between the date of his appointment and the date of this order, dealt with or realised Trust Property and/or made payments from the proceeds of such realisations.
Pursuant to section 90-15 of Schedule 2 of the Corporations Act, the Liquidator is justified and otherwise acting reasonably in proceeding on the basis that: (a) the Liquidator is and was entitled to be paid from the Trust Property his remuneration, costs and expenses properly incurred in preserving, realising or getting in the Trust Property, or in carrying on any business or activities of the Trust, or in conducting any sale of the business or assets of the Trust, or in distributing the Trust Property (once realised), or in conducting the winding up of the Company (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.

[3]

Background 5 The background to the proceeding is set out in the Liquidator's affidavit sworn on 5 October 2021 (Kucianski Affidavit). The Liquidator was appointed to the Company on 16 March 2020 at a general meeting of its members. Prior to it ceasing trading on 4 March 2020, the Company operated a roofing construction business from leased premises in Bayswater. The failure of the business has resulted in unpaid creditor claims exceeding $1 million. 6 According to a Unit Trust Deed (Trust Deed) pertaining to the Trust, the Company was appointed as trustee of the Trust in September 1995. The Liquidator's assessment is that the Company operated exclusively as trustee of the Trust. That assessment is based upon a review of corporate records (including tax returns, bank statements, credit applications and financial statements) and advice from the Company's accountant. The Liquidator's belief, which he has conveyed to the Company's creditors, is that the Company at all times held property on trust in its capacity as trustee of the Trust. 7 The Trust Deed serves to confirm that the trustee of the Trust is entitled to be indemnified out of the property of the Trust for "liabilities incurred in the administration of the Trust Fund". 8 The Trust Deed separately provides, at clause 11(c), that the "office of a Trustee shall be ipso facto determined and vacated if…a Trustee being a company shall enter liquidation, whether compulsory or voluntary (not being merely a voluntary liquidation for the purposes of amalgamation or reconstruction)". As noted above, the Liquidator was appointed to the Company on 16 March 2020. There is no suggestion that a replacement trustee has been appointed to the Trust. 9 As a consequence of the operation of clause 11(c) of the Trust Deed, the Company appears to have been a bare trustee of the Trust since 16 March 2020. Since that date, the Liquidator has collected and sold a number of assets (including plant and equipment and motor vehicles), details of which are provided at paragraph 27 of the Kucianski Affidavit. 10 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. 11 The Liquidator's investigations suggest that the current unit holders in the Trust are C & J Dobson (as trustee for the CJD Trust) and Sorento Pty Ltd (as trustee for the Darren Johnson Family Trust). Steps have been taken to provide the Company directors, the unit holders and ASIC with notice of the application and the relief sought by the Liquidator. 12 The Liquidator has advised creditors of the Company that an application would be made to obtain orders enabling the Liquidator to deal with assets of the Trust. In June 2020, creditors were advised that, as the Company "has been disqualified and removed as trustee due to the liquidation it has been rendered a "bare trustee" of the trust assets it holds" and, further, that the Liquidator considered that he may be required to make an application to Court to be authorised to deal with trust assets. That such an application would be made was confirmed in a report to creditors in July 2021. No objection has been received from any creditor.

[4]

Orders sought 13 This application raises legal issues about the powers of the Company and the Liquidator to deal with assets of the Trust. It is not a case where the Liquidator is seeking directions about commercial decisions that he ought make himself. 14 Given the popularity of trading trusts, the present scenario is a common one. In an analogous situation in Caterpillar Financial Australia Limited v Ovens Nominees Pty Ltd [2011] FCA 677 (Caterpillar Financial), Gordon J 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". As was observed recently in Old Port Road, 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. 15 Further, as was observed in Cremin, in the matter of Brimson Pty Ltd (in liq) [2019] FCA1023; 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… 16 While the Liquidator is content to be appointed as receiver over the trust property under s 57(1) of the Federal Court of Australia Act 1976 (Cth) (as occurred in Cremin), that is not his preferred outcome. Rather, the making of the orders sought in the Originating Process will secure an equivalent outcome without the Liquidator being appointed in a new capacity. In Old Port Road, it was noted that there is no "bright line" that "provides assistance to the Court to determine whether, in cases such as this, the preferable course is to make orders permitting the former corporate trustee to sell assets or to appoint a receiver".

[5]

Orders 1-2 in the Originating Process: confirming the ability of the Liquidator to deal with Trust assets 17 The Liquidator seeks orders, in equivalent form to those made in cases such as LXNDR Group, Asten, Old Port Road and Jess, confirming that he is 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. 18 The relief sought can be granted pursuant to Section 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 section 90-15 in relation to the external administration of a company. The Court's power to make orders under s 90-15 is broad. Having regard to the enquiries made by the Liquidator and where there is no evidence that the Company traded or held assets other than in its capacity as trustee of the Trust, it is appropriate to give a direction in the form sought at paragraph 1 of the Originating Process. 19 Further, it is appropriate, for the avoidance of doubt, to authorise the Company to act as trustee of the Trust. Section 63(1) of the Trustee Act 1958 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. 20 In Caterpillar Financial, Gordon J set out 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. 21 As noted above, no replacement trustee has been appointed to the Trust. The order sought will enable the affairs of the Trust to be "finalized prospectively and efficiently without the need to return to Court".