(2017) 320 FLR 118
Commonwealth v Byrnes (in their capacity as joint and several receivers and managers of Amerind Pty Ltd (recs and mgrs apptd) (in liq)) [2018] VSCA 41
(2018) 124 ACSR 246
Independent Contractor Services (Aust) Pty Ltd (in Liq) (No 2) [2016] NSWSC 106
Source
Original judgment source is linked above.
Catchwords
(2017) 320 FLR 118
Commonwealth v Byrnes (in their capacity as joint and several receivers and managers of Amerind Pty Ltd (recs and mgrs apptd) (in liq)) [2018] VSCA 41(2018) 124 ACSR 246
Independent Contractor Services (Aust) Pty Ltd (in Liq) (No 2) [2016] NSWSC 106
The plaintiff Angus Carnegie Gordon, who was appointed Liquidator of the company MJM(WA) Enterprises Pty Ltd by resolution of creditors on 5 May 2017, or alternatively by order of the Court made on 15 May 2017 (in place of Mr Andrew Hugh Jenner Wily, who had been appointed consequent upon a meeting of the members of the company on 26 July 2016), applies for orders to the effect that:
1. he would be justified in treating all of the assets of the MJM Enterprises Family Trust as assets held by the company as trustee of that trust;
2. as trustee, the company has a charge or lien over the trust assets to secure the payment of any debts properly incurred by the company as such trustee;
3. the company has a right of indemnity from the trust assets for debts incurred by the company prior to 25 July 2016;
4. as Liquidator, he is entitled to recover the costs and expenses of realising trust assets from the trust assets; and
5. as Liquidator, he is entitled to recover the costs and expenses incurred as liquidator from the trust assets.
In addition, the Liquidator seeks to have his remuneration for realising trust assets and for the liquidation determined and fixed by the Court, and paid from the trust assets, in amounts which have been approved by the creditors, as follows:
1. for realising the trust assets, for the period from 5 May 2017 until 9 October 2017 in the sum of $33,201 plus GST, and for the period from 10 October 2017 to the conclusion of the liquidation up to a maximum of $30,000 plus GST; and
2. for general liquidation work, for the period from 5 May 2017 to 9 October 2017 in the sum of $4,271.50 plus GST, and for the period from 10 October 2017 to the conclusion of the liquidation, up to a maximum of $15,000 plus GST.
[3]
Background
The company was incorporated on 28 February 2008, and operated two hair salons in Perth, Western Australia: "Average Joes Barber" from 64 King Street, until January 2016, and "Uncle Joes Barber and Mess" from 74-76 King Street, until late 2015 or early 2016.
So far as the Liquidator has been able to establish:
1. there are three creditors who have registered security interests, being purchase money security interests over two motor vehicles and goods which were subject to rental agreements. The two motor vehicles and the rental agreements have been disclaimed;
2. the Deputy Commissioner of Taxation has lodged a proof of debt for $106,456.84 in respect of a Superannuation Guarantee Charge. If (CTH) Corporations Act 2001, s 556, applies, then the Commissioner may be a priority creditor in respect of that debt;
3. there are 17 unsecured creditors, whose claims total $819,268.09, the largest of which is the Australian Taxation Office for $548,787.73;
4. the company's only assets appear to be assets of the trust, which are loans, including director's loan accounts;
5. there are a number of potential claims against the director in respect of insolvent trading, on the loan accounts, and arising from the circumstances of the sale of the business and the consideration paid for it, which the Liquidator proposes to investigate by examinations; and
6. the Liquidator has recovered a preference from the ATO in the sum of $60,000, and a refund from the Office of State Revenue of Western Australia in the sum of $6,581.11.
[4]
The company as trustee
Although the Liquidator has, despite reasonable endeavours, been unable to source a complete copy of the trust deed, and has obtained copies of only the front page, the schedule and the execution pages, it appears that:
1. the trust was settled on 4 March 2008, with the company (which was incorporated on 28 February 2008) as trustee;
2. the company's MYOB accounts are all captioned "MJM Enterprises Pty Limited, Trustee for the MJM Enterprises Family Trust";
3. the MYOB accounts record the company's ABN as ABN 55 237 945 288, which is the ABN of the Trustee of the MJM Enterprises Family Trust;
4. the ABN search on the Australian Business Register reveals that the trust owned two business names, "Average Joes Barber" and "Uncle Joes Barber and Mess". A business name search of "Average Joes Barber" reveals that the company was operating that business in the name of the trust;
5. the company had a bank account with the Commonwealth Bank in the name of the trust;
6. the company lodged tax returns for 2014 and 2015 in the name of MJM Enterprises Pty Limited, trustee for MJM Enterprises Family Trust; and
7. the ATO recorded the company in its records as "Trustee for MJM Enterprises Family Trust".
Although the company also operated two accounts with the Commonwealth Bank and one with National Australia Bank which did not refer to the trust, and a business name search of "Uncle Joes Barber and Mess" does not reveal the company or the trust, the contemporaneity of the incorporation of the company and the constitution of the trust, the manner in which the company's accounts and taxation affairs were maintained and conducted, and the absence of any indication that it has any separate non-trust business, justify the conclusion that the company traded solely in its capacity as trustee of the trust and in no other capacity, and thus that all its assets were trust assets, and its liabilities incurred in the course of acting as such trustee.
[5]
Remuneration
A liquidator of a company, the sole function of which is to act and trade as trustee of a trust, is entitled to remuneration from the trust assets both for administering the trust, and also for "general liquidation work", at least if the company holds no assets in its own right. [1]
The creditors have approved the amounts sought by the Liquidator for remuneration, which are as follows (plus GST):
1. for the period to 9 October 2017:
1. $33,201.00 for administering trust assets, and
2. $4,271.50 for general liquidation work;
1. for the period from 9 October 2017 to completion of the liquidation, up to:
1. $30,000.00 for administering trust assets, and
2. $15,000.00 for general liquidation work.
The remuneration has been quantified on a time-costed basis, at the usual hourly rates charged by the Liquidator's firm, which appear quite reasonable having regard to the range which the Court sees. The Liquidator has provided in his affidavit broad details of the work performed to date, and to be performed up to conclusion of the liquidation, and full particulars of the time incurred, and anticipated to be incurred. As has been noted, the Liquidator has so far recovered preferences in the order of $66,500. The trust assets appear otherwise to be loans to entities associated with the director, amounting to in excess of $920,000, which are to be investigated by public examination. In the context of potential recoveries of nearly $1 million in all, total remuneration of up to $83,000 does not appear disproportionate.
As the entitlement to remuneration from trust assets arises from an exercise of the Court's inherent equitable jurisdiction rather than as a matter of entitlement under the Corporations Act, the creditors' approval is not determinative. However, it is highly relevant that those whose interests will be most affected by the amount of remuneration allowed have approved it. That is all the more so where the approval was given with the benefit of appropriate disclosure by the Liquidator of the basis and amount of remuneration, including his time sheets.
In my view, having regard to those matters, the remuneration sought is reasonable and ought to be allowed.
[6]
Distribution
It follows that the Liquidator would be justified in distributing the trust assets in satisfaction of the approved remuneration, and thereafter among the trust creditors. However, a question arises as to the basis for that distribution.
The Liquidator proposed a pari passu distribution between all creditors - including those who, were the order of distribution provided for by Corporations Act, s 556, to apply, would be priority creditors. While this accords with the approach which I have previously adopted, [2] a different view has been taken by the Victorian Court of Appeal [3] and, at least on part, by the Full Federal Court. [4] The decision of the Victorian Court of Appeal in Byrnes is the subject of an application for special leave to appeal to the High Court of Australia. A date for the hearing of the application for special leave has not yet been appointed. As the Deputy Commissioner of Taxation would be a priority creditor in respect of the Superannuation Guarantee Charge if the regime under Corporations Act, s 556, were to apply, this issue is not merely academic. For that reason, I invited further submissions on this point.
In response, the Liquidator submitted that Independent Contractor Services [5] correctly stated the position and priority of the various creditors within the liquidation of a corporate trustee, and thus that all creditors - including those who would be entitled to priority under Corporations Act, s 556 - should be treated on a pari passu basis. However, the Liquidator also recognised that I might at this stage feel constrained to follow the Victorian Court of Appeal and the Full Federal Court. The solicitors acting for the Liquidator in these proceedings are also the solicitors for the applicant for special leave. On the basis that in the foreseeable future, the High Court may (if special leave is granted) authoritatively resolve the controversy as to whether or not the priority regime for creditors provided for by Corporations Act, s 556, is to be applied in respect of the trust assets of a company which operated as a corporate trustee, the Liquidator invited me to defer making any orders in respect of that portion of the application, and instead make a direction, pursuant to section 90-15 of the Insolvency Practice Schedule, that the plaintiff would be justified in distributing the assets of the trust in payment first of his remuneration as approved above, and adjourn the balance of the proceedings in relation to the terms and basis upon which the trust assets are to be distributed among the admitted creditors of the company acting as trustee, on the basis that I would be kept informed of the progress and outcome of the application for special leave (and, presumably, any appeal if special leave be granted).
Such a course would enable the Liquidator to progress the liquidation, without unduly delaying its completion - as the creditors have requested the Liquidator to consider action against the former directors.
[7]
Conclusion
I propose to make orders as follows. They differ in form from those proposed in the originating process in several respects. I do not regard it as necessary or desirable, in the absence of a controversy or a contradictor, to make declarations as to the existence of a charge or a right of indemnity; it should suffice to provide advice to the Liquidator. Lest that approach occasion any difficulty, I will reserve liberty to apply.
The Court therefore orders that:
1. The plaintiff Angus Carnegie Gordon, as Liquidator of the company MJM(WA) Enterprises Pty Ltd, would be justified in treating all of the assets of the company as trust assets, held by the company on the trusts of the MJM Enterprises Family Trust, and subject to a charge or lien to secure the company's right of indemnity from the trust assets for debts and liabilities properly incurred by the company as such trustee prior to 25 July 2016;
2. The plaintiff Angus Carnegie Gordon, as Liquidator of the company MJM(WA) Enterprises Pty Ltd, would be justified in paying from the trust assets his remuneration as follows:
1. for the period to 9 October 2017:
1. $33,201.00 for administering trust assets, and
2. $4,271.50 for general liquidation work;
1. for the period from 9 October 2017 to completion of the liquidation, an amount calculated at his firm's rates referred to in the Initial Remuneration Notice dated 10 October 2017, up to:
1. $30,000.00 for administering trust assets, and
2. $15,000.00 for general liquidation work.
1. The costs of this application to date be costs in the winding up.
2. The balance of the application be adjourned to 24 September 2018 in the Corporations Judge directions list.
3. There be liberty to apply by arrangement with my Associate, including to vary any of these orders.
[8]
Endnotes
Re MF Global Ltd (in liq) (No 2) [2012] NSWSC 1426; Re North Food Catering Pty Ltd [2014] NSWSC 77 at [17].
Independent Contractor Services (Aust) Pty Ltd (in Liq) (No 2) [2016] NSWSC 106; (2016) 305 FLR 222; [ which was followed at first instance by Farrell J in the Federal Court in Woodgate, in the matter of Bell Hire Services Pty Ltd (in liq) [2016] FCA 1583, and by Robson J in the Supreme Court of Victoria in Re Amerind Pty Ltd (recs and mgrs apptd) (in liq) [2017] VSC 127 at [58], [94]; (2017) 320 FLR 118.
Commonwealth v Byrnes (in their capacity as joint and several receivers and managers of Amerind Pty Ltd (recs and mgrs apptd) (in liq)) [2018] VSCA 41; (2018) 124 ACSR 246.
Jones (Liquidator) v Matrix Partners Pty Ltd, Killarnee Civil & Concrete Contractors Pty Ltd (in liq), Re [2018] FCAFC 40.
[2016] NSWSC 106; (2016) 305 FLR 222.
[9]
Amendments
28 June 2018 - Typographical error at paras 8(1)(a) and 17(2)(a)(i)
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Decision last updated: 28 June 2018