DAVID KERR IN HIS CAPACITY AS LIQUIDATOR OF ANGEL'S CASTLE PRE-SCHOOL PTY LTD (IN LIQUIDATION) (ACN 118 076 994); DEPUTY COMMISSIONER OF TAXATION v ANGEL'S CASTLE PRE-SCHOOL PTY LTD

IN THE MATTER OF ANGEL'S CASTLE PRE-SCHOOL PTY LTD (IN LIQUIDATION) (ACN 118 076 994) BETWEEN: DAVID KERR IN HIS CAPACITY AS LIQUIDATOR OF ANGEL'S CASTLE PRE-SCHOOL PTY LTD (IN LIQUIDATION) (ACN 118 076 994)

AND: ANGEL'S CASTLE PRE-SCHOOL PTY LTD (IN LIQUIDATION) (ACN 118 076 994)

REASONS FOR JUDGMENT 1 This is an application made under s 479(3) of the Corporations Act 2001 (Cth) ("the Act"), s 23 of the Federal Court of Australia Act 1976 (Cth), and Federal Court Rules Order 26, in circumstances which I will explain below. 2 Mr Kerr was appointed as liquidator of the company Angel's Castle Pty Ltd ("the Company") by an order of this Court made on 28 May 2010. 3 Following his appointment, Mr Kerr commenced his investigation into the affairs of the Company, including the identification of its assets and liabilities. His evidence is set out in an affidavit dated 1 July 2010. 4 The facts and matters recorded in the affidavit are effectively summarised by Mr Golledge in his written submissions. Mr Golledge appears on behalf of Mr Kerr in his capacity as liquidator of the Company. 5 The evidence establishes that Mr Kerr's efforts as liquidator of the Company have been hampered by his inability to obtain access to all of the Company's books and records. 6 Also, none of the directors have, to date, complied with their obligations to deliver a Report as to Affairs. This observation is not to be taken as any criticism of the directors of the Company or those involved in the administration of the GGS Girgin Family Trust, to which I will refer below. It is, simply, an observation that the administration is at a fairly early stage. 7 However, Mr Kerr's investigations show a number of important features. 8 First, the Company is the owner of, what appears to be, a fairly valuable parcel of land, at 79 Showground Road, Castle Hill. 9 Second, as at the date of the winding up of the Company, it was conducting the business of a pre-school kindergarten from the property and the liquidator has continued to operate the business following the commencement of the winding up. 10 Third, the Company has a secured creditor, St George Bank ("the Bank"), which holds a fixed and floating charge over all of the assets of the Company, as well as a registered first mortgage over the land. 11 The amount owing to the Bank, at the time when Mr Kerr affirmed his affidavit, was in the order of $930,000, but interest continues to accrue on that debt. The Company is presently in default under the securities to the Bank but, for the time being, the Bank has not taken any steps to enforce the security. 12 Fourth, it appears from the evidence that the land was held by the Company as trustee of the GGS Girgin Family Trust, which I will call "the Trust." The Trust is constituted by a Deed of Trust dated 30 January 2006. Importantly, clause 10.1(c) of the Trust Deed provides that the office of the trustee is vacated if the trustee, being a company, enters into liquidation. Thus, the effect of the winding up order of the Company was that it ceased to be the trustee of the Trust. 13 The appointors referred to in the Trust Deed are Mr Ozkan Girgin and Ms Halime Girgin. They have the power under the Trust Deed to appoint a new trustee but they have not exercised their power to do so. Thus, at present there is no trustee appointed, although it would be open to Mr and Ms Girgin to do so. 14 Fifth, there is conflicting evidence on the material and information thus far obtained by Mr Kerr as to whether the business, being the kindergarten and the assets of that business, are or were held and conducted by the Company beneficially or in its capacity as trustee. 15 I have been taken by Mr Golledge this morning to the evidence which points to the uncertainty of the situation, including the financial statements and the bank statements. I do not need to set out the detail of that evidence. What is important is, as I have said, the uncertainty which arises from it. 16 Sixth, the Company has substantial liabilities, including the sum owed to the St George Bank, as well as an amount of nearly $30,000 owing to the Australian Taxation Office. 17 Mr Golledge's primary application is for the appointment of a receiver and manager of the assets of the Trust. He has taken me to a number of relevant authorities. In doing so, he notes that the court has power to make directions under s 479(3) of the Act, and he observes that such a course would be in accordance with a decision of Finkelstein J in Apostolou (as trustee of the Vasiliou Family Trust) v VA Corporation of Australia Pty Limited (2010) 77 ACSR 84 ("Apostolou"). 18 However, that case was not concerned with the position which arises this morning. The principles to which Finkelstein J referred are not in doubt. His Honour observed at [46] - [54] that where a trustee has legal title to property coupled with a power of sale, and has a proprietary interest in the property, the trustee has, by reason of its right of indemnity, the right to have recourse to the assets and the power of sale of those assets, in right of its indemnity. 19 His Honour referred to well known authorities in support of that proposition. He said, at [53], that notwithstanding the existence of the power of sale, there was good reason for the liquidators to apply to the court for permission to sell. He observed at [53] and [54] that the matters were not straightforward and it was appropriate for the liquidator to seek the protection of a court order. 20 As I have said, I do not doubt that that would be an appropriate course but here the position is different. 21 Mr Kerr, as liquidator, undoubtedly has power to sell the land. Moreover, the Bank consents to the present application and does not seek, at the present time, to exercise its power of sale. But here the question which arises is whether Mr Kerr, as liquidator of the Company, also has legal title to the assets of the kindergarten business. 22 It is true, as Finkelstein J observed in Apostolou, that the right of indemnity is not removed by reason of the removal of the Company as trustee of the Trust, but here there is uncertainty as to whether the business was conducted by the Company in its own right or as trustee of the Trust. Moreover, there is nothing to prevent the appointors from appointing a new trustee. 23 Whilst Mr Girgin, who is one of the appointors, has appeared before me this morning and has said that he does not oppose the orders sought by Mr Golledge, the power of appointment of a new trustee is, nevertheless, a power which is available in a theoretical sense and which could well cause difficulties at the conveyancing stage in the event that Mr Kerr is able to sell the business as a going concern with the sale of the land. 24 It is sufficient to say that the power to appoint a new trustee complicates matters and there is, therefore, good reason for the appointment of Mr Kerr as a receiver and manager rather than, simply, to make directions in accordance with the approach followed in Apostolou. 25 This is the course that was followed by McLelland J in Re Indopal Pty Limited (1987) 12 ACLR 54 ("Indopal"). His Honour, at page 57, referred to the well known authorities dealing with the trustee's entitlement to be indemnified out of the assets of the trust, or at least, of those assets that were in existence as at the date of the winding up order. His Honour said that it would be appropriate, if the liquidator saw fit, to make application under the predecessor of s 479(3) of the Act to make directions. But he went on to say that there was a strong case for the appointment of a receiver and manager because it was "clearly expedient" for the protection of the company's interests. 26 In Bastion v Gideon Investments Pty Ltd (in liq) (2000) 35 ACSR 466 ("Bastion v Gideon"), Austin J appointed a receiver and manager in circumstances which were somewhat different from the present case. Nevertheless, his Honour's observations at [64] - [65] are of some assistance. 27 He said, at [64], that the appointment of a receiver and manager would not be made unless the case in favour of it is a strong one, because receivership is an expensive process which could adversely affect rights of third parties. But he went on to say, the court will not hesitate to act where there is a real risk to the assets of a company or a trust, as the Indopal case shows. 28 His Honour also said at [65] that, whilst the court is able to give directions under s 479(3), those directions would not give any protection to third parties, including those who may wish to acquire the assets from the liquidator. 29 It seems to me that those remarks are apt in the present case. 30 Also, no question of additional expense seems, to me, to arise here because of the fairly straightforward nature of the tasks to be undertaken by Mr Kerr. 31 What seems to me to be important in the present application is that the appointment of Mr Kerr as receiver and manager will ensure that he is in a position to be able to convey a secure title to the assets of the business. 32 Austin J referred, at [68] of Bastion v Gideon, to a consideration of whether there was any real possibility of conflict between the duties of the two offices or between duty and interest. 33 Here, there does not seem, to me, to be any obvious conflict between the duties which Mr Kerr has as liquidator of the Company and the duties he will have as receiver and manager of the assets of the Trust. This is because it appears that both the Trust and the Company are insolvent and the course which Mr Kerr wishes to pursue is that of a speedy sale of the kindergarten business and the land. 34 The only possible conflict which might arise would be in the event that there is a surplus in one of the estates. That, on the evidence before me, seems to be unlikely but, in any event, it is addressed in the draft short minutes of order which Mr Golledge has provided to me. 35 The short minutes provide, in paragraph 4, that if there is a surplus Mr Kerr is to seek further directions from the court as to the disposition of the remaining assets of the Trust. 36 The consent of the Bank to the appointment of receiver and manager gives the present application utility because it enables the kindergarten business to be sold as a going concern. 37 For all these reasons I am of the view that the appropriate course is to exercise my power to appoint Mr Kerr as a receiver and manager of the assets of the Trust, with the powers prescribed by s 420 of the Act, as if the Trust were a corporation. 38 The powers are to include the power to sell the assets of the Trust for the purpose of discharging the liabilities incurred by the Company as trustee of the Trust. I certify that the preceding thirty-eight (38) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jacobson.