Deputy Commissioner of Taxation, in the matter of The Mai Family Pty Ltd (in liq) v The Mai Family Pty Ltd

BESANKO J: 1 This proceeding was commenced on 19 July 2018 by the Deputy Commissioner of Taxation as plaintiff against The Mai Family Pty Ltd as defendant seeking an order for the winding up of the defendant in insolvency. On 24 October 2018, an order was made that the defendant be wound up in insolvency under the Corporations Act 2001 (Cth) (the Corporations Act) and Mr Mark Christopher Hall of Clifton Hall was appointed the liquidator of the defendant. At the time of the order, the defendant was the corporate trustee of the Mai Superannuation Fund which was a self-managed superannuation fund. 2 The application now before the Court is an application by Interlocutory Process by the liquidator for directions or orders under s 90-15 of the Insolvency Practice Schedule (Corporations) in the Corporations Act, r 2.2(2) of the Federal Court (Corporations) Rules 2000 (Cth) and s 57(1) of the Federal Court of Australia Act 1976 (Cth). Under s 90-15, the Court may make such orders as it thinks fit in relation to the external administration of a company, and under s 57 of the Federal Court of Australia Act the Court may appoint a receiver in relation to property. The liquidator seeks directions under s 90-15 as to how he should proceed in circumstances where the defendant is a disqualified person pursuant to s 120(2)(e) of the Superannuation Industry (Supervision) Act 1993 (Cth) (the SIS Act) and, in particular, whether it would be appropriate for the defendant to resign from its position as the trustee of the Mai Superannuation Fund. In addition, the liquidator seeks an order under s 57(1) of the Federal Court of Australia Act that he be appointed, without security, as receiver and manager of the property of the Trust, including all funds held with Westpac Banking Corporation (Westpac) in two accounts in the name of the defendant as trustee for the Mai Superannuation Trust. The liquidator seeks an order that as receiver, he has the powers in the Schedule of Powers together with the powers that a liquidator has in respect of the property of a company pursuant to s 477(2) of the Corporations Act. The Schedule of Powers are the powers to do, in Australia and elsewhere, all things necessary or convenient to be done for or in connection with, or as incidental to, the attainment of the following objectives: Enable the Receiver to get in and realise the property of the Trust to enforce the right of indemnity of the Defendant to discharge the liabilities incurred by it in its capacity as trustee of the Trust and to provide the proceeds to the Liquidator to discharge those liabilities of the Defendant in accordance with the priorities set out in s 556 of the Corporations Act. Enable the Receiver to recover the costs of the receivership and, because the sole function of the Defendant was to act as trustee of the Trust, the costs and expenses in the winding up of the Defendant. 3 The liquidator also seeks an order that the costs of the Interlocutory Process are to be costs and expenses in the winding up of the defendant and that the receiver's remuneration and expenses of and incidental to the order are fixed in the amount of $2,500 (including GST) and that there be liberty to apply to vary that amount. 4 In my opinion, it is appropriate to give a direction that it is appropriate for the defendant to resign from its position as trustee of the Mai Superannuation Fund in circumstances where the defendant is a "disqualified person" pursuant to s 120(2)(e) of the SIS Act and to make the other orders sought by the liquidator. 5 The defendant was incorporated on 10 October 2008. Ms Susan Judith Mai and Mr Tien Dung Mai are and have been since incorporation the directors of the defendant. They have also been and are the only shareholders of the defendant. They were given notice of the Interlocutory Process, but did not attend at the hearing. 6 As I have said, the defendant is the trustee of the Mai Superannuation Trust. The Trust was established by a deed executed on 8 December 2008. The directors of the defendant held a meeting on 8 December 2008 in order to establish the Trust. They passed a number of resolutions at the meeting, including resolutions to do the following: (1) to open a cash account in the name of the defendant; (2) to notify the Australian Taxation Office (ATO) of the fund's intent to become a regulated self-managed superannuation fund, and to complete the relevant forms to be filed with the ATO; and (3) to accept the directors of the defendant as the initial members of the Trust. 7 The application for winding up by the Deputy Commissioner of Taxation as a creditor of the defendant was based on a Statutory Demand on 20 September 2018 claiming a tax debt of $304,004.68. The ATO has subsequently lodged a Proof of Debt dated 19 November 2018 in the liquidation of the defendant claiming a debt in the amount of $465,472.72. The Proof of Debt related to "income tax and a running balance account deficit debt in respect of BAS amounts". 8 The ATO had audited the defendant's activities and prepared a position paper with respect to the defendant dated 11 March 2016. The ATO found that there had been a number of contraventions of provisions of the SIS Act. 9 On or about 27 November 2018, Ms Mai completed part of a report on the defendant's activities and property. The report was referred to as a Form 507 report and I will refer to it in that way. The Form 507 report states that the defendant is the trustee of a self-managed superannuation fund. 10 In the Form 507 report, Ms Mai identifies as assets of the defendant two bank accounts held with Westpac. The amounts in those bank accounts are $48,347.54 and $1,090.63 respectively. She also identifies as amounts owed by the defendant to its creditors, an amount owed to the ATO of $90,000 and an amount of $80,000 owed to her and Mr Mai. 11 Following the liquidation of the defendant, the liquidator wrote to Westpac advising it of the defendant's liquidation and, in response, Westpac has placed a freeze for debits on the accounts. 12 The liquidator states that at this stage he has not been able to identify any further trust assets and that there is likely to be a substantial shortfall in any dividend paid to creditors. 13 Section 120(2)(e) of the SIS Act provides that for the purposes of Pt 15 of the Act, a body corporate is a disqualified person if the body corporate has begun to be wound up. The defendant is a disqualified person for the purposes of Pt 15 of the SIS Act. Section 126K of the SIS Act provides that a person commits an offence if the person is a disqualified person and "is or acts as a trustee … of a superannuation entity". 14 In Re Stansfield DIY Wealth Pty Ltd (in liq) [2014] NSWSC 1484; (2014) 291 FLR 17 (Re Stansfield), Brereton J said (at [35]): By operation of Superannuation Industry (Supervision) Act 1993, s 120(2)(e), upon the commencement of the winding up the [trustee] became a disqualified person for the purposes of that legislation and thereafter commits an offence under s 126K if it is or acts as trustee of a superannuation entity. However, nothing in the Act provides that upon becoming a disqualified person a trustee thereupon ceases to be trustee. 15 By reason of s 126K of the SIS Act, the defendant commits an offence, not only acting as a trustee, but also in being a trustee. 16 The SIS Act does not provide that upon becoming a disqualified person, the defendant ceases to be the trustee of the superannuation fund. If it acts as a trustee it commits an offence, and of concern to the liquidator in this case, is Brereton J's observation in Re Stansfield (at [36]) that a liquidator of a company which acts as a trustee may be liable as an accessory. 17 The difficulties are compounded by the rules of the Trust in this case. They provide that there must a trustee of the fund "at all times" (cl 2.2). As the liquidator pointed out, it is unlikely any person would step in to replace the defendant in this case. The rules further provide that the trustee of the fund may appoint a new trustee provided the fund remains a complying self-managed superannuation fund, including a replacement trustee or an additional trustee (cl 2.4). The rules provide that a trustee is to be removed as trustee under a number of conditions, including "if the trustee is prohibited from being a trustee under the superannuation laws or where the regulator otherwise determines, including where the trustee is a disqualified person". The difficulty in this case is the rule provides that the trustee is to be removed, not is removed. The liquidator is also concerned that any action to appoint a new trustee might itself contravene s 126K of the SIS Act. In the circumstances as I have outlined them, it is appropriate to make the first order sought by the liquidator. 18 The liquidator has deposed to the fact that the defendant appears only to have performed the role of trustee of the Trust. The defendant has a right to be indemnified for its debts and liabilities incurred as trustee out of the assets of the Trust. This case involves the right of exoneration, not recoupment. The right of indemnity is supported by an equitable charge and lien over the assets of the Trust. However, the assets of the Trust do not form part of the "property" of the insolvent company. The right is not a beneficial right to the assets of the Trust. The right of exoneration secured by an equitable charge and lien over the assets is the "property" of the insolvent company within the meaning of s 9 of the Corporations Act. One difficulty for the defendant is how it can enforce its right of exoneration if it is prohibited by s 126K of the SIS Act from dealing with the Trust assets. The way in which this difficulty can be overcome is by the appointment of a receiver and manager of the Trust assets. 19 In Re Stansfield, Brereton J said (at [51]): In such circumstances, the appropriate course for a liquidator is to seek appointment as a receiver of the trust assets, by way of enforcement of the (former) trustee's right of indemnity, pursuant to which he could realize trust assets, and apply the proceeds to discharge the liabilities of the company (all of which were incurred in the capacity of trustee), and recover the costs of the receivership and, because the company's sole function was to act as trustee of the super fund, the general costs of liquidation. 20 By this mechanism, the receiver is able to enforce the corporate trustee's right of indemnity and to apply the proceeds to discharge the liabilities incurred by the defendant in its capacity as trustee and to enable the liquidator to recover the costs of the receivership and because the defendant's sole function was to act as trustee of the superannuation fund, the general costs of the liquidation. 21 As I have said, in this case the defendant carried out only one business and that was as the trustee of the Mai Superannuation Fund. In Jones (Liquidator) v Matrix Partners Pty Ltd, in the matter of Killarnee Civil & Concrete Contractors Pty Ltd (in liq) [2018] FCAFC 40; (2018) 260 FCR 310, Allsop CJ said (at [102]): Each of the provisions of s 556 has its own underlying legal policy and its own terminology. The analysis is easiest where the company has only ever acted as here as corporate trustee for one trust. In such circumstances, the property of the company that includes the right of exoneration and the funds obtained from its exercise is to be distributed in accordance with the statutory command: ss 501 and 556. In such circumstances, the words of the statute are to be applied to direct the distribution of the property of the company. 22 In the circumstances, it is appropriate to appoint the liquidator as receiver and manager of the property of the Trust and to make the other orders sought by the liquidator (see also Taylor (Liquidator) v CJ & KL Bond Super Pty Ltd (Trustee), in the matter of CJ & KL Bond Pty Ltd (in liq) [2018] FCA 1430 at [16]). I certify that the preceding twenty-two (22) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Besanko.