Dean-Wilcox v Soluble Solution Hydroponics Pty Limited

Judgment

1. HER HONOUR: This is an application by Gavin Moss, the liquidator of KSK Holdings (Australia) Pty Limited (in liquidation) (the company), for directions under section 90-15(1) of the Insolvency Practice Schedule. The directions sought concern whether the company remains trustee of the Krstic Family Trust and whether Mr Moss would be justified, as liquidator of the trustee of the trust, to sell a property in Casula and pay the net proceeds of sale into his solicitor's trust account.

Krstic Family Trust

1. In July 2002, an Australian Business Number was obtained for the Trustee for the Krstic Family Trust. Whilst the liquidator has endeavoured to locate a copy of any trust deed for this trust, he has been unsuccessful. Mr Moss has requested such a document from the company's former solicitor and accountant and has been told by the accountant, Graziano de Bortoli of GDC Tax, that "There is no such deed". The emphatic nature of the accountant's statement should not be overlooked: Mr de Bortoli did not say that he did not have a copy of the trust deed, or did not know whether a deed existed, but that there was no such document.
2. In August 2013, Wiiklick Pty Limited was incorporated. Its director was Slavica Krstic. Ms Krstic was born in Serbia and her son, Kristijan Krstic, is the sole shareholder of that company. Mr Krstic's address notified to the Australian Securities and Investment Commission (ASIC) in respect of Wiiklick is in Serbia.
3. On 17 December 2014, the company was incorporated. Ms Krstic is its sole director. Ms Krstic and her son each hold one share in the company. Mr Krstic's address notified to ASIC in respect of the company is that of Ms Krstic. The company together with other companies including Wiiklick were part of a group of entities that traded binary options online.

Krstic Trust

1. On 20 December 2014, Ms Krstic and her son executed a Discretionary Trust Deed establishing the Krstic Trust, in which Ms Krstic and her son are Named Beneficiaries. The trust deed was prepared by GDC Tax and Mr de Bortoli was the settlor of the trust. The company was appointed trustee of the Krstic Trust. The trust deed contained what is called an ipso facto clause which provided that the appointment of the trustee terminated automatically if the trustee entered into liquidation: clause 48. On automatic termination, the trustee was obliged to immediately hand over the property of the trust to the new trustee: clause 49.
2. In January 2015, an Australian Business Number was obtained for the trustee for Krstic Trust. Forms were completed with the Commonwealth Bank to open a bank account in the name of the company as trustee for Krstic Trust. The form was completed by Ms Krstic, who was authorised to operate the account. The Australian Business Number provided to the Commonwealth Bank was that for the Krstic Trust obtained two days earlier. An account was opened that day in the name of the company as trustee for Krstic Trust. A cash deposit of $500,000 was made and, as the liquidator later observed, "a review of the company's bank statements reveals a significant amount of high value transactions".

Casula property

1. On 5 March 2015, the company exchanged contracts to buy a property in Casula for $640,000. The company was named as the purchaser "ATF Krstic Family Trust" and the Australian Business Number for the Krstic Family Trust was written on the contract. It will be recalled that this Australian Business Number was obtained in 2002, 12 years before the Krstic Trust was established.
2. On the face of it, therefore, the property was purchased by the company as trustee for the Krstic Family Trust, not the Krstic Trust. A 10% deposit was recorded on the contract as having been paid, with $576,000 to be paid on completion in 42 days.
3. According to the company's solicitor who acted on the purchase, the purchase was completed on 16 April 2015. Ms Krstic continues to live in the property. The bank statement for April 2015 is not in evidence, but the liquidator draws attention to a withdrawal on 17 March 2015 in the amount of $636,386.50 as potentially indicating that the monies to pay for the property came from the company's bank account said to be operated as trustee for the Krstic Trust. Without further tracing, which I understand the liquidator is now undertaking, one could not comfortably draw any conclusion in this regard given the sheer number and size of the deposits and withdrawals from the company's bank account.
4. In June 2015, David Ingram of Hall Chadwick was appointed as liquidator to Wiiklick. In November 2015, Mr Ingram lodged a caveat over the Casula property claiming that the property was impressed with a trust in favour of Wiiklick by virtue of the following facts: (all errors in original) The Registered Proprietor, by its director Salvica Kristic, received the funds to purchase the land from an entity related to Ms Krstic, namely, Wiicklick Pty Ltd (in liquidation) (Wiicklick), in circumstances where Ms Krstic knew, or the circumstances were such that she ought to have known, that the she was acting in breach of her fiduciary duty, as director of Wiicklick, in respect of the relevant transaction.
5. In August 2017, the company was deregistered. The Casula property, being property held on trust, automatically vested in the Commonwealth: section 601AD(1A) of the Corporations Act. Mr Ingram applied to reinstate the company and wind it up. On 30 January 2019, the company was reinstated and Mr Moss was appointed liquidator. The principle creditor of the company is Wiiklick, who is owed over $4 million.

Efforts to obtain records and trust deed

1. In February 2019, Mr Moss wrote to the company's former accountant and solicitor seeking to obtain records and information in respect of the company. Little was produced. A letter was received from Revenue NSW, however, advising that the company owed land tax in respect of the Casula property which was, according to the records of Revenue NSW, owned by the company as trustee for the Krstic Family Trust. Unsurprisingly, this is consistent with the contract of sale. The liquidator also spoke to Ms Krstic's solicitor with Ms Krstic present and was led to understand that Ms Krstic was not in contact with her son, who had been overseas for some years. The liquidator provided Ms Krstic's solicitor with a director's pack for completion but was informed that Ms Krstic did not have answers to "essentially any of the questions in your director's pack".
2. In May 2019, the liquidator provided a report to creditors. Mr Moss advised that, based on his discussions with Ms Krstic, she knew nothing about the business operations and was not aware of the nature of the bank transactions on the company's bank accounts. Ms Krstic had advised that her son was likely the one who operated the business without her knowledge since the inception of the company. Apart from the Casula property and the Mercedes Benz car, Mr Moss had not identified any other assets.
3. Mr Moss informed creditors that the company had never lodged an income tax return or activity statement. The company did not have an Australian Financial Services licence and thus may have been an unlicensed provider of an online platform for the trading of binary options. Given the limited books and records which Mr Moss had been able to obtain, it appeared that the company had not maintained adequate financial records since inception. Mr Moss advised that he had identified a range of potential offences based on his preliminary investigations, which were ongoing.
4. In respect of the Casula property, the liquidator identified a number of issues. The contract for sale indicated that the property was registered in the name of the company as trustee for the Krstic Family Trust. This accorded with the records of Revenue NSW. The funds for the purchase, however, may have come from the company's bank account which it operated as trustee for the Krstic Trust. As such, the property may be held on trust by the company for either the Krstic Trust or the Krstic Family Trust. Thus, it was unclear whether the company was trading in its own right or as trustee for one of these trusts. The liquidator suggested that the answer to this would have the result that the creditors of the company would either be the creditors of the Krstic Family Trust or the creditors of the Krstic Trust or, if the property was purchased with the funds of the Krstic Trust, then the Krstic Trust may have a beneficial interest in the property in any event. The liquidator advised creditors that he was obtaining legal advice on the matter.
5. On 24 June 2019, the liquidator commenced these proceedings. The defendant is Mr Ingham as liquidator of Wiiklick. The pleadings and evidence have also been served on Ms Krstic. Ms Krstic's solicitor has advised that Ms Krstic did not wish to attend the hearing nor did she wish for her solicitors to attend. Ms Krstic's instructions remain that she does not know where her son is or what he is doing.

Directions to liquidators

1. Section 90-15(1) of the Insolvency Practice Schedule (Corporations), being schedule 2 to the Corporations Act 2001 (Cth) provides that the Court may make such orders as it thinks fit in relation to the external administration of a company including determining any question arising in the external administration of the company: section 90-15(3)(a). The principles in relation to applications for directions were summarised by Black J in In the matter of Octaviar Administration Pty Ltd (in liq) [2017] NSWSC 1556 at [7]-[9] and Gleeson JA in In the matter of Hawden Property Group Pty Ltd (in liq) (ACN 003 528 345) (2018) 125 ACSR 355; [2018] NSWSC 481.
2. The Court may give directions where it will be "of advantage in the liquidation": Dean-Wilcox v Soluble Solution Hydroponics Pty Limited (1997) 42 NSWLR 209 at 212; (1997) 24 ACSR 79 at 81. The Court will not generally give a direction where the matter relates to the making or implementation of a business or commercial decision or when no legal issue is raised, or where there is no attack on the propriety or reasonableness of the liquidator's decision, but it may do so where there is the prospect of such an attack: In the matter of 7 Steel Distribution Pty Limited (in liquidation) (receivers and managers appointed) [2013] NSWSC 669 at [20] per Black J; In the matter of Dungowan Manly Pty Limited (in liq) [2018] NSWSC 1083 at [17].
3. The liquidator seeks the direction because the absence of any written trust deed, despite the apparent existence of the Krstic Family Trust since as early as 2002, means that the liquidator cannot determine whether the company has been removed as trustee of the Krstic Family Trust. There is nothing to suggest that the company has been removed. However, if the property be sold and a trust deed subsequently appears which perchance contained an ipso facto clause, the company would not have remained as trustee with the result that the liquidator would not be in a position to administer the trust.
4. It seems to me appropriate to give directions in this matter to protect the liquidator as it is possible that a trust deed for the Krstic Family Trust may exist which would preclude him from selling the property, for example, because it contains an ipso facto clause such that the company is no longer the trustee of that trust. Whilst the liquidator's assessment of the position is sound based on the limited information which he has been able to obtain, there may be further material 'out there' which may entitle a creditor of either trust, or the purchaser of the property, to accuse him of having acted unreasonably: In the matter of Bevillesta Pty Ltd (in voluntary administration) (2011) 254 FLR 324; [2011] NSWSC 417 at [11]; Korda v Silkchime Pty Ltd (2010) 243 FLR 269; [2010] WASC 155 at [32]; In the matter of MF Global Australia Ltd (in liquidation) (2012) 267 FLR 27; [2012] NSWSC 994 at [7]; In the matter of Direct Acceptance Corporation Ltd (receivers appointed) (in liquidation) (2019) 136 ACSR 245; [2019] NSWSC 395 at [36].
5. Further, the only defendant to these proceedings is Wiiklick, the petitioning creditor. Any other creditors - if there are any - will not be bound by the outcome of the proceeding. In the absence of directions, the liquidators may be exposed to a complaint or claim by one or more creditors in relation to the sale of the property. A direction protects the liquidators from liability for breach of duty or unreasonable behaviour if full disclosure is made to the Court: Re Danial Efrat Consulting Services (receiver appointed) (in liq) (1999) 91 FCR 154; [1999] FCA 412 at [13]; Re Ansett Australia Ltd (2001) 39 ACSR 355; [2001] FCA 1439 at [59]-[62]; In the matter of Dungowan Manly Pty Ltd (in liquidation) (2017) 124 ACSR 218; [2017] NSWSC 1771 at [3].

conclusion and orders

1. The liquidator's position is that, as best can be determined, there is no trust deed for the Krstic Family Trust but it is that trust for which the company holds the Casula property. In circumstances where there is no trust deed, then the fact that the trustee has gone into liquidation will not affect it continuing to be trustee.
2. I agree. The evidence which supports the direction sought is: 1. The sole director of the company, Ms Krstic, appears to have neither knowledge nor records in relation to the company or the Krstic Family Trust. 2. The only other shareholder of the company, Mr Krstic, appears to live abroad, likely in Serbia. His mother has not been in contact with him for years and cannot assist as to his whereabouts. 3. The company's former accountant, however, has emphatically stated that there is no trust deed, and would appear to be the only person available to the liquidator at the moment to speak with any knowledge on the subject.
3. Thus, the property is held by the company as trustee for the Krstic Family Trust. On the available evidence - which seems unlikely to change going forward - there is no trust deed. The fact that a liquidator has been appointed to the company does not detract from its position as trustee. The liquidator is entitled to sell the Casula property and ought to proceed to do so in order to progress the winding up of the company.
4. For these reasons, I make the following orders: 1. Pursuant to section 90-15 of the Insolvency Practice Scheudle (Corporations), being schedule 2 to the Corporations Act 2001 (Cth): 1. the Court declares that the second plaintiff remains trustee of the Krstic Family Trust; 2. the Court orders that the first plaintiff would be justified, in his capacity as liquidator of the trustee of the Krstic Family Trust, in both: 1. entering into, executing on behalf of the second plaintiff and taking any and all necessary steps to exchange and settle any sale of the land in folio identifier 2/844415, being the land known as 58 Box Road Casula in the State of New South Wales (the Property); and 2. after payment of the costs of sale (if any), paying the net sale proceeds into the first plaintiff's solicitors' trust account. 1. The costs of this application be costs and expenses in the winding up of the second plaintiff. 2. The Court notes the agreement of the first plaintiff and the defendant that: 1. the defendant consent to the withdrawal of the caveat lodged with Land Registry Services on the title to the Property, dealing number AK12218 (Caveat) at completion of the sale of the Property by the liquidator; and 2. then proceeds of sale (less the remuneration of the liquidator approved by the Court and the costs of these proceedings) be retained in the trust account in the name of the solicitors for the liquidator until the determination of the defendant's interest in the Property as set out in the Caveat or as otherwise agreed between the liquidator and the defendant.

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