First Plaintiff v Second Plaintiff

2 The Company was placed into liquidation on 13 October 2015 on the application of the Deputy Commissioner of Taxation. The debt due to the Australian Taxation Office ('ATO') on 19 November 2015 was $100,660.62.

3 Prior to being placed into liquidation, the Company operated as trustee of the Frank and Sophia Family Trust ('the Trust') and did not trade on its own account.

4 The Company is and remains the registered proprietor of two properties located at 244A Brunswick Road, Brunswick, Victoria, each of which are subject to a cross collateralised mortgage in favour of Westpac Banking Corporation with an amount outstanding as at 21 October 2015 of $1,027,906.46 ('the Properties').

5 The Company is the registered proprietor of two motor vehicles which were under finance for approximately the following amounts in November 2015:

(i) a Silver 2014 Porsche Wagon ($51,638.97); and

(ii) a Black 2013 Mercedes Benz Station Wagon ($56,188.98) ('the Vehicles').

6 Prior to the liquidation, the Company managed a hairdressing salon business conducted for many years by Sophia Basile ('Sophia') in her own name ('the Unico Business').

7 By reason of the liquidation of the Company and pursuant to clause 27 of the Trust Deed, the Company ceased to hold office as trustee of the Trust. A new trustee has been appointed.

8 Although the new trustee ('Frank Basile Nominees Pty Ltd') is presumably managing the affairs of the Trust, the Company is entitled to indemnity and recourse to the Trust assets to discharge debts to creditors and the Liquidator's costs and expenses. This indemnity is secured by an equitable lien over the assets of the Trust.[1]

9 The applicant bears the onus of making out a case for a stay or an order staying or terminating the winding up.[2]

10 In Vero Workers Compensation (NSW) Ltd v Ferretti Pty Ltd,[3] Austin J said that the court has a discretion as to whether the winding up should be terminated and that it should be exercised having regard to the interests of:

(a) the creditors of the company (including future creditors);

(b) the liquidator, particularly with respect to costs;

(d) the public, including the public interest in matters of commercial morality and the public interest that insolvent companies should be wound up.

11 In a written submission dated 19 May 2016, the Liquidator has raised a number of concerns. In particular -

• An undocumented loan from Sophia to the Company in the sum of $58,087.
• Payment by Sophia of the ATO debt and secured creditors with funds drawn-down from a further mortgage of her house. The basis upon which the funds were provided is unclear and undocumented.
• Deductions in the Company's accounts relating to the Unico Business in circumstances where it is alleged (and appears to be the case) that the business is owned and operated by Sophia but only managed by the Company.
• Commercial morality and public interest issues.
• Liquidator's costs, expenses and remuneration remain unpaid.

12 The Liquidator has, in my opinion, properly drawn these matters to the Court's attention and has left it to the Court to decide. Appropriate undertakings have been suggested. Naturally the Liquidator is concerned about recovering his costs, expenses and remuneration.

13 The applicant has responded, in my view adequately, to each of the matters raised. I propose, in the circumstances to stay the winding up subject to appropriate undertakings and conditions, whereafter it may be anticipated that termination will follow.

14 In relation to the first two items, I consider that the explanation given is sufficient. Sophia, as a beneficiary and directly interested party does not seek immediate repayment of her loan and has been prepared to encumber her own assets to pay secured creditors and the debt to the ATO.[4] This is neither surprising nor remarkable. It would of course be desirable to document any arrangements properly and ensure that the books of account and records of the company reflect any such arrangement. I leave this to the parties and their advisors. However this is not in the circumstances a sufficient ground to refuse relief, particularly in light of the undertakings that I will require and upon which the orders will be made.

15 In relation to the deductions and although it is asserted (and appears to be the case) that 'the Trust is solvent', it remains unclear why operating expenses of the Unico Business are included in the Company's financial statements. No doubt this is based on advice but some explanation is necessary.

16 Subject to the above, I do not consider that in the circumstances and having regard to all of the evidence, the size, nature and structure of the assets and the business, and the reliance on advice that there are sufficient commercial morality and public interest issues that would preclude the form of the staged relief contemplated.

17 The final matter is the Liquidator's costs and remuneration. What is to be done? The applicant submits that these costs and remuneration should be assessed and that any such costs and remuneration properly and reasonably incurred should be paid by the Company from trust property. Pending this assessment it is submitted that an order for termination should still be made and that if necessary security (including a cash amount) will be provided. The Liquidator naturally disagrees and submits that all costs and remuneration has been properly incurred and should be paid.

18 I propose to resolve the matter by requiring undertakings as a condition on the stay. First an amount of $46,158.80 (which together with the sum of $15,663.30 held by the Liquidator make up the costs and expenses of $61,822.10) be paid to the Liquidator, to be held by the Liquidator pending the assessment of costs charges and remuneration by an Associate Judge or Judicial Registrar.

19 Secondly, the amount as assessed or agreed is to be paid within 30 days.

20 Finally, after completion of the contemplated assessment process, I will terminate the winding up upon satisfactory evidence of the matters referred to in paragraph 15 ('the deductions') and an undertaking by Mrs Basile that she will not request repayment of any loan or advance made to the Company or payments made on its behalf in priority of other unsecured claims on any subsequent winding up of the Company.

[1] By Originating Process dated 23 November 2015 the Liquidator seeks appointment as Receiver of the assets of the Trust in order to satisfy the indemnity. It is no longer necessary to proceed with this application.

[2] Re Warbler Pty Ltd (in liquidation) (1982) 10 ACLR 743, approved as helpful guidelines by Santow J in Dubolo Pty Ltd (t/as Fender Signs) v Codrington Investment Corp Pty Ltd (1998) 26 ACSR 723 at 725.

[3] [2005] NSWSC 292 at [17].

[4] The ATO has been paid in full and does not oppose the application.