MCEVOY J:
1 By an originating process filed on 25 October 2023 the plaintiffs, Barry Kenneth Hamilton and Kiara Melaleuca Calvert, in their capacities as joint and several liquidators of Greenleaf (Tas) Pty Ltd (ACN 137 746 233), made an application under s 57 of the Federal Court of Australia Act 1976 (Cth) (FCA Act) for appointment as receivers and mangers of the property and assets of the Winwood Family Trust and for various ancillary orders. They wish to be able to sell the assets of the Trust.
2 I heard the application on 2 November 2023 and made orders. These are the reasons for those orders.
3 The plaintiffs relied on the following:
(a) an affidavit of Barry Kenneth Hamilton affirmed 24 October 2023 (Hamilton affidavit);
(b) an affidavit of Kiara Melaleuca Calvert sworn 1 November 2023;
(c) an affidavit of Curtis Franklin Browne sworn 2 November 2023; and
(d) written submissions dated 1 November 2023.
4 Greenleaf was incorporated on 18 June 2009. In its capacity as Trustee for the Trust, Greenleaf operated an arboriculture business under the registered business name "A1 Tree Services".
5 Greenleaf's assets and liabilities were held and owned in its capacity as Trustee of the Trust. It does not, and did not, trade in its own right.
6 Greenleaf has 12 ordinary shares on issue, owned by Sandra Jane Winwood.
7 Sandra is the sole director and secretary of Greenleaf.
8 Sandra's former husband, Leigh Andrew Winwood, was a former director, secretary and shareholder of Greenleaf. He resigned from these positions and sold his shares in Greenleaf on or around 4 October 2022. Sandra and Leigh had apparently separated well before the appointment of the plaintiffs as administrators of Greenleaf.
9 Pursuant to Item 9 in the Schedule of the Trust Deed, Leigh and Sandra are the appointors of the Trust. By clause 7.1, Leigh and Sandra have the power to appoint and remove trustees subject to the conditions imposed therein.
10 On 24 August 2023 the plaintiffs were appointed as joint and several administrators of Greenleaf pursuant to s 436A of the Corporations Act 2001 (Cth).
11 Clause 8.8(2) of the Trust Deed provides that the office of the Trustee of the Trust will be determined and vacated if, among other things, the Trustee, being a company, has an administrator appointed. Consequently, on and from 24 August 2023, Greenleaf ceased as Trustee of the Trust and has, since that time, held all Trust assets as a bare trustee. In this regard, see Caterpillar Financial Australia Limited v Ovens Nominees Pty Ltd [2011] FCA 677 at [26] (Gordon J).
12 On 28 September 2023, at a second meeting of Greenleaf's creditors, it was resolved that Greenleaf should be put into voluntary liquidation. The plaintiffs were appointed as joint and several liquidators of Greenleaf.
13 Since 24 August 2023, the plaintiffs have continued to operate the A1 Tree Services business.
14 Prior to the appointment of the plaintiffs as administrators and subsequently as liquidators, A1 Tree Specialists Pty Ltd (ACN 669 807 532) as trustee for the Mason Family Trust (Purchaser) had offered to purchase the business as a going concern (including the plant and equipment) for $600,000.00, plus payment of accrued employee entitlements. The Purchaser is related to Greenleaf in the sense that a director of the Purchaser, Peter Mason, is Leigh's step-brother. Peter is also a long-term employee in the A1 Tree Services business. Apparently, this offer was orally accepted by Sandra.
15 Since the appointment of the plaintiffs as administrators they have been negotiating with the Purchaser in relation to the sale of the business, including attempting to have the Purchaser increase the offer it had made. It would seem, however, that the Purchaser does not have the financial capacity to increase its offer.
16 The plaintiffs believe that neither Leigh nor Sandra have sufficient knowledge, skills or capacity to manage Greenleaf's operations. Consequently, the plaintiffs believe that the sale of the business to the Purchaser needs to be finalised as expeditiously as possible.
17 A Business Sale Agreement, which reflects the terms agreed with the Purchaser, was executed on 19 October 2023. The sale of the business is conditional upon the Purchaser obtaining finance and upon the plaintiffs being appointed receivers and managers of the business assets by the Court.
18 The principles applicable to an application made in the present circumstances are comprehensively essayed by Moshinsky J in Cremin, in the matter of Brimson Pty Ltd (in liq) [2019] FCA 1023 at [48] to [51] as follows:
Applicable principles
48. A company that is the trustee of a trading trust has a right of indemnity to resort to the trust assets to vindicate its right to be exonerated from a liability that it has incurred in the course of carrying out trust business. In circumstances where such a company goes into liquidation, its right of indemnity and accompanying equitable lien over the trust assets endures, notwithstanding that the company has been removed as trustee of the trust and only holds the trust assets as a bare trustee: see Jones v Matrix Partner Pty Ltd; Re Killarnee Civil & Concrete Contractors Pty Ltd (in liq) [2018] FCAFC 40; (2018) 260 FCR 310 (Jones & Matrix) at [85], [142], [198].
49. There has, until recently, been a difference of opinion as to whether, in such circumstances, the liquidator's power to sell the "property of the company" in s 477(2)(c) of the Corporations Act permits him or her to sell trust assets: see Aced Kang Investments Pty Ltd (in liq), in the matter of Aced Kang Investments Pty Ltd (in liq) [2017] FCA 476 at [12]. 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] NSWSC 1484; (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).
50. 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: see Jones & Matrix at [142] per Siopis J; Amirbeaggi, in the matter of Simpkiss Pty Ltd (in liq) [2018] FCA 2121 (Amirbeaggi); Taylor v CJ & KL Bond Super Pty Ltd, in the matter of CJ & KL Bond Pty Ltd (in liq) [2018] FCA 1430 (Taylor v CJ & KL Bond Super Pty Ltd); Staatz v Berry, in the matter of Wollumbin Horizons Pty Ltd (in liq) (No 3) [2019] FCA 924. Orders appointing a liquidator as a receiver for this purpose may be made nunc pro tunc to authorise sales of trust assets that have already occurred: Jones & Matrix at [91], [152], [198].
51. The proceeds from an exercise of a corporate trustee's right of exoneration may only be applied in satisfaction of the trust liabilities to which that right relates: see Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth [2019] HCA 20 (Carter Holt) at [40] per Kiefel CJ, Keane and Edelman JJ; at [92] per Bell, Gageler and Nettle JJ; at [106] per Gordon J. Thus, the liquidator of a (former) corporate trustee may only apply the proceeds of a sale of trust assets to satisfy debts owed to trust creditors (as opposed to general creditors). This includes the costs of the liquidation (including the liquidator's remuneration) because such costs constitute debts incurred by the company in discharging the duties imposed by the trust: Re Suco Gold Pty Ltd (in liq) (1983) 33 SASR 99 at 110 per King CJ; Jones v Matrix at [105]-[106]. In circumstances where a company has only ever acted as a trustee of one trust and that has been the totality of its affairs, no issue arises as to the application of trust assets to general creditors because all of the company's creditors are trust creditors. In this situation, the proceeds from the exercise of the right of exoneration are to be distributed to the trust creditors in accordance with the order of priority prescribed by the Corporations Act: Jones & Matrix at [100]-[108] per Allsop CJ; see also Carter Holt at [93]-[96] per Bell, Gageler and Nettle JJ; at [111], [156]-[158] per Gordon J.
19 The plaintiffs submitted that it is important that they be appointed as receivers of the Trust property and assets to enable them to sell the business to the Purchaser as soon as possible so as to maximise the return to the creditors of Greenleaf. The plaintiffs' view of Greenleaf's current financial position was that its liabilities exceed its assets by approximately $1,167,225.00.
20 There are a number of interested parties and creditors of the Company. Mr Browne deposed that Sandra and Leigh had both been served and confirmed that they did not intend to appear at the hearing. Mr Browne also explained that the following creditors were also served the originating process and Hamilton affidavit in the following capacities:
(a) Capital Finance Australia Limited as holder of a registered purchase money security interest in relation to equipment owned by the Trust (and of a registered purchase money security interest in relation to a piece of equipment formerly owned by the Trust prior to the administration);
(b) Toyota Finance Australia Limited as holder of registered purchase money security interests in a number of vehicles owned by the Trust; and
(c) Australia and New Zealand Banking Group as holder of a registered purchase money security interest in respect of a vehicle owned by the Trust.
21 At the hearing counsel noted that two further creditors had been identified by the liquidators, although it was submitted that this did not impact upon the present application. There was otherwise no evidence in relation to these further creditors.
22 The plaintiffs consider that Greenleaf could incur trading losses of $60,000.00 per month if it continues to trade.
23 The plaintiffs submitted that it would be appropriate that they be appointed as receivers of the Trust property and assets without security, and that a receiver's guarantee in accordance with rr 14.21 and 14.22 of the Federal Court Rules 2011 (Cth) be dispensed with, because:
(a) they are each registered as liquidators under the Act;
(b) there are no conflicts between their interests as liquidators and those of Sandra (as the sole director and shareholder of Greenleaf) and the creditors of Greenleaf;
(c) their appointment as receivers and managers will facilitate the liquidation of Greenleaf as the Trust's property and assets will be under the same control as Greenleaf's property and assets during the liquidation, which will also aid in the vindication of Greenleaf's right of indemnity out of the Trust's assets;
(d) given the existence of the business sale agreement, most of the work that to be done as receiver has been done.
24 The plaintiffs also sought orders that their costs, expenses and remuneration of the receivership and of the liquidation, including the costs of this proceeding, be paid from the assets of the Trust. It is well established that where a company is the trustee of a trading trust and has no other activities, liquidators are entitled to be paid their costs and expenses, whether for administering the trust assets or for "general liquidation work", out of those assets. See Brooks, in the matter of Tease Hair & Spa Pty Ltd (in liquidation) [2022] FCA 457 at [16] (O'Callaghan J), and Senatore, in the matter of Autotech Services (ACT) Pty Ltd (in liq) [2022] FCA 1450 at [19] (Stewart J), both referring to In the matter of AAA Financial Intelligence Ltd (in liq) [2014] NSWSC 1004 at [13] (Brereton J).
25 Section 57 of the FCA Act provides that the court may appoint a receiver by interlocutory order in any case in which it appears to the court to be just or convenient to do so. Having regard to the principles set out in Cremin at [48] to [51] and in Senatore at [17] to [19], in all the circumstances I was satisfied that it is just and convenient that the plaintiffs be appointed, jointly and severally, as receivers of all the assets of the Trust and for the ancillary orders sought by the plaintiffs to be made. For these reasons I made orders in the form set out at the commencement of these reasons.
I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice McEvoy.