Deputy Commissioner of Taxation, in the matter of Manor Holdings (NSW) Pty Ltd v Manor Holdings

Federal Court of Australia|2018-04-30|Before: Griffiths J

Pursuant to s 57(1) of the Federal Court of Australia Act 1976 (Cth) the second and third applicants be appointed as the Receivers and Managers of the property located at 25 Norton Street, Ballina NSW (the Property) and any other assets of the Manor Holdings Unit Trust (the Trust).
The second and third applicants be authorised as Receivers and Managers to take possession of, preserve, maintain and sell the assets of the Trust and to have all the obligations, liabilities and entitlements as Trustee under the Deed of Trust dated 9 August 2010.
The second and third applicants are to have the following powers as Receivers and Managers: (a) power to do all things necessary or convenient to effect the sale or realisation of the assets of the Trust; (b) to apply the proceeds of sale of the assets of the Trust in the following order: (i) to discharge any mortgage over the Property; (ii) in payment of the second and third applicants' costs and expenses of this interlocutory application, of the administration of the first application and associated with the sale of the assets of the Trust; and (iii) to discharge any other liabilities of the first applicant; (c) power to distribute any surplus proceeds from the sale of the assets of the Trust to the beneficiaries of the Trust, or to such new trustee of the Trust as those beneficiaries shall appoint.
Pursuant to r 14.24 of the Federal Court Rules 2011 (Cth), the remuneration of the Receivers and Managers be fixed in the amount of $30,000 plus GST.
Liberty to apply on the giving of 72 hours notice. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background matters 2 The first applicant Manor Holdings (NSW) Pty Ltd (Manor) was incorporated on 19 May 2010. On or about 9 August 2010, Manor was appointed as the trustee of the Manor Holdings Unit Trust (Trust). The original unit holders of the Trust were ADS Holdings (NSW) Pty Ltd as trustee for the ADS Family Trust (ADS) and Chrisdbel Pty Ltd as trustee for the Chrisdbel Family Trust No. 2 (Chrisdbel). In late 2014, ADS and Chrisdbel entered into an agreement to sell ADS's units in the Trust to Chrisdbel. Chrisdbel Pty Ltd was deregistered on 16 October 2016 and, on the evidence before the Court, it appears that beneficiaries of the Chrisdbel Family Trust No. 2 have not yet appointed a new trustee. 3 On 3 December 2010, Manor, acting as trustee of the Trust, purchased the property which is located at 25 Norton Street, Ballina, NSW (Lot 11 in DP 1015821) (the Property). 4 Manor trades a hotel and restaurant business under the trading names "Ballina Manor Boutique Hotel" and "BNR On Norton" respectively through the Trust for which Manor was the trustee. On 9 February 2018 Messrs Alan Walker and Jason Tang were appointed administrators of Manor. On 17 April 2018, they were both appointed Liquidators of Manor and Manor was wound up on the ground of insolvency. 5 The administrators of Manor have continued to trade the abovementioned businesses in order to preserve the value of the Property. There is a mortgage on the Property to National Australia Bank and approximately $1.72 million is outstanding under that mortgage. 6 Mr Walker deposes that Manor has no assets other than those it holds as trustee of the Trust and that all liabilities of Manor are liabilities that it has incurred in its capacity as trustee of the Trust. 7 Under clause 21 of the Trust Deed, Manor is entitled to be indemnified in respect of all liabilities it incurred as a trustee from the assets of the Trust. Mr Walker estimates that Manor has current liabilities of approximately $3.32 million, including the amount owing to NAB. Mr Walker deposes that, having regard to the definition of "insolvent" in cl 2.1 of the Trust Deed, he considers that Manor ceased to be trustee of the Trust upon Manor being put in administration, with the consequence that it can no longer sell assets of the Trust in order to satisfy its obligations as Trustee (see cl 23.1(d) of the Trust Deed). He described the steps he had taken to have the beneficiaries of the Chrisdbel Family Trust No 2 execute various documents which would result in Manor being re-appointed as trustee for the Trust, but, to date, this has not occurred, nor has any other proposal been received to indemnify Manor in respect of its liabilities incurred in its capacity as trustee for the Trust. 8 Mr Walker deposed that he had obtained a valuation for the Property, however, a copy was not provided to the Court. He estimated the costs associated with the proposed sale as involving Marketing ($30,000 plus GST); real estate agent's commission (4.5% plus GST) and remuneration of he and Mr Tang as Receivers and Managers at $30,000 plus GST. He further proposed that there should be some surplus proceeds which could be paid directly to the unit holders or to any new trustee they care to appoint.

Disposition of the interlocutory application 9 The relevant legal principles relating to the appointment of a receiver and manager of the assets of a trust are helpfully summarised by Warren J in Yunghanns v Candoora No 19 Pty Ltd (No 2) [2000] VSC 300; 35 ACSR 34 at [64] to [76] and also in SMP Consolidated Pty Limited (In Liquidation) v Posmot Pty Ltd [2014] FCA 1382 per Yates J, who referred to Brereton J's summary of the principles in Re Stansfield DIY Wealth Pty Ltd (In Liq) [2014] NSWSC 1484. 10 The following extract from Halsbury's Laws of England, 4th ed, vol 39, para 831 is apposite (emphasis added): A receiver is also appointed on the application of any beneficiary if the appointment is required for the safety of the trust property or the due administration of the trust, but not otherwise. … The safety of the trust property and the due administration of the trust are deemed to be imperilled where the trustee… becomes a bankrupt or insolvent… . 11 It is also relevant to refer to the discussion of the Full Court in Jones (Liquidator) v Matrix Partners Pty Ltd, in the matter of Killarnee Civil & Concrete Contractors Pty Ltd (in liq) [2018] FCAFC 40 on the issues which arise where a corporate trustee becomes insolvent and there is a resulting bare trust and, in particular, the consequential complex ramifications for the trustee's right of indemnity (see at [31]-[44] per Allsop CJ). While a trustee may exercise its right of indemnity without the need to seek the Court's intervention where a property is not required to be sold, the lien does not confer a power of sale. Consequently, if a sale is necessary as is the case here, a Court order or appointment of a receiver is a necessary step. 12 On the basis of the evidence before the Court, and despite Mr Walker's efforts, it appears that no other steps are being taken to appoint a trustee of the Property, which would then enable the Property to be sold in order to satisfy the obligations under the Trust Deed. I accept Mr Walker's view that Manor ceased to be trustee of the Trust upon Manor being put into administration, which prevents Manor from selling the Trust's assets to satisfy the obligations it has incurred acting as Trustee. Appointing Messrs Walker and Tang as Receivers and Managers to take possession of, and then sell the assets of, the Trust to realise the Trust assets will enable Manor to enforce its former indemnity under the Trust Deed and to apply the proceeds to discharge Manor's liabilities, all of which have been incurred in the capacity of Trustee. 13 In these circumstances, I am satisfied that it is appropriate to make an order under s 57 of the FCA Act and to appoint Messrs Walker and Tang (i.e. the joint liquidators), as Receivers and Managers of Manor and to order that they have all the obligations, liabilities and entitlements as Trustee under the Deed of Trust dated 9 August 2010. I am satisfied that the beneficiaries of the Trust were given sufficient notice of this interlocutory application. The Court was informed by Mr Somerville, who appeared for the second and third applicants, that a copy of the interlocutory application had been served on the respondents (ADS Holdings (NSW) Pty Ltd, Chrisdbel Pty Ltd and the Deputy Commissioner of Taxation). None of the respondents sought to appear at the hearing of the interlocutory application. The matter was called outside before the hearing commenced. 14 To avoid the cost of a future application for remuneration of the Receivers and Managers, I also consider that it is appropriate to fix their remuneration in the amount of $30,000 plus GST, as estimated by Mr Walker.

Conclusion 15 Appropriate orders will be made accordingly. I certify that the preceding fifteen (15 ) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Griffiths.

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