Griffiths (Administrator) v The Trustee for the Chrisamanda Trust t/as Chrisamanda Trust

DERRINGTON J: 1 In this matter, the applicants, Ms Kelly-Anne Trenfield and Mr John Park, who are the current voluntary administrators of Crusaders Managers (Administrators Appointed) Pty Ltd (Crusaders), make an application that they be appointed as receivers and managers of the assets and undertaking of the Crusaders Trust, that being a trust of which Crusaders was previously, and possibly still is, the trustee. The application has been brought on at short notice and is said to be urgent. 2 I am satisfied that all persons and entities who might have had an interest in the application have been served or given notice of the application. When the matter was called on there was no appearance from any other party. 3 Crusaders had a troubled financial history, and, indeed, over time there appears to have been some vacillation in its appointment as the trustee of the Crusaders Trust. That is to say those standing behind Crusaders either removed the company or it was removed as a result of the financial position of the trust and the company and, from time to time, was purportedly reinstated. The material shows that it was re-appointed, or an attempt was made to reappoint it, as trustee after it was placed into administration. It appears that there was very little in the way of close consideration of the facts in ascertaining the exact nature of the trusteeship by those who stood behind the company. On the terms of the trust as they presently exist a question exists as to whether Crusaders remains a validly appointed trustee. 4 In any event, Mr Baskerville was appointed the administrator on 8 March 2018, but was subsequently replaced by Ms Trenfield and Mr Park on 20 March 2018. Naturally enough, in the circumstances which confronted Ms Trenfield and Mr Park, there was great uncertainty as to the exact nature of Crusaders' role as trustee and the dates on which it was a trustee. 5 However, it is clear on the evidence before the Court that for a significant period of time prior to the present difficulties, Crusaders was the trustee and, during that period of time, it incurred trust debts. I use the expression "trust debts" knowing that it is a misnomer, but I simply refer to it as a shorthand expression of identifying debts incurred by Crusaders in its capacity as trustee and for the purposes of the trust. 6 Not only were a number of trust debts incurred by Crusaders to people standing behind the company, a trust debt was incurred to BMW Australia and another to Doug Sallis Nominees Pty Ltd. Those debts remain owing. In addition, there appears to have been outstanding employee entitlements of a substantial amount which have accrued over time, although the exact period is not entirely clear. Nevertheless, it would appear that the employees who are owed those sums are also trust creditors. 7 As I mentioned, the present situation is that the administrators of the company seek an order that they be appointed receivers and managers for the purposes of meeting the outstanding liabilities which the company incurred as trustee. It would appear that doubt as to whether Crusaders remains the trustee of the Crusaders Trust, though there is some doubt as to exactly how that may have come about. It is not necessary to decide that at this point in time. It is simply sufficient to identify the great difficulties in ascertaining the true position. 8 If Crusaders has been removed as trustee, any assets it holds it will hold as a bare trustee to be vested in the new trustee under the Trusts Act 1973 (Qld). Under that Act some property will vest without any act on behalf of the erstwhile trustee, although questions remain as to whether any choses in action can vest. And indeed, any land that is held would be required to be transferred according to the Land Title Act 1994 (Qld). However, whatever be the position, Crusaders, as the erstwhile trustee, is still liable for the debts it incurred during the course of its operation and stewardship as trustee of the Crusaders Trust 9 Whether Crusaders has currently has possession of the property or not is not the important issue although it appears that it does retain control over it. Ultimately, there is a real question as to whether or not it might sell the property belonging to the trust for the purposes of exercising its right of indemnity which has arisen by reason of the incurring of the trust debts. Undoubtedly, the erstwhile trustee holds an equitable lien, and the authorities are clear that that equitable lien by itself does not give the erstwhile trustee the right to sell property. 10 Crusaders, as the trustee with a right of indemnity and equitable lien, could have applied to the Court for an order for a judicial sale or the appointment of other receivers to effect that sale. That, I think, assumes some significance in this case. In any event, there is no doubt as to the power of this Court to appoint an entity which has had dealings with property for the benefit of third parties as the receiver for the purposes of securing the benefit of an equitable charge arising as a result of those dealings. This is well-recognised, and Mr McQuade of Queen's Counsel, who appears for the administrators, referred me to the decision in Re Stansfield DIY Wealth Pty Ltd (in liquidation) (2014) 291 FLR 17 at 21-22 [13] and the observations of Brereton J, and where his Honour identified that, in that case, a liquidator had the option of applying to the court for their appointment as a receiver, so as to enforce a lien in respect of the debts the company incurred as a former trustee. 11 I also acknowledge the observations made in Hosking, re Business Aptitude Pty Ltd (in liquidation) [2016] FCA 1438, where Gleeson J, of this Court set out at [17] through to [22] the general principles on which a court might appoint an erstwhile trustee as the receiver of the trust property for the purposes of preserving and benefiting the persons who have an interest in it. They are: LEGAL PRINCIPLES [17] 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]. [18] 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: In the matter of Stansfield DIY Wealth Pty Ltd (in liquidation) [2014] NSWSC 1484; (2014) 291 FLR 17 ("Re Stansfield") at [10]. [19] 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. [20] 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". [21] 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]. [22] This Court has exercised its power under s 57(1) of the FCA Act for the purpose of appointing a liquidator of a former trustee company as receiver and manager of the trust, for example, in QBE Insurance and in Kite v Mooney, in the matter of Mooney's Contractors Pty Ltd (in liq). 12 It follows that, in the circumstances of this case, there is little doubt that Crusader has a right of indemnity out of the trust assets, and that it no longer has the ability to sell the trust assets or there is doubt as to its ability in that respect. 13 There is no doubt about the general principles on which an erstwhile trustee might be appointed as the receiver, or indeed a liquidator of the erstwhile trustee might be appointed as the receiver for the purposes of recovering the benefit of the right of indemnity. However, the question in this case is whether or not the same principles ought to apply to administrators of the company. The role of administrators is substantially different to that of a liquidator, although from time to time the lines seem to be blurred. 14 In this matter, I am informed that the convening period for the holding of the second meeting of creditors has been extended until 20 June 2018. A third-party creditor, TL Rentals Pty Ltd, has filed an application to wind up Crusader, and that application has been adjourned to that date as well. In those circumstances, there is a danger that appointing the administrators as receivers will interfere with the process identified in the Corporations Act 2001 (Cth) for the transition of the company in administration to liquidation. However, in this case, somewhat special circumstances do exist. In particular, the administrators have already engaged upon a process of advertising the underlying assets or business assets of the trust for sale. I am informed that there is the potentiality for a contract to be entered into in the relatively near future, although it is unlikely that it might be completed by 20 June. 15 There are a number of benefits to be derived from the sale of the underlying business including the benefit of some certainty to be derived from the sale of the business as a whole. In addition, the administrators have deposed to the fact that if the business is not sold as a going concern, the amount that might be realised on the sale of the assets and equipment will be substantially less. There is evidence that negotiations for the sale of the business have already been entered into. There is a prospect, which flows from the sale of the underlying business as a whole, that the existing employees will retain their employment with the new business, and there is some slight suggestion that a purchaser might take over employee entitlements which might render them more secure for the employees, however that last point is relatively minor in the circumstances. 16 I note that in Re Mecfab Holdings Pty Ltd [2015] NSWSC 46 Brereton J identified some circumstances in which he considered that it was expedient to appoint administrators as receivers of the assets of a trust of which the company had been trustee. His Honour said at [9]: Doing so will facilitate and simplify the administration of the company by providing for the trust business and assets to be under the same control as the company while it is in administration, and enable the plaintiff, as receiver, to secure and preserve the trust assets in aid of enforcement of the first defendant's indemnity in respect of the liabilities it incurred in its capacity as trustee of the Trust, and in aid of recovery of the plaintiff's costs of the receivership (and, because the first defendant's sole function was to act as trustee of the Trust, the general costs of the administration). See also Griffiths (Administrator) v The Trustee for the Chrisamanda Trust t/as Chrisamanda Trust [2017] FCA 1222 where Gleeson J appointed the administrator of an erstwhile trustee company as the receiver of the assets of the trust to secure the trustee's rights of indemnity. 17 In that matter his Honour considered that the appointment of the administrators as trustees ought to be for the purposes of preservation rather than distribution and he ordered that the administrators ought not make distributions without further direction from the Court. 18 Despite some misgivings about what the impact of appointing the administrators as receivers will be, in the circumstances of the present case, I am minded to exercise the discretion to make the orders which are sought. That will be in accordance with the proposed draft orders by Mr McQuade of Queens Counsel, but it ought to be made clear that such orders are subject to applications by liquidators, if different liquidators are appointed at the forthcoming creditors' meeting. I do not propose to make the orders conditional in that respect, but it can be accepted that such orders might be dissolved if that were thought appropriate by another court. 19 Mr McQuade of Queens Counsel identified to me the restriction imposed by Brereton J in the Re Mecfab and, for similar reasons, it is appropriate to include an order that the receivers not distribute the assets of the trust to creditors or beneficiaries without further direction of the court. I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Derrington.