First Plaintiff v Second Plaintiff

2 The Australian Securities and Investments Commission ('ASIC') and the legal representative for Margherita Nancy Waldock ('Mrs Waldock') were served with the application. No appearance was filed by either party and no appearance was made at the hearing.

3 On 11 June 2003, the second plaintiff ('Company') was incorporated. According to a search of the records maintained by ASIC:

(a) since 11 June 2003, Craig Russell Waldock ('Mr Waldock') has been the sole director, secretary and shareholder of the Company; and

(b) between 9 September 2015 and 16 December 2020, Keith Laurence Sutherland and Michael Francis Quin were appointed liquidators of the Company.

4 On or about 11 June 2003, the Trust was established pursuant to a trust deed executed by Bernice Joy McKinnon as settlor ('Trust Deed'). The Company was appointed as trustee of the Trust. The Appointors of the Trust are Mr Waldock and Mrs Waldock.

5 The Trust Deed contains express terms including that:

(a) the office of a trustee shall be ipso facto determined and vacated if such trustee being an individual shall be found to be of unsound mind or a person whose person or estate is liable to be dealt with in any way under the law relating to mental health or if he shall become bankrupt or make any arrangements or composition with his creditors generally or if such trustee being a company shall enter into liquidation whether voluntary or compulsory (not being merely a voluntary liquidation for the purposes of amalgamation or reconstruction): see clause 24(b); and

(b) the Appointor if there is a nominated Appointor of this settlement by virtue of clause l(i) of the Trust Deed and if there is no Appointor nominated then the settlor, shall during his lifetime or during its corporate existence have the following powers viz:

(i) to remove any Trustee hereof at any time and from time to time; and

(ii) to appoint a new Trustee or new Trustees PROVIDED THAT the removal of a Trustee shall not be effected otherwise than simultaneously with the appointment of a new Trustee or new Trustees in his place. Such power of appointment of a new Trustee shall extend to the appointment of a new Trustee or new Trustees in the place of any Trustee ceasing for any reason whatsoever to be a Trustee hereof and also the appointment of an additional Trustee or additional Trustees up to the number permitted hereunder subject to such limit (if any) as may for the time being be imposed by law. The corporation person or persons (provided the Appointor is not a beneficiary or capable of being a beneficiary hereunder) in whom such powers are for the time being vested may at any time appoint himself or themselves to be a Trustee or Trustees: see clause 23.

6 The unchallenged evidence of the Liquidator is that at all material times the Company acted in its capacity as trustee of the Trust and the Company has not traded in its own capacity. In the circumstances, the Company has no assets in its own right and all of its liabilities have been incurred by it in its capacity as trustee of the Trust.

7 The Liquidator has been provided with a copy of the Trust's financial statements for the financial years ended 30 June 2014, 2015, 2017, 2018, 2019, 2020, 2021 and 2022.

8 According to the financial statements for the year ended 30 June 2022:

(a) Mr Waldock was a creditor in the sum of $1,216,353.00;

(b) the non-current secured creditors were:

(i) Clarke Barwood 600 in the sum of $600,000.00; and

(ii) Clarke Barwood 119 in the sum of $119,000;

9 On or about 7 July 2022, Mr Waldock submitted a Report on Company Activities and Property with respect to the Company ('ROCAP'). According to the ROCAP:

(a) the Company owns real property;

(b) the Company holds property on trust;

(c) the Company operated a business through a trust: and

(d) the main thing the Company does is "holds property".

10 The creditors total $2,095,697.50 comprised as follows:

(a) Clarke & Barwood Lawyers Colac Ltd ('Mortgagee') whose debt is $700,000.00; and

(b) Mr Waldock whose debt is $1,395,697.50.

11 A search of the records maintained by the Land Titles Office conducted on 13 July 2022 in relation to property owned by the Company disclosed the following:

(a) the Company was the sole registered proprietor of the property located at 360 Bluestone Bridge Road, Lovely Banks in the State of Victoria being more particularly described in Certificate of Title Volume 10414 Folio 467 ('Lovely Banks Property');

(b) on 19 January 2012, the Mortgagee caused a mortgage to be lodged on the title of the Lovely Banks Property;

(c) on 19 February 2021, Mrs Waldock caused a caveat to be lodged on the Lovely Banks Property title claiming an equitable interest in the Lovely Banks Property; and

(d) on 7 October 2021, Schembri & Co Lawyers Pty Ltd caused a caveat to be lodged on the Lovely Banks Property title claiming an interest in the Lovely Banks Property as chargee.

12 On 12 August 2022, the Mortgagee appointed the Liquidator as agent to attend to the recovery, sale and/or realisation of the Lovely Banks Property as mortgagee in possession. The evidence of the Liquidator was that a sales campaign of the Lovely Banks Property was conducted by Avion Properties via an expressions of interest campaign, which resulted in an offer to purchase the Lovely Banks Property being accepted on 10 March 2023.

13 On 6 June 2023, settlement of the sale of the Lovely Banks Property occurred.

14 Nelson McKinnon Lawyers, the solicitors for the Mortgagee, received at settlement the sum of $1,570,128.01. Nelson McKinnon Lawyers currently holds the balance of $801,029.62 in its trust account ('Sale Proceeds').

15 Mr Waldock has advised the Liquidator that no new trustee has been appointed to the Trust. The Liquidator is not aware of the appointment of any replacement trustee and seeks to be appointed as receiver of the Trust in order to, amongst other things, distribute the assets of the Trust, being the Sale Proceeds.

16 It is well settled that where a corporate trustee enters into liquidation, the company's right of indemnity or exoneration and accompanying equitable lien over trust assets survives. Where, as here, the Company has been removed as trustee of the Trust under the terms of the Trust Deed, the Company retains the right to hold Trust assets as bare trustee but the Liquidator of the Company does not have the power to sell those assets to satisfy that indemnity absent intervention by the Court.[1]

17 Carter Holt Harvey Woodproducts Australia Pty Ltd v The Commonwealth_[2]_ establishes that a liquidator of an insolvent former trustee can:

(a) apply to the Court for orders to be appointed as receiver of the trust assets;

(b) exercise their statutory authority to realise the trust assets in support of the exercise of the lien or charge securing the trustee's right of indemnity; and

(c) once the sale has been effected, appropriate the proceeds by way of exoneration as part of the conduct of the administration in accordance with s 556 of the Corporations Act 2001 (Cth) ('Act').

18 Section 37 of the Supreme Court Act 1986 (Vic) provides that the Court may by order, whether interlocutory or final, grant an injunction or appoint a receiver if it is just and convenient to do so. Such an order may be made either unconditionally or on such terms and conditions as the Court sees fit. In this case, the Liquidator seeks to be appointed as receiver without the grant of security.

19 The legal principles pertinent to the appointment of receivers in applications such as this are well known.[3]

20 The Court will appoint a receiver of trust assets where it is necessary to do so to safeguard the property for the benefit of those entitled to it.[4]

21 The principles are set out in detail by Warren J (as her Honour then was) in Martyniuk v King[5] and were accurately identified by Gleeson J in Hosking, re Business Aptitude Pty Ltd (in liq),[6] as follows:

The general ground upon which the Court appoints a receiver is the protection or preservation of property for the benefit of persons who have an interest in it: QBE Insurance (Australia) Ltd v WA Metal Recycling Pty Ltd, in the matter of WA Metal Recycling Pty Ltd (in Liq) [2016] FCA 238 ("QBE Insurance") at [13], citing Sapphire (SA) Pty Ltd v Ewens Glen Pty Ltd [2011] FCA 600 at [15].

Where a trustee is removed, it retains a right of indemnity from the trust assets secured by an equitable charge over them for its liabilities incurred by reason of acting as trustee: Stansfield DIY Wealth Pty Ltd (in liquidation) [2014] NSWSC 1484; (2014) 291 FLR 17 ("Re Stansfield") at [10].

There is a conflict of authority as to whether the liquidator of a corporate trustee, which has ceased to be trustee, has the power to sell trust assets to enforce the (former) trustee's right of indemnity. In Apostolou v VA Corporation of Aust Pty Ltd [2010] FCA 64; (2010) 77 ACSR 84, Finkelstein J held, at [48]-[50], that the liquidator of a corporate trustee which held legal title to trust property in which it also had an equitable interest could sell the subject property pursuant to the power of sale conferred by s 477 of the Act and that this survived the removal of the corporate trustee.

However, in Re Stansfield, Brereton J disagreed with the decision of Finkelstein J and held (at [10],[16]-[20],[30],[33]) that, if a trustee company ceases to be trustee of a trust it can no longer exercise the trustee's power of sale under the trust instrument or general law and that s 477(2)(c) of the Act does not empower the liquidator to sell property held by the trustee company on trust, even if the trustee company has an equitable charge over it, because the property is not in itself "property of the company".

Notwithstanding this conflict of authority, it is well-established that a receiver and manager can be appointed over trust property to secure the trustee's right of indemnity out of the assets of the trust: SMP Consolidated Pty Ltd (in liquidation) v Posmot Pty Limited [2014] FCA 1382 ("SMP Consolidated") at [7] citing Re Indopal Pty Ltd (1987) 12 ACLR 54 at 57; Kerr, in the matter of Angel's Castle Pre-School Pty Ltd (in Liquidation) [2010] FCA 786 ("Angel's Castle Pre-School") at [25]; In the matter of Gramarker Pty Ltd; Clifford Sanderson (as liquidator of Gramarker Pty Ltd) v Kerr [2014] NSWSC 243 at [6]- [7]; Re Stansfield at [31], [33], [45].[7]

22 In Cremin, re Brimson Pty Ltd (in liq), [8] Moshinsky J said at [50]:

The courts are generally willing, upon an appropriate application, to make orders permitting the liquidator of a (former) corporate trustee to sell trust assets. In situations where the property of the trust will be exhausted following its sale and subsequent distribution to creditors, it may be appropriate merely to give the liquidator a power of sale: see Jones & Matrix at [91]. The more common course is, however, for the liquidator of the insolvent (former) corporate trustee to apply to be appointed a receiver for the purpose of selling the trust assets and distributing the proceeds among trust creditors: see Jones & Matrix at [142] per Siopis J; Amirbeaggi, in the matter of Simpkiss Pty Ltd (in liq) [2018] FCA 2121 (Amirbeaggi); Taylor v CJ & KL Bond Super Pty Ltd, in the matter of CJ & KL Bond Pty Ltd (in liq) [2018] FCA 1430 (Taylor v CJ & KL Bond Super Pty Ltd); Staatz v Berry, in the matter of Wollumbin Horizons Pty Ltd (in liq) (No 3) [2019] FCA 924. Orders appointing a liquidator as a receiver for this purpose may be made nunc pro tunc to authorise sales of trust assets that have already occurred: Jones & Matrix at [91], [152], [198].

23 Additionally, in McLean v Hill, in the matter of TMC Plumbing & Drainage Pty Ltd (in liq),[9] Moshinsky J said at [22] to [25]:

A company that is the trustee of a trading trust has a right of indemnity to resort to the trust assets to vindicate its right to be exonerated from a liability that it has incurred in the course of carrying out trust business. In circumstances where such a company goes into liquidation, its right of indemnity and accompanying equitable lien over the trust assets endures, notwithstanding that the company has been removed as trustee of the trust and only holds the trust assets as a bare trustee: see Jones v Matrix Partner Pty Ltd; Re Killarnee Civil & Concrete Contractors Pty Ltd (in liq) [2018] FCAFC 40; (2018) 260 FCR 310 (Jones v Matrix) at [85], [142], [198].

There has, until recently, been a difference of opinion as to whether, in such circumstances, the liquidator's power to sell the 'property of the company' in s 477(2)(c) of the Corporations Act permits him or her to sell trust assets: see Aced Kang Investments Pty Ltd (in liq), in the matter of Aced Kang Investments Pty Ltd (in liq) [2017] FCA 476 at [12]. It is now settled that the liquidator of an insolvent (former) corporate trustee cannot sell the trust's property without order of the Court, or by appointment of a receiver over the trust assets: see Jones v Matrix at [44] per Allsop CJ (Farrell J agreeing at [196]); Re Stansfield DIY Wealth Pty Ltd (in liq) [2014] NSWSC 1484; (2014) 291 FLR 17 at [10]; Apostolou v VA Corporation of Aust Pty Ltd [2011] FCAFC 103 at [45]. The rationale for this position is that, on a proper understanding, the trust assets are not the 'property of the company', but are instead trust property in which the corporate trustee has a proprietary interest by way of lien or charge to secure its right of exoneration: see Jones v Matrix at [89]. Thus, to the extent that the subject of a sale is the whole of a trust asset, rather than merely the company's lien or charge in respect of that asset, it is not authorised by the power of sale in s 477(2)(c) of the Corporations Act.

The courts are generally willing, upon an appropriate application, to make orders permitting the liquidator of a (former) corporate trustee to sell trust assets. In situations where the property of the trust will be exhausted following its sale and subsequent distribution to creditors, it may be appropriate merely to give the liquidator a power of sale: see Jones v Matrix at [91]. The more common course is, however, for the liquidator of the insolvent (former) corporate trustee to apply to be appointed a receiver for the purpose of selling the trust assets and distributing the proceeds among trust creditors: see Jones v Matrix at [142] per Siopis J; Amirbeaggi, in the matter of Simpkiss Pty Ltd (in liq) [2018] FCA 2121; Taylor v CJ & KL Bond Super Pty Ltd, in the matter of CJ & KL Bond Pty Ltd (in liq) [2018] FCA 1430; Staatz v Berry, in the matter of Wollumbin Horizons Pty Ltd (in liq) (No 3) [2019] FCA 924. Orders appointing a liquidator as a receiver for this purpose may be made nunc pro tunc to authorise sales of trust assets that have already occurred: Jones v Matrix at [91], [152], [198].

The proceeds from an exercise of a corporate trustee's right of exoneration may only be applied in satisfaction of the trust liabilities to which that right relates: see Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth [2019] HCA 20 (Carter Holt) at [40] per Kiefel 11 CJ, Keane and Edelman JJ; at [92] per Bell, Gageler and Nettle JJ; at [106] per Gordon J. Thus, the liquidator of a (former) corporate trustee may only apply the proceeds of a sale of trust assets to satisfy debts owed to trust creditors (as opposed to general creditors). This includes the costs of the liquidation (including the liquidator's remuneration) because such costs constitute debts incurred by the company in discharging the duties imposed by the trust: Re Suco Gold Pty Ltd (in liq) (1983) 33 SASR 99 at 110 per King CJ; Jones v Matrix at [105]-[106]. In circumstances where a company has only ever acted as a trustee of one trust and that has been the totality of its affairs, no issue arises as to the application of trust assets to general creditors because all of the company's creditors are trust creditors. In this situation, the proceeds from the exercise of the right of exoneration are to be distributed to the trust creditors in accordance with the order of priority prescribed by the Corporations Act: Jones v Matrix at [100]-[108] per Allsop CJ; see also Carter Holt at [93]-[96] per Bell, Gageler and Nettle JJ; at [111], [156]-[158] per Gordon J.

24 Absent any relevant conflict, it is commonly the case that the Court will appoint the corporate trustee's liquidator as receiver without security[10] and to dispense with the receiver's obligation to file a guarantee in compliance with r 39.04 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic).[11]

25 One of the primary obligations of a liquidator is to get in and take possession of the assets of the company in liquidation.[12] Once realised, the proceeds are to be applied in accordance with the provisions of the Act.

26 The proceeds from an exercise of a corporate trustee's right of exoneration may only be applied in satisfaction of the trust liabilities to which that right relates.[13] Thus, the liquidator of a (former) corporate trustee may only apply the proceeds of a sale of trust assets to satisfy debts owed to trust creditors (as opposed to general creditors). This includes the costs of the liquidation (including the liquidator's remuneration) because such costs constitute debts incurred by the company in discharging the duties imposed by the trust.[14]

27 In circumstances where a company has only ever acted as a trustee of the Trust and that has been the totality of its affairs, as the evidence demonstrates clearly in this matter, no issue arises as to the application of trust assets to general creditors because all of the company's creditors are trust creditors. In this situation, the proceeds from the exercise of the right of exoneration are to be distributed to the trust creditors in accordance with the order of priority prescribed by the Act.[15]

28 The assets of the Trust have been realised by the Liquidator acting as agent of the Mortgagee. However, the Liquidator is not presently able to deal with the distribution of the Sale Proceeds to creditors.

29 The Liquidator seeks that, as receiver, he have, in respect of the business and assets of the Trust, the powers that a receiver has in respect of the business and property of a company under s 420 of the Act (other than ss 420(2)(s), (t), (u) and (w) of the Act) as if the reference in that section to "the corporation" were a reference to the Trust including, without limitation, the power to do all things necessary or convenient to:

(a) call upon and recover any moneys lent or advanced by the Trust to a beneficiary of the Trust; and

(b) pay the creditors of the Trust from the proceeds of the assets, pursuant to the priorities prescribed under the provisions of the Act.

30 The Liquidator further seeks that an order appointing him as receiver be made nunc pro tunc. It was submitted that there was no material which would suggest that the Liquidator has acted in a manner which might be criticised when it came to the steps taken to realise the Trust assets (acting as agent of the Mortgagee in possession) or that there was any dishonesty or unreasonableness in his dealings. I accept the Liquidator's submission and evidence and otherwise observe that no steps have been taken by any other party to secure the appointment of a trustee of the Trust.

31 The appointment of the Liquidator as receiver clearly facilitates the objective of the Act to bring the assets of the Company into the winding up process. In any event, and on any view, the Company and the Liquidator have a greater interest in ensuring that the assets of the Trust are brought in and realised for the benefit of creditors.

32 Although one of the creditors of the Company is Mr Waldock, a related party, in the course of the liquidation, the Liquidator's duties are towards all creditors collectively. These considerations provide strong reasons in my opinion as to why the Liquidator ought to have control of the process of the distribution of the Trust assets over which any lien exists.

33 Additionally, appointing a liquidator or administrator of a corporate trustee as a receiver of a trust's assets facilitates and simplifies the external administration of the corporate trustee by providing for the trust's business and assets to be under the same control as the corporate trustee while it is in external administration, and in turn, that aids in the vindication of the trustee company's right of indemnity out of the trust's assets.[16]

34 I note that here there was no challenge to the Liquidator's independence.

35 In the premises, I am of the opinion that the orders sought by the Liquidator are appropriate with a view to limiting the further funds to be expended (given the limited asset pool available) and in order to give the Liquidator certainty as to how he can deal with the realisations from the sale of Trust property, here the Sale Proceeds.

36 An order was sought that the costs, expenses and remuneration incurred by the Liquidator and as receiver, including the costs of this application, be paid in priority from the property of the Trust.

37 Such orders are not uncommon and in submission, I was taken by Counsel to a decision of Elliott J in Holden v Kukuy (No 2); Re Jay Invest Property Pty Ltd (in liq).[17] I refer to and adopt the analysis set out by His Honour at paragraphs 78 to 81.

38 I am of the opinion that it is appropriate for the Liquidator to approach the Court for the relief he has and that he is justified in paying his expenses, costs and remuneration in the terms that are sought in the originating process.

39 In the circumstances, orders will be made in substantially the following form:

1. Grahame Robert Ward ('Mr Ward') be appointed without security as receiver and manager ('Receiver'), nunc pro tunc, of the assets of the Trust.

2. The Receiver have, in respect of the business and assets of the Trust, the powers that a receiver has in respect of the business and property of a company under s 420 of the Act (other than ss 420(2)(s), (t), (u) and (w) of the Act) as if the reference in that section to "the corporation" were a reference to the Trust including, without limitation, the power to do all things necessary or convenient to:

(a) call upon and recover any moneys lent or advanced by the Trust to a beneficiary of the Trust;

(b) pay the creditors of the Trust from the proceeds of the assets, pursuant to the priorities prescribed under the provisions of the Act;

(c) comprise any claims in its capacity as trustee of the Trust or against any of the Trust property on any terms the Receiver sees fit;

(d) bring any claim against any party on behalf of the Trust; and

3. The costs, expenses and remuneration incurred by Mr Ward as liquidator of the second plaintiff and as Receiver, including the costs of this application, be paid in priority from the property of the Trust (including any proceeds from the recovery of any money owed to the Trust).

4. Liberty to apply to any person who can demonstrate sufficient interest to modify this Order and directions on not less than 72 hours' notice to the plaintiffs.

5. By 4:00pm on 12 April 2024, the plaintiffs serve a copy of this Order on the following:

[1] See J_ones v Matrix Partners Pty Ltd; Re Killarnee Civil & Concrete Contractors Pty Ltd_ (in liq) [2018] FCAFC 40; (2018) 260 FCR 310, 323 [44], [85]-[95] (Allsop CJ), [139], [142] (Siopis J) and [198] (Farrell J); Caterpillar Financial Australia Limited v Ovens Nominees Pty Ltd [2011] FCA 677, [22]-[28] (Gordon J); Break Fast Investments Pty Ltd v Sclavenitis [2022] VSC 288, [51]-[52] (Riordan J) .

[2] [2019] HCA 20 ('Carter Holt Harvey').

[3] See for recent example Connelly, in the matter of Gregorski Investments Pty Ltd (in liq) v 320 Nominees Pty Ltd as trustee of the Gregorski Property Trust [2019] FCA 1400 (Derrington J); Carrello, in the matter of Gembrook Investments Pty Ltd (in liq) [2019] FCA 1143.

[4] Paul Burness (as Liquidator of Index Options Australia (in Liquidation) v Belousoff & Ors [2006] VSC 302, [16] ('Index Options Australia').

[5] [2000] VSC 319.

[6] [2016] FCA 1438.

[8] [2019] FCA 1023.

[9] [2019] FCA 1439.

[10] See Hercules Car Parking Systems (Victoria) Pty Ltd [2018] NSWSC 409 (Brereton J); Re Mali Nominees Pty Ltd (in liq) [ 2022] VSC 28 (Button J); Re Waratah Group Pty Ltd (in liq) [2020] VSC 523 (Delany J).

[11] See Amirbeaggi, in the matter of Simpkiss Pty Ltd (in liq) [2018] FCA 2121 (Markovic J); Index Options Australia (n 4).

[12] See Corporations Act 2001 (Cth) s 474.

[13] See Carter Holt Harvey (n 2), [40] (Kiefel CJ, Keane and Edelman JJ), [92] (Bell, Gageler and Nettle JJ) and [106] (per Gordon J).

[14] See Re Suco Gold Pty Ltd (in liq) (1983) 33 SASR 99, [110] (King CJ).

[15] See Carter Holt Harvey (n 2), [93]-[96] (Bell, Gageler and Nettle JJ) and [111], [156]-[158] (Gordon J).

[16] See Mecfab Holdings Pty Ltd [2015] NSWSC 46, [9]; Elkerton (liquidator), in the matter of CGB Property Holdings Pty Ltd (in liquidation) [2020] FCA 1464.

[17] [2023] VSC 54.