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[2020] VSC 474
Supreme Court of Victoria
2020-08-03
DELANY J
Original judgment source is linked above.
CORPORATIONS - Liquidation of trustee company - Company operated exclusively in capacity as trustee - Trust property likely exhausted by sale and distribution to creditors - Liquidator's application for declaratory relief, power to wind up trust and remuneration from trust assets - Declaratory relief refused - Unnecessary absent conduct to be excused or possible claim against liquidator - Application otherwise allowed - Re Brimson Pty Ltd (in liq) [2019] FCA 1023; Re Mandeville Group Pty Ltd (In Liq) [2020] VSC 293 applied - Corporations Act 2001 (Cth) s 1318 - Trustee Act 1958 (Vic) s 63 - s 90-.
1 This is an application by Michael Carrafa in his capacity as liquidator ('Liquidator') of Civil Construction Network Services Pty Ltd (in liquidation) ('the Company') and by the Company under s 1318 of the Corporations Act 2001 (Cth) ('the Act'), s 90-15 of the Insolvency Practice Schedule (Corporations) ('IPS'), s 63 of the Trustee Act 1958 (Vic) ('Trustee Act'), rules 39.02 and 54.02 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) and the inherent jurisdiction of the Court for the following orders and directions:
(a) the Company carried on business in its capacity as trustee of the R.G. & T Dickeson Family Trust;
(b) all the property of the Company is held by it in its capacity as trustee of the Trust; and
(c) the creditors of the Company are creditors whose debts have been incurred by the Company in its capacity as trustee of the Trust.
(a) carry on the business of the Trust;
(b) sell or otherwise dispose of, in any manner, all or any part of the Trust Property;
(c) compromise any claim made against the Company in its capacity as trustee of the Trust or against the Trust Property on any terms the second plaintiff sees fit;
(d) bring any claim against any party on behalf of the Trust; and
(e) execute any tax returns, financial statements or other documents relating to the Trust.
(a) the Liquidator is entitled to be paid his remuneration, costs and expenses properly incurred in preserving, realising or getting in assets of the Trust, or in conducting the winding up of the Company ('Remuneration and Expenses') from the assets of the Trust; and
(b) the Remuneration and Expenses include that remuneration, costs and expenses of and incidental to this application and are to be paid in accordance with the priority specified in section 445(1) of the Act.
2 On 1 April 2020, the Company was wound up by Court order, and Mr Carrafa was appointed the Liquidator.
3 The Company was incorporated on 11 February 2010. From 5 March 2010 Raymond George Dickeson was the sole director. He and his former wife, Tina Dickeson, are the shareholders of the Company. The Company conducted a civil construction business.
4 The R.G. & T. Dickeson Family Trust was established on 1 July 2010 pursuant to a Deed of Settlement ('Trust'). Mr and Mrs Dickeson are constituted the appointors under the Trust Deed. They are also the primary beneficiaries of the Trust.
5 On 1 July 2011 by a Deed of Appointment, the Company was appointed trustee of the Trust in place of the previous trustee.
6 Investigations by the Liquidator into the affairs of the Company reveal that the Company only acted as trustee of the Trust and in no other capacity. Further, that all assets owned by the Company are held by it as trustee of the Trust and all liabilities incurred by the Company were incurred by it in that capacity.
The office of Trustees shall ipso facto be determined and vacated if:-
...
(c) if the Trustee being a company shall enter into liquidation whether compulsorily or voluntarily ...
8 The appointor of the Trust has not exercised the power to appoint a replacement trustee since the winding up of the Company. There is no suggestion that there is any likelihood the appointor will do so in the future.
9 As a result of the operation of clause 8.7 of the Trust Deed, the Company is currently a bare trustee and holds the assets of the Trust for the beneficiaries of the Trust. As bare trustee, the Company has limited powers to deal with the assets of the Trust.
10 The Liquidator makes this application so to be given powers necessary to deal with the assets of the Company the subject of the Trust, so as to realise those assets and otherwise account for those assets in the ordinary course of the winding up of the Company as corporate trustee.
11 A copy of the application was served on ASIC. Service was also effected on Mr and Mrs Dickeson.
12 Mr Dickeson appeared before me on the hearing of the application. He did not oppose the Court making orders to the effect sought by the Liquidator and the Company.
13 The Report by the Liquidator pursuant to s 70-50 of the IPS and Rule 70-40 of the Insolvency Practice Rules (Corporations) ('the Report') details investigations by the Liquidator concerning security interests registered against assets of the Company/Trust. Those security interests were identified over various items of plant equipment and motor vehicles following a search of the Personal Properties Security Register ('PPSR'). The Liquidator has been in communication with a number of persons shown as secured creditors on the PPSR. There is no evidence that any of those persons were notified of this application.
14 In the case of the ANZ Bank, the secured creditor has advised that the security held is over all of the property of the Company in its capacity as trustee of the Trust. In some other cases communications with apparently secured creditors are ongoing including so as to identify whether the debt previously owed to the secured creditor but remaining recorded as a secured debt on the PPSR has already been satisfied.
Did the Company trade in its own capacity or as Trustee of the Trust?
15 In Re Amerind Pty Ltd (receivers and managers apptd),[1] Robson J listed a series of matters that have been taken into account by Courts in order to determine whether as a matter of fact a company trades in its own right or as trustee of a trust:
(a) the existence of constituent trust documents which establish a trust, including any draft trust documents which cross-reference one another;
(b) whether accounts were maintained separately to the company's operational expenditure accounts and/or the company's own property;
(c) whether the company's name in its capacity as trustee was noted on key employment documents, such as letters of employment and tax file declarations;
(d) whether invoices rendered by the company in question were issued by the company in its capacity as trustee of the trust;
(e) whether company meeting minutes disclosed the existence of a trust, or disclosed that the company was operating as a trust;
(f) whether expenses were accounted as receipts of the company as trustee; and
(g) whether records, contained in the general ledger of the company, recorded activity consistent with the operation of a trust, such as the issue of units.[2]
16 The affidavit evidence clearly establishes that in this case the Company was and only ever relevantly acted in the capacity as trustee of the Trust:
(a) The Trust Deed and the Deed of Appointment of 1 July 2011 are in evidence.
(b) The financial accounts for the financial year ended 30 June 2018 show that the company only carried on business as trustee of the 'R.G. & T. Dickeson Family Trust'.
(c) The tax returns for the financial year ended 30 June 2018 are of the Company in its capacity as trustee of the Trust.
(d) According to the Australian Business Register the Company operated under the ABN 14 277 089 116 as trustee of the Trust.
(e) The trading name for the trust is 'Civil Construction Network Services Pty Ltd'.
17 In addition to the affidavit evidence, Mr Dickeson informed me that the sole activity of the Company has been to act as trustee of the Trust. He also confirmed that the last financial accounts of the Company and the last tax returns filed on behalf of the Company, in each case in its capacity as trustee of the Trust, are those for the financial year ended 30 June 2018.
18 By reason of the operation of clause 8.7 of the Trust Deed the Company became a bare trustee of the assets of the Trust immediately upon the winding up of the Company and the appointment of the Liquidator.
19 In Caterpillar Financial Australia Ltd v Ovens Nominees Pty Ltd,[3] Gordon J described the position that applies in such circumstances:
The Company is and will remain a bare trustee. It may still hold the assets of the Trust. Its duties, powers and rights are limited to protecting the Trust assets: see, by way of example, Commissioner of Taxation v Bruton Holdings Pty Limited (in liq) [2008] FCAFC 184 at [79]; Commissioner of Taxation v Bruton Holdings Pty Limited (in liq) [2010] FCA 978 at [52] and Herdegen v Federal Commissioner of Taxation [1988] FCA 419; (1988) 84 ALR 271 at 281. However, the bare trustee retains its right of indemnity or exoneration and its lien over the assets of the Trust.[4]
20 Based upon the Report by the Liquidator and confirmed by counsel appearing on the application, the Liquidator has so far only acted to identify and to protect the assets, and has not yet sold any of the assets.
21 In Jones (in his capacity as liquidator of Killarnee Civil and Concrete Contractors Pty Ltd (in liq) v Matrix Partners Pty Ltd,[5] the Full Federal Court held that the liquidator of an insolvent corporate trustee cannot sell the trust property without an order of the court or by appointment of a receiver over the trust assets.
22 The trust assets are not the 'property of the company', but rather, trust property in which the corporate trustee has a proprietary interest by way of lien or charge to secure its right of exoneration.[6]
Should the Court permit the sale of Trust Assets?
23 In Re Mandeville Group Pty Ltd (In Liq),[7] Sloss J described the Court's powers as follows:
24 Section 63 of the Trustee Act provides:
(1) Where in the management or administration of any property vested in trustees, any sale, lease, mortgage, surrender, release or other disposition, or any purchase, investment, acquisition, expenditure or other transaction, is in the opinion of the Court expedient, but the same cannot be effected by reason of the absence of any power for that purpose vested in the trustees by the trust instrument (if any) or by law, the Court may by order confer upon the trustees, either generally or in any particular instance, the necessary power for the purpose on such terms and subject to such provisions and conditions (if any) as the Court thinks fit and may direct in what manner any money authorized to be expended, and the costs of any transaction are to be paid or borne as between capital and income.
25 In Re Brimson Pty Ltd (in liq),[8] Moshinsky J observed:
26 The present application sought orders giving the Liquidator power to sell, and in the alternative, appointing the Liquidator as a receiver of the Trust property. In discussion on the application, the question arose whether it was appropriate in this case to make orders giving the Liquidator power of sale or whether it was more appropriate that an order be made for the appointment of a receiver.
27 Counsel submitted that it was appropriate to make power of sale orders pursuant to the Trustee Act in favour of the Liquidator without appointing the Liquidator receiver and manager. It was submitted that this would be the most efficient way forward.
28 In Re Mandeville Group Pty Ltd (In Liq),[9] Sloss J set out the matters relied upon by the applicant in that case in support of orders conferring a power of sale, rather than appointing the liquidator as receiver and manager:
29 The Report by the liquidator identifies the assets of the Company as motor vehicles, plant and equipment. The records of the Company disclose trade debtors totalling $1,402,621.96 of which $1,326,065.57 is recorded as owing by John Beever Australia Pty Ltd. The Liquidator is seeking litigation funding to pursue this claim. The ANZ as secured creditor is owed $344,350.10; employee entitlements are reported at $67,461.44 and unsecured creditors are reported at $1,447,607.36. It seems clear that the property of the Trust will be exhausted following its sale and subsequent distribution to creditors.
30 The following circumstances favour an order conferring power of sale, rather than appointing the Liquidator as receiver and manager:
(a) the property of the Trust will be exhausted following its sale and subsequent distribution to creditors;
(b) the conferring of power of sale upon the Liquidator appears the most convenient and efficient way to proceed;
(c) the Company is not trading, there is no on-going business to be conducted;
(d) where the Liquidator is given power of sale, there is no risk of confusion as to roles or as to the capacity in which the Liquidator is acting as might be the case if the appointment was as receiver and manager.
31 The consequences for the creditors, and for the conduct of the liquidation of an order conferring power of sale, were discussed by Moshinsky J in Re Brimson Pty Ltd (in liq):[10]
32 In the draft form of order submitted to the Court the Liquidator seeks a declaration pursuant to s 1318 of the Act and s 90-15 of the IPS that the Liquidator is justified and acting reasonably in proceeding on the basis that the Company carried on business in its capacity as trustee of the Trust.
(1) If, in any civil proceeding against a person to whom this section applies for negligence, default, breach of trust or breach of duty in a capacity as such a person, it appears to the court before which the proceedings are taken that the person is or may be liable in respect of the negligence, default or breach but that the person has acted honestly and that, having regard to all the circumstances of the case, including those connected with the person's appointment, the person ought fairly to be excused for the negligence, default or breach, the court may relieve the person either wholly or partly from liability on such terms as the court thinks fit.
(2) Where a person to whom this section applies has reason to apprehend that any claim will or might be made against the person in respect of any negligence, default, breach of trust or breach of duty in a capacity as such a person, the person may apply to the Court for relief, and the Court has the same power to relieve the person as it would have had under subsection (1) if it had been a court before which proceedings against the person for negligence, default, breach of trust or breach of duty had been brought.
...
(4) This section applies to a person who is:
...
(d) a receiver, receiver and manager, liquidator or other person appointed or directed by the Court to carry out any duty under this Act in relation to a corporation.
34 In Amirbeaggi, Re Simpkiss Pty Ltd (in Liq) [2018] FCA 2121 Markovic J set out the requirements for making such a declaration, in that case on application by an administrator:
(1) she had reason to apprehend that a claim would, or might, be made against her;
(2) such a claim is in respect of any negligence, default, breach of trust or breach of duty in her capacity as administrator; and
(3) she acted honestly in relation thereto,
see Suncoast at [29].
35 The affidavit material on behalf of the Liquidator was not extensive, but there is no suggestion that the Liquidator has engaged in any past conduct from which he may wish or need to be excused in relation to the Trust property. Nor is there any evidence of any actual or foreshadowed claim against him such as might attract the operation of s 1318(2) as discussed in Suncoast.
36 That I have refused at this time to grant declaratory relief does not mean that the Liquidator would not be able to raise a s 1318 in defence to any proceedings that may later be issued.
37 The draft form of order provides that the power of sale and related powers to be conferred on the Liquidator pursuant to s 63 of the Trustee Act should be conferred nunc pro tunc. For the same reasons that I decline to grant declaratory relief, I will not make such an order. It is unnecessary and there is no basis established for making an order having retrospective operation.
Orders concerning payment of remuneration and expenses
38 As stated above, the Liquidator also seeks a direction that he:
(a) is entitled to be paid his remuneration, costs and expenses properly incurred in preserving, realising or getting in assets of the Trust, or in conducting the winding up of the Company ('Remuneration and Expenses') from the assets of the Trust; and
(b) the Remuneration and Expenses include that remuneration, costs and expenses of and incidental to this application and are to be paid in accordance with the priority specified in section 445(1) of the Act.
39 In relation to such a direction in Re Mandeville Group,[11] Sloss J observed:
40 The circumstances of the present case, whilst somewhat more simple than those the Court was called upon to consider in Re Mandeville Group are no different when it comes to the remuneration and expenses of the Liquidator. I propose to make an order to the effect sought. For the avoidance of doubt, the order will specify that it operates in relation to such remuneration and expenses from the date of appointment of the Liquidator.
41 For the reasons set out above, I do not propose to make a declaration pursuant to s 1318 and s 90-15 that the Liquidator was justified and acting reasonably in his past actions concerning the Trust and its assets. Such an order is unnecessary. All that the Liquidator has done so far in his capacity as Liquidator of the Company is to act in a manner consistent with the position of a bare trustee. The orders to be made make it clear that he has power now to act in relation to Trust assets, including the power to sell assets.
42 Orders under s 63 of the Trustee Act, including conferring power of sale, will be made as per the draft. Those orders will protect the Liquidator in respect of his future conduct, subject obviously to his obligation to comply with the provisions of the Act and the Trustee Act. For the reasons stated above, those Orders will not be expressed to be made nunc pro tunc.
43 As I have indicated, I will make orders as to the payment of remuneration and expenses of the Liquidator from the Trust Assets, operative from the date of his appointment. I will also order that the Liquidator's remuneration, costs and disbursements of this application be paid from the assets of the Trust on an indemnity basis.
44 I have referred earlier to the failure to give notice to the apparently secured creditors. I do not regard that failure as a reason not to make orders generally in the form proposed. However, I direct that the Liquidator give notice within three business days to all secured creditors of whom he is aware whose claims have not to his knowledge been satisfied. Notice should be given of the application and each of those persons should be provided with a copy of the Order and a copy of these reasons.
45 Given the requirement for notice to be given to those persons within three business days, I will order that any application to modify any of the directions and Orders be made on five business days' notice.
[5] [2018] FCAFC 40; (2018) 260 FCR 310 ('Jones v Matrix').
[6] Jones v Matrix, [44] and [89] per Alsop CJ (with whom Farrell J agreed at [196]).
[7] [2020] VSC 293 ('Re Mandeville Group') (citations omitted).
(1988) 84 ALR 271
(1983) 33 SASR 99
(2003) 177 FLR 289
(2018) 260 FCR 310