Caterpillar Financial Australia Ltd v Ovens Nominees Pty Ltd [2013] FCA 61 | Case summary

REASONS FOR JUDGMENT 1 On 22 November 2012, the plaintiffs filed an originating application, seeking: 1. An order pursuant to Section 479(3) of the Corporations Act 2001 (Cth) and Section 63 of the Trustee Act 1958 (Vic) and/or Section 89(1) of the Trustees Act 1962 (WA) that the Company through the liquidator, be permitted to sell the assets of the Puls Family Trust, the TD Puls Family Trust and the Puls Superannuation Trust in the course of the winding up; 2. An order pursuant to Section 479(3) of the Corporations Act 2001 (Cth), that the proceeds of any sale of any Trust Assets be dealt with by the Liquidator as assets in the winding up of the Company and accounted for accordingly; 3. An order that the proceeds of the sale of the property situated at 10 Sharland Street Halls Head Western Australia be dealt with by the Liquidator as an asset in the winding up of the Company and accounted for accordingly; 4. An order that MSB lawyers be authorised to pay the proceeds of sale of the property at 10 Sharland Street Halls Head Western Australia currently held on trust by them to the Liquidator; 5. An order pursuant to Section 479(3) of the Corporations Act 2001 (Cth), that the costs and expenses incurred by the Company and Liquidator in realising any Trust Assets and otherwise dealing with any Trust be costs in the winding up; 6. An order pursuant to Section 479(3) of the Corporations Act 2001 (Cth), that the costs of these proceedings be costs in the winding up; 7. Such other Order or orders as the Court shall think fit. 2 The application was supported by the affidavit of David Anthony Ross sworn on 22 November 2012. The plaintiffs also relied on the affidavits of Rebecca Mae Fahey sworn 21 January 2013 and David Andrew Hopwood sworn 5 February 2013. In addition, there were numerous affidavits of service. 3 Section 479(3) of the Corporations Act 2001 (Cth) ("the Act") provides that a liquidator may apply to the Court for directions in relation to any particular matter arising under the winding up. 4 Section 63 of the Trustee Act 1958 (Vic) ("the Trustee Act") provides: (1) 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. (2) The Court may from time to time rescind or vary any order made under this section, or may make any new or further order. (3) An application to the Court under this section may be made by the trustees, or by any of them, or by any person beneficially interested under the trust. 5 Section 89(1) of the Trustees Act 1962 (WA) provides: (1) Where in the opinion of the Court any sale, lease, mortgage, surrender, release or other disposition, or any purchase, investment, acquisition, retention, expenditure or other transaction is expedient in the management or administration of any property vested in a trustee, or would be in the best interests of the persons, or the majority of the persons, beneficially interested under the trust, but it is inexpedient or difficult or impracticable to effect the disposition or transaction without the assistance of the Court, or it or they cannot be effected by reason of the absence of any power for that purpose vested in the trustee by the trust instrument (if any) or by law, the Court may by order confer upon the trustee, 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 may think fit, and may direct in what manner any money authorised to be expended, and the costs of any transaction, are to be paid or borne, and as to the incidence thereof between capital and income. (2) The Court may from time to time rescind or vary any order made under this section, or may make any new or further order; but such a rescission or variation of any order shall not affect any act or thing done in reliance on the order before the person doing the act or thing became aware of the application to the Court to rescind or vary the order. (3) An order may be made under this section, notwithstanding anything to the contrary contained or expressed in the instrument creating the trust. (4) An application to the Court under this section may be made by the trustees, or by any of them, or by any person beneficially interested under the trust. 6 The circumstances that led to the application were as follows. Mr Ross was appointed liquidator ("the liquidator") of Neeeat Holdings Pty Ltd ("Neeeat") on 10 September 2010. Since 19 April 2005, when the company was incorporated, Neeeat's directors have been Mr Tony Puls and Ms Sharen Higgins. Neeeat was the trustee of three trusts. These trusts were, from 20 April 2005, the Puls Family Trust ("the family trust"); from 14 April 2006, the Puls Super Fund Trust ("the super fund trust") and, from 1 July 2005, the T D Puls Family Trading Trust ("the trading trust"). Neeeat never engaged in activities on its own behalf. Rather, its activities were solely for one or other of these trusts. 7 As at the date of liquidation, Neeeat had various creditors, chief amongst them being the Deputy Commissioner of Taxation. It was drawn to my attention that a balance sheet dated 30 June 2005 for the Puls Family Trust listed the amount of $206,281.49 as a loan to Mr Tony Puls. As counsel for the liquidator noted, it is open to Mr Puls to lodge proof of debt if such a debt remains owing. The liquidator indicated that he would in due course advise Mr Puls that he may do so if this were the case. 8 The trading trust and the family trust are discretionary trusts, having the following specified beneficiaries: Tony Puls and Sharen Higgins; and Courtney Higgins, Braden Higgins, Lachlan Puls and Felicity Puls. There was no evidence as to the membership of the super fund trust, its membership being unknown to the liquidator. 9 At the time of the liquidation, Neeeat was the registered proprietor of two business names, "Design Ultima" and "Mandurah Ultima Properties". The evidence indicates that the trading trust used the name "Design Ultima", whilst the family trust used the name "Mandurah Ultima Properties". 10 The trading trust and the family trust deeds both provide (in cl 9.5(b)) that, in the event of the trustee being placed into liquidation, the trustee shall cease to hold office; the deed for the super fund provides (in cl 6.2) that a corporate trustee ceases to be a trustee if a petition is presented for its winding up or liquidation. 11 The trading trust and the family trust deeds both provide (in cl 9.2(b)) for the appointor to appoint a new trustee. The super trust deed provides (in cl 6.4) that, in the event of a liquidation of the trustee, the liquidator may appoint a replacement trustee within 60 days, failing which a majority of the participating employers or a majority of the members shall have the power by deed to appoint a replacement trustee. The liquidator did not purport to appoint a replacement trustee under cl 6.4 of the super trust deed. 12 On 8 November 2010, the solicitors for Mr Tony Puls and Ms Sharen Higgins wrote to the solicitors for the liquidator, including deeds of appointment with their letter. Puls Superannuation Pty Ltd was apparently appointed trustee of the super trust. The directors and shareholders of Puls Superannuation Pty Ltd were and remain Mr Tony Puls and Ms Sharen Higgins. Whether or not this appointment was validly made is unclear. Mr Tony Puls was appointed trustee of the trading trust. Puls Nominees Pty Ltd was appointed trustee of the family trust. The various appointments seem to have taken place about 1 November 2010. 13 Neeeat was at all material times and remains the registered proprietor of the property at Unit 7, 16 Sutton St, Mandurah, in Western Australia ("the Mandurah property"). Neeeat purchased the Mandurah property in 2005 for $186,342.93. The property is office premises and is currently vacant. The Mandurah property is unencumbered, with an estimated value of $200,000 to $220,000. As the liquidator noted, there are documentary references that might indicate that the super fund purchased a 50% interest in the property several years before the liquidation. 14 At the time of the liquidator's appointment, Neeeat was the registered proprietor of the property at 10 Sharland St Halls Head, in Western Australia ("the Halls Head property"). The Halls Head property was sold by the first mortgagee, Permanent Custodians Limited, on or about 19 April 2012. The net proceeds of sale, amounting to $150,084.81, are held in the trust account of MSB Lawyers on trust pending an order from the court authorising their disposition. 15 Pursuant to orders of the Court, service has been affected on interested people. This appears from the numerous affidavits of service mentioned earlier. No-one appeared today to oppose the application.

CONSIDERATION 16 Assuming that the appointments of fresh trustees in or about 1 November 2010 were valid, then the question naturally arises as to whether the liquidator should have the right to retain possession of and sell trust property as against the new trustees. 17 Much the same question arose in Caterpillar Financial Australia Ltd v Ovens Nominees Pty Ltd [2011] FCA 677, in which Gordon J summarised the accepted principles as follows (at [14]-[18]): First, a liquidator of a corporate trustee may have recourse to trust assets to satisfy trust liabilities in the course of a corporate winding up: Octavo Investments Pty Limited v Knight (1979) 144 CLR 360, Vacuum Oil Company Proprietary Limited v Wiltshire (1945) 72 CLR 319 and in Re Suco Gold Pty Ltd (in liquidation) (1983) 33 SASR 99. That is consistent with the general principles that: 1. Where a corporate trustee incurs a liability it has a right of indemnity out of trust assets and retains an equitable lien or equitable charge over trust assets to secure the right of indemnity; 2. Where a trustee is still to incur a liability, it has a right of exoneration out of trust assets in respect of any prospective liability. The right of indemnity and/or right of exoneration out of trust assets is limited to circumstances where the trustee is properly acting in its capacity as trustee of the trust and is not guilty of any gross negligence or breach of trust; and 3. A corporate trustee has a right to deal with trust assets in accordance with the terms of the trust for the purposes of satisfying any liabilities in respect of which the right of indemnity or the right of exoneration attaches, and this includes the power to sell trust assets. What then is the position of the creditors of the corporate trustee in the winding up of that company? Creditors of the corporate trustee are entitled to claim in the winding up of the corporate trustee and to rank on the basis of any provable claim they have against the corporate trustee. This claim will be met by the corporate trustee out of the trust assets through the trustee's right of indemnity (subject always to the availability of assets to meet the claim). The trustee's right of indemnity and/or exoneration is not automatically lost in the event that a corporate trustee is wound up in insolvency. Of course, to be payable out of the trust assets, the trust creditor's claim must relate to a liability incurred by the corporate trustee in its capacity as trustee of the trust in respect of which the right of indemnity or right of exoneration attaches. In addition, a liquidator has an entitlement to claim the costs and expenses incurred in winding up the affairs of the corporate trustee provided these relate to the performance of trust duties and, in respect of any liability incurred, the liquidator has a right of indemnity against trust assets and, in respect of any prospective liability, a right of exoneration against those assets. The right of the corporate trustee to have recourse against trust assets to satisfy creditors' claims and the liquidator's costs of winding up when dealing with trust assets continues after the resignation or removal of the corporate trustee. 18 As Gordon J noted (at [18]), there was some conflict in the authorities as to the position where the trustee was removed as trustee in consequence of winding up. After considering the reasons for judgment of King CJ in Re Suco Gold Pty Ltd (in liquidation) (1983) 33 SASR 99, Brereton J in Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd (2008) 74 NSWLR 550, and Barrett J in Ronori Pty Ltd v ACN 101 071 998 Pty Ltd [2008] NSWSC 246, her Honour noted (at [26]) that, in the case before her (in contrast to the present case): There is no present likelihood of a new trustee being appointed. The appointor will not act and she is the only beneficiary of the Trust. No creditor has moved for appointment of a new trustee. The Company is and will remain a bare trustee. It may still hold the assets of the Trust. Its duties, powers and rights are limited to protecting the Trust assets … 19 Gordon J held (at [30], [36]) that s 63 of the Trustee Act enabled the Federal Court to authorise the corporate trustee as a bare trustee to deal with trust assets and apply the trust assets to meet claims under s 556 of the Act in the course of the winding up of the corporate trustee. Her Honour stated (at [36]): The Company became a bare trustee of the assets of the Trust immediately upon the winding up of the Company and the appointment of the Liquidator: see [26] above. Next, the Company acted only as trustee of the Trust and in no other capacity and all assets owned by the Company are held by it as trustee of the Trust and all liabilities incurred by the Company were incurred by it in its capacity as trustee of the Trust: see [3] above. Thirdly, where, as has occurred here, the appointor is unwilling for whatever reason to appoint a new trustee, it is appropriate for the Court to confer upon the Company the power of sale of the assets of the Trust pursuant to s 63 of the Trustee Act subject, of course, to the duties prescribed by that Act. 20 In the earlier case of Apostolou v VA Corporation Aust Pty Ltd (2010) 77 ACSR 84; [2010] FCA 64, Finkelstein J held that the liquidator had the right to sell the assets of the trust even in the event of the appointment of a new trustee. His Honour said (at 94 [48]): In the circumstances we are considering (that is where a corporate trustee holds legal title to trust property over which it also has a proprietary claim) the right of indemnity passes to the liquidator who may resort to the trust property to make good that right: Re Suco Gold Pty Ltd (in liq) (1983) 7 ACLR 873, 878, 881. There is no reason in principle why the liquidator's statutory power of sale is not available to enable the claim to be satisfied. To the contrary, it would be highly inconvenient if it could not and, instead, the liquidator was required to go to court. In my view, the power of sale conferred by s 477 may be exercised in respect of property in which the company in liquidation has an equitable interest, provided the liquidator has the legal title to dispose of. The statutory power of sale may be exercised by the liquidator of a trustee company even where the trust instrument itself did not confer a power of sale. See, for example, UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd (1996) 21 ACSR 457 where it was held that an unassignable chose in action could be sold by a liquidator under the statutory power of sale. 21 He continued (at 94 [50]): [E]ven if trust property includes property in which the former trustee retains an equitable interest, the retiring trustee is entitled to retain possession of the trust property, subject to a court order to the contrary, until it is paid what it is due or until it sells the property. I acknowledge that Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd [2008] NSWSC 1344 … holds that a retiring trustee cannot retain possession of trust property as against a new trustee. With respect, in my opinion there is no doubt that a retiring trustee can hold trust property to secure his right of reimbursement against both the beneficiaries and a new trustee. 22 The liquidator seeks to sell the Mandurah property. Is it appropriate for the liquidator to be permitted to sell this trust asset (whether of the family trust alone or of the family trust and the super fund trust) notwithstanding the appointment of a new trustee or trustees? In the circumstances disclosed to the Court, it is appropriate that the liquidator should be enabled to sell the property. The new trustee (or trustees) has (or have) taken no relevant steps with respect to the Mandurah property and has (or have) given no indication that they would take such steps in the future. There will not be sufficient funds to meet the claims of creditors and the costs of the liquidation unless the liquidator is permitted to sell the Mandurah property. Accordingly I would make the order with respect to this property, as sought by the liquidator. 23 There is a further question as to the extent to which a liquidator of a corporate trustee is entitled to use the assets of the trust to meet the costs and expenses of the liquidation itself as compared with the costs associated with processing the trust assets. 24 In this regard the comments of Finkelstein J in 13 Coromandel Place Pty Ltd v C L Custodians Pty Ltd (in liq) [1999] FCA 144 are helpful. After referring to various cases, including In re Universal Distributing Co Ltd (in liq) (1933) 48 CLR 171, Re Suco Gold Pty Ltd (in liq) (1983) 7 ACLR 873 [29]-[33], and In re Berkeley Applegate (Investment Consultants) Ltd (No 1) [1989] 1 Ch 32, his Honour said (at [34]-[35]): These cases establish, clearly enough in my opinion, that provided a liquidator is acting reasonably he is entitled to be indemnified out of trust assets for his costs and expenses in carrying out the following activities: identifying or attempting to identify trust assets; recovering or attempting to recover trust assets; realising or attempting to realise trust assets; protecting or attempting to protect trust assets; distributing trust assets to the persons beneficially entitled to them. The position is a little more involved as regards work done and expenses incurred in what may be described as general liquidation matters. If that work is unrelated to the beneficiaries and their claims it is difficult to see how the cost could be charged against their assets. In the case of a company that has carried on the business of trustee it might be that much of the work involved in the liquidation is chargeable against trust assets if it can be shown that the liquidation is necessary for the proper administration of the trust. But it is unlikely that this will be so where the company did not act solely as trustee or at least did not act in that capacity to a significant extent. In that event, the liquidator will be required to estimate those of his costs that are attributable to the administration of trust property and only those costs will be charged against the trust assets. 25 In the present case, apart from work relating to the statutory requirements of liquidators, all the work of the liquidator and MSB Lawyers, who acted for him, was in relation to the Mandurah property and the Halls Head property, since they were the only saleable assets of the trusts. Whilst trust assets can only be used to pay for trust liabilities, a liquidator can be paid costs, expenses and remuneration out of the trust assets, because the trustee's obligation to pay trust debts can be performed only through the liquidator. In this circumstance, the liquidator's right to remuneration is to be regarded as a debt incurred in performing the duties of the trustee. See also Re GB Nathan and Co Pty Ltd (in liq) (1991) 24 NSWLR 674 at 688-689. 26 For the above reasons, I accept that it is appropriate to order that the costs of the liquidator and MSB Lawyers be payable out of the sale proceeds of the Mandurah property and the Halls Head property. The costs of the proceeding should also be payable out of these sale proceeds. I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Kenny.

Caterpillar Financial Australia Ltd v Ovens Nominees Pty Ltd

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