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Judgment - ex tempore

1. By interlocutory application filed on 29 January 2016, Mr James Shaw as liquidator of Blujack Pty Limited (in liq) ("Company") initially sought orders under ss 479(3) and 1323 of the Corporations Act (Cth) and s 67 of the Supreme Court Act (NSW) 1970, in the form of declarations that the Company holds certain property as trustee for certain trusts; that the Company is entitled to be indemnified from the assets of the trusts for obligations incurred by it in acting in its capacity as trustee of the relevant trusts; and an order that the trust assets of the trusts be realised to satisfy that indemnity, and that he be appointed as receiver of the trusts and be granted certain powers.
2. The legal basis of the application has been clarified, somewhat, in the course of submissions. In particular, although the orders originally sought included some relief by way of declaration, Mr Salama, who appears for the liquidator, has properly accepted the Court could not make an order by way of a declaration, where the application is not constituted as adversarial proceedings, and the persons who would be affected by those declarations have not been joined to the application so as to be bound by any declarations. However, relief is pressed under s 479(3) of the Corporations Act, which permits a liquidator to apply to the Court for directions in relation to any particular matter arising under the winding up. The Court does not generally give a direction under that section in respect of the commercial decisions of a liquidator but may give a direction under that section where issues of legal complexity arise. The effect of such a direction is to protect the liquidator in respect of conduct undertaken in respect of that direction, where relevant matters have been brought before the Court in the application for that direction.
3. Orders were originally sought under 1323 of the Corporations Act, which permits the appointment of a receiver in certain circumstances. As events have developed, those orders are, it seems to me, properly not pressed. It is by no means clear that the prerequisites of the making of orders under that section would be satisfied, where they turn on an investigation being carried out by the Australian Securities and Investments Commission, a prosecution having been begun for a contravention of the Corporations Act, or a civil proceeding having been begun against a person under the Corporations Act. Although there is a reference in the evidence to a prosecution of Mr Birch, a director of the Company, in respect of the failure to provide information to the liquidator, that prosecution does not have a nexus with the rights that are asserted in this application, and the receiver would not here be appointed to preserve any property which is the subject of that prosecution. However, relief is alternatively sought under s 67 of the Supreme Court Act 1970 (NSW) which provides that the Court may, at any stage of proceedings, appoint a receiver by interlocutory order in any case in which it appears to the Court to be just or convenient to do so. That section is sufficiently wide to support the relief which is sought.
4. Before turning to the evidence in support of the application, I should note that the Court has made orders for substituted service of the proceedings upon a director of the Company, and a person who may well be interested in the relevant trusts, Mr Andrew Birch. The evidence establishes that those directions have been complied with so as to give effect to such service. It appears that a solicitor contacted the solicitors for the liquidator indicating the possibility that he would be retained on behalf of Mr Birch, but in the event he has not appeared, and there has been no other appearance on behalf of Mr Birch when the matter was called today.
5. By way of factual background, Mr Shaw was appointed as liquidator by the Court on 13 August 2015, following a winding up application brought by the Australian Taxation Office. Mr Shaw's evidence, in his affidavit dated 27 January 2016, is that the winding up application was brought by reason of a failure to comply with a creditor's statutory demand, which in turn related to running account balance deficit debts and superannuation guarantee charges incurred by the Company in its capacity of trustee of several trusts, including the Invprime Trust, the Knox Holdings Trust and the Benchmark Drilling Services Trust. Mr Shaw's evidence is that, since his appointment, he has ascertained that the Company also acted as trustee for the Calgaroo Investment Trust. I will refer to evidence supporting those conclusions below.
6. Mr Knox refers to attempts to obtain further information from Mr Birch, the sole director of the Company, and his accountant since the time of his appointment. It appears that Mr Birch has not provided such information, notwithstanding the issue of statutory notices requiring him to do so. The accountant has provided some information but, importantly, has not provided copies of trust deeds of the trusts notwithstanding a suggestion that such documents were in the accountant's possession. Although Mr Birch is not, strictly, a party to this application, it is plain that he has an interest in it and it seems to me the Court may properly infer that, where he has not appeared and not sought to put copies of the trust deeds before the Court, the contents of those trust deeds would not have assisted him in contesting the liquidator's claim that the Company has rights of indemnity against the trusts, whether in equity or by reason of the terms of the trust deeds, and would also not have assisted Mr Birch in establishing any suggestion that the Company had been removed as trustee of the relevant trusts.
7. Mr Shaw refers to assets which have been identified as assets of the Company, including a property at Inverell in New South Wales. That property is the subject of a mortgage in favour of the Commonwealth Bank of Australia, which is presently taking steps to exercise its rights as mortgagee by a sale of the property. Mr Shaw's affidavit and the exhibit to it indicate that that property is held by the Company as trustee of the Invprime Trust and, in particular, an undated contract for the sale of the land which was provided by an accountant for the Company to the liquidator's staff indicates that the vendor was to be the Company as trustee for the trust. That document seems to me to support the view which the liquidator has reached, that that property is held by the Company on trust for that trust.
8. There is evidence that the Company also owns a property at Muswellbrook in New South Wales, which is the subject of a mortgage in favour of IMB Limited. The front page of the contract for the purchase of that property also records the purchaser as the Company as trustee for Calgaroo, implicitly the Calgaroo Investment Trust, and that supports the view which the liquidator has reached, that that property is held by the Company on trust for the Calgaroo Investment Trust. There is evidence of other assets and liabilities of the trusts, to which I have had regard but which I need not set out. There is also evidence that a substantial proof of debt has been lodged by the Australian Taxation Office, in an amount exceeding $564,000, referable to the RBA deficit debts and superannuation guarantee charge debts to which I have referred above.
9. It appears that, at one point, an accountant associated with the Company and the trusts asserted that there had been a change of trustee of the trusts. However, no documentation recording such a change has been produced to the liquidator, nor have trust deeds containing any provision which automatically vacate the office of the trustee on its winding up. It seems to me that I properly infer, as I noted above, that any evidence that could have been led by Mr Birch, where he did not appear, would not assist him in making good those propositions. For reasons I will note below, the Court's power to make the orders that are sought would not be affected, even if the Company had been removed as trustee of any or all of the relevant trusts.
10. By further affidavit dated 15 April 2016, the solicitor acting for the liquidator leads evidence of service of the application in accordance with the order for substituted service made by the Court, of a contact with a solicitor who had received instructions from the accountant for the Company and foreshadowed that he expected to receive instructions from its director, Mr Birch, but has not appeared, as I noted above, and also indicates that letters of demand have now been served by the solicitor acting for the Commonwealth Bank of Australia in respect of the Muswellbrook property and another property in Queensland.
11. In his submissions, Mr Salama sets out the background to the matter which I have summarised above having regard to the affidavit evidence. In particular, he points out, that although an assertion was made that the Company had been removed as trustee of the trusts, no evidence has been provided to the liquidator, or indeed to the Court, to establish that matter, and the trust deeds have not been made available notwithstanding the liquidator has properly required that they be made available to him.
12. The relief sought by the liquidator is, first, a direction under s 479 of the Corporations Act, that he would be properly be entitled to proceed on the basis that the Company holds the Inverell property as trustee for the Invprime Trust and holds the Muswellbrook property as trustee for the Calgaroo Investment Trust. I am satisfied that such directions should properly be made. The evidence is that the Company acquired those properties, or at least held those properties, in those capacities, as I have noted above, and there is no evidence by way of subsequent dealing or by way of evidence of removal of the Company as trustee or by reference to the terms of the trust deeds that has established that its office has been vacated or that it has otherwise ceased to hold the properties as trustee of the relevant trusts. Even if it had been removed as trustee of the trusts, in the absence of the appointment of a new trustee, as to which there is also no evidence, it would continue to hold the ownership of properties as bare trustee for the new trusts and would continue to have any right of indemnity in respect of its liabilities as trustee, to which I will refer below.
13. Next, the liquidator seeks a direction that he is entitled to proceed on the basis that the Company is entitled to indemnity from the assets of the trusts for proper liabilities incurred by it in its capacity as trustee of each of the trusts. Mr Salama draws attention to the decision of Brereton J in Re Stansfield DIY Wealth (in liq) Pty Ltd [2014] NSWSC 1484; (2013) 103 ACSR 401, where his Honour (at [6]) helpfully summarised the circumstances in which a trustee was entitled to be indemnified out of trust assets for the liabilities incurred in that capacity. While such an indemnity is often an incident of the relevant trust deed, which is not presently available, it is also capable of arising at general law. His Honour also there noted, by reference to authority, that a liquidator of a company, where its only function is to act as trustee, is entitled to pay his or her remuneration and expenses for administering the trust assets or for general liquidation work from the trust assets. In the present case, there is no evidence, and no suggestion, that the Company has any other function than as trustee of the relevant trusts.
14. His Honour there noted that, even if the company in liquidation had ceased to be a trustee, the outgoing trustee would retain a right of indemnity from the trust assets secured by an equitable charge over them, for liabilities incurred by reason of its acting as trustee. For that reason, it makes no difference in the present case whether the Company has in fact been removed as trustee of the trusts, although no evidence has been led to establish that that has occurred, because its right of indemnity for proper liabilities incurred as trustee, and its equitable lien to support that right, would subsist notwithstanding that removal. For that reason, I am satisfied that I can properly make a direction that the liquidator may proceed on the basis that the Company is entitled to be indemnified from the assets of the relevant trusts for relevant liabilities that were properly incurred, since that is a consequence of the application of principles of trust law in the relevant case, irrespective of any removal of the Company as trustee of the relevant trusts.
15. Next, the liquidator seeks a direction that he may properly proceed on the basis that trust assets of the particular trusts may be realised to satisfy the relevant indemnities and an order that he be appointed as a receiver of the properties and other assets of the trusts for the purpose of giving effect to the relevant indemnities. It seems to me that such a direction and such an appointment as receiver may properly be made, by reference to the principles that were noted by Brereton J in Re Stansfield DIY Wealth Pty Ltd (in liq) above. His Honour there held, after a careful review of the authorities, that a liquidator's powers under s 477(2)(c) of the Corporations Act did not extend to trust property, but also noted (at [31]-[33]) that the liquidator of a corporate trustee was not left without remedy, even if the trustee had been removed as trustee of a trust. He noted that it was open to a liquidator in that situation to seek appointment as a receiver of the trust, by way of enforcement of the lien over the trust's assets for liabilities incurred by a corporate trustee in that capacity, and referred to authorities where such an order had been made: Kerr, Re Angel's Castle Pre-School Pty Ltd (in liq) [2010] FCA 786 and Re Gramarker Pty Limited; Clifford Sanderson (as liquidator of Gramarker Pty Limited) v Simon Kerr [2014] NSWSC 243. His Honour noted that the appropriate remedy for the liquidator in that case was to seek appointment as a receiver of the trust assets, by way of enforcement of the (former) trustee's right of indemnity. That is the remedy which is sought by Mr Shaw in this case, and it seems to me that such an order is properly made for the reasons noted by Brereton J in Re Stansfield DIY Wealth Pty Ltd (in liq). It is properly made, first, because it is just and equitable so as to allow the liquidator to realise the Company's rights of indemnity as trustee, or former trustee, of the trusts and second, because it will also place the liquidator in a position that his entitlement to deal with any surplus which becomes available on sale of the properties by the mortgagees is made clear.
16. For these reasons, I am satisfied that the liquidator should properly be appointed as receiver without security of the specified property and other assets of the trusts. In those circumstances, the other orders which are sought by the liquidator, which are ancillary, including the conferral of specified powers on him, are appropriate. An order should also be made that the liquidator, in his capacity as receiver, should be entitled to his proper costs on an indemnity basis from the trust property. Accordingly, I make orders in accordance with the short minutes of order initialled by me and placed in the file.