In the matter of Cheema Investing Pty Ltd (in liq) and Cheema Trading Pty... [2024] NSWSC 1145 | Case summary

In the matter of Cheema Investing Pty Ltd (in liq) and Cheema Trading Pty... [2024] NSWSC 1145 | Case summary | Zoe

Affidavit and other evidence

The application is supported by three affidavits, together with a voluminous exhibit to Mr Bailey's affidavit to which I have been taken in submissions. By his affidavit dated 9 July 2024, Mr Bailey refers to his appointment as liquidator of each of CIPL and CTPL, and the investigations which he has undertaken in respect of the companies to date. He refers to the fact that he had no contact with the sole director of the companies, Ms Cheema, before 24 June 2024, when he was contacted by a solicitor who had been retained to act for Ms Cheema. There has been correspondence between that solicitor and Mr Bailey and his firm since that date. Mr Bailey there referred to his having given notice to the solicitor acting for Ms Cheema that he intended to apply for appointment as receiver of the assets of the two Trusts, and there has been subsequent communication between Mr Bailey and the solicitor in that respect.
Mr Bailey there refers to the basis on which he has formed the view that CIPL was the trustee of the Cheema Investment Trust and has been conducting a leasing business in respect of several service stations in Queensland in its capacity as the trustee of that Trust. That view is amply supported by the documents to which I have been taken. Mr Bailey also refers to the terms of the trust deed which, relevantly, permit Ms Cheema at any time to remove CIPL as trustee of the Cheema Investment Trust and appoint a new trustee, and apparently do so without a requirement for notice to CIPL or its consent to its removal. Mr Bailey also refers to the trustee's right of indemnity under the trust deed, and it is plain that CIPL has incurred liabilities in its capacity as trustee of the Trust, where there is evidence of creditors of CIPL whose debts have likely been incurred in respect of the conduct of the service station leasing business to which I have referred above.
Mr Bailey also addresses the position in respect of assets of CIPL, which include three properties in Queensland from which it appears the service stations have been conducted. He also addresses the position in respect of the creditors of CIPL, in its capacity as trustee of the Cheema Investment Trust as I have noted above, which include National Australia Bank which is a secured creditor and several unsecured creditors. Mr Bailey also there addresses the position as to Cheema Trading which, it appears, has been operating a business on one of the service station sites, apparently in its capacity as trustee of the Cheema Trading Trust. There is evidence that CTPL also owes debts, again likely incurred in respect of its role as trustee of the Trust, and the identity of the creditors supports the inference that the debts were incurred in that capacity and in respect of the operation of the service station on that site.
Mr Bailey also there referred to the matters which had required that the application be brought on an expedited basis. It appears that, prior to his appointment as liquidator of CIPL and CTPL, the properties from which the service stations were conducted and the associated service station businesses were listed for sale, and, at the time the application was commenced, auctions were to occur on 12 July 2024. In the event, Ms Cheema now appears to have deferred those auctions. That is not, of course, an answer to the difficulty that Mr Bailey has been appointed as liquidator to CIPL and CTPL and, in the ordinary course, any sale of assets of which they are the legal owner would be under his control, subject to any necessity for this appointment as receiver to trust assets. Mr Bailey also addresses the steps likely to be necessary to complete the liquidation and the basis on which he seeks to be remunerated from trust property. Plainly, Mr Bailey is likely to be required to undertake steps in respect of a receivership of the trust property, now that it is apparent that assets owned by CIPL and CTPL are held as trustee for the Trusts, and that supports his claim for that remuneration to be paid from trust property.
A detailed exhibit to Mr Bailey's affidavit contained documents relating to the application, and I have been taken through many of them in the course of submissions. Mr Bailey there exhibits the orders made by this Court by which he was appointed as liquidator of each of CIPL and CTPL. He addresses company searches for each of the companies, which indicate that their sole director, secretary and sole shareholder is Ms Cheema, and their registered offices are at Ms Cheema's address. Mr Bailey also refers to letters sent to Ms Cheema on 17 May 2024, in respect of each of the companies, requesting the delivery of a report on the companies and the production of the companies' books and records. Ms Cheema does not appear to have responded to those letters, including the requests for the production of documents, although there has been a recent offer by her solicitor to address the outstanding issues.
Mr Bailey also refers to correspondence, early in the winding up, between a Mr Syed, who appears to have had an operational role within CIPL or CTPL or both, and the creditor which had obtained the winding up order which was, possibly, directed to a potential termination of the winding up. Mr Bailey also refers to the manner in which he became aware of the proposed sale of the properties owned by CIPL in Queensland, when he was advised of that matter by the creditor which had obtained the winding up order, which had seen advertisements for the sale of the relevant properties. Obviously, that was a matter which should have been brought to Mr Bailey's attention by Ms Cheema, so far as he had been appointed as liquidator of the relevant companies. The fact that the auctions were then due to take place on 12 July 2024 gave rise to the urgency of this application, although I noted above that that auctions have now been deferred.
By a report to creditors in respect of CIPL issued on 23 May 2024, Mr Bailey recorded, in respect of CIPL, his understanding that CIPL operated as trustee of the Cheema Investment Trust, which he indicated he understood was a discretionary trust, and expressed the view that the relevant assets were almost certainly trust assets. As I have noted above, that view is supported by the documents to which I have been taken. He there identified the several properties owned by CIPL and also set out the amount of remuneration which he anticipated would be claimed in respect of the liquidation of CIPL. The corresponding report in respect of CTPL expressed the same view as to its role as trustee of the Cheema Trading Trust, but did not identify assets of CTPL held for that Trust. Subsequent documents including financial records which have recently been made available to Mr Bailey suggest that CTPL at least holds assets in the nature of stock relating to the conduct of one of the service station businesses, in its capacity as trustee of the Cheema Trading Trust.
Mr Bailey was subsequently provided with documents relating to the companies and the Trusts by the solicitors acting for Ms Cheema, by letter dated 1 July 2024. The solicitors there identified the properties owned by CIPL; noted that the companies were, prior to Mr Bailey's appointment, actively attempting to sell the properties and the associated service station businesses; and observed that: "Please note that [CTPL] and [CIPL] are trustees of a trust. [CIPL] is the trustee of the Cheema Investing Trust. [CIPL] owns the Properties in its capacity as trustee of the Cheema Investing Trust. [CTPL] is the trustee of the Cheema Trading Trust. The [business at one of the sites] is conducted by [CTPL] in its capacity as trustee of the Cheema Trading Trust."
That letter attached the trust deeds for the Trusts, to which I have referred above, and confirmed that "at present" no steps had been taken to replace the trustee of either of the Trusts, and advised that Ms Cheema was the appointor under both Trusts, and, with the implication that she could replace the trustee on the basis which I noted above. Ms Ng, who appears for Mr Bailey in this application, has taken me to the relevant trust deeds in the course of submissions, and they are consistent with Mr Bailey's account of their provisions in his affidavit evidence, particularly in respect of the provisions for the removal of the trustee, and confirm, in each case, that the relevant companies are trustees for the relevant trust.
The solicitors also provided Mr Bailey with a schedule of creditors of CIPL and CTPL, which identified creditors for each company, including trade creditors for CTPL consistent with the conduct of a service station business by it to which I have referred above. There is also evidence of the bank loans to each entity, which record those loans as having been made to CIPL in its capacity as trustee of the Cheema Investment Trust. I have also been taken to documentation relating to the sale process of the properties, which indicates that both the properties and the relevant businesses were to be sold. Valuation reports in respect of the relevant properties indicate that the businesses at two of the properties appear to have been conducted by other companies associated with Ms Cheema, and the business at the third by CTPL as I noted above. A balance sheet for the Cheema Trading Trust in turn includes, as I noted above, assets and liabilities consistent with the conduct of that business. I was also taken to property searches for the relevant properties, which in each case record that CIPL owns those properties, in its capacity as trustee, consistent with the view that Mr Bailey has reached, and consistent with the information which has been provided by the solicitors for Ms Cheema, and a balance sheet for the Cheema Investment Trust in turn refers to the ownership of each of the properties, which are recorded as assets of the trust. Mr Bailey also refers to a letter dated 9 July 2024, by which Mr Bailey advised the solicitors acting for Ms Cheema of his intent to apply to the Court for an order appointing him receiver of the Trust, and also discussed the circumstances in which it might be possible for Mr Bailey ultimately to retire as receiver of the Trusts, dependent on payment of trust creditors.
By her affidavit dated 9 July 2024, Mr Bailey's solicitor, Ms McAlpin, refers to steps which were taken to notify the Australian Securities & Investments Commission ("ASIC"), Ms Cheema and creditors of the companies of this application, initially by letter. A second affidavit of Ms McAlpin dated 10 July 2024 addresses service of the Originating Process and affidavit upon those persons. There has been no appearance by ASIC or any creditor in respect of the application today. Ms Cheema's solicitors have advised, by letter dated 9 July 2024 which is annexed to Ms McAlpin's second affidavit and which was brought to my attention, that Ms Cheema consents to the relief sought and that her solicitors would not seek to appear today in the interests of minimising costs. That letter also indicates that, as I noted above, the proposed auction of 12 July 2024 had been deferred to 26 July 2024, subject to Mr Bailey's consent. The solicitor also sensibly proposed a meeting be arranged "to discuss provision of the necessary information to [Mr Bailey] and in the interests of maximising the sale price achieved and consequent return to creditors".

[4]

Submissions and determination

In submissions Ms Ng in turn refers to service of the application upon interested parties, to which I have referred above. She draws attention to the investigations made by Mr Bailey, and to the position in respect of CIPL's and CTPL's ownership of property as trustee of the relevant Trusts. She in turn refers to the applicable principles, and notes that s 67 of the Supreme Court Act 1970 (NSW) permits the Court, at any stage of proceedings, to appoint a receiver where it appears to the court to be just or convenient to do so. She draws attention to the review of those principles in the decision of Gleeson J (then sitting in the Federal Court of Australia) in Re Hosking, Business Aptitude Pty Ltd (in liq) [2016] FCA 1438 at [17], to which Rees J referred in Re Parkway One Pty Ltd [2020] NSWSC 191 ("Re Parkway").
It is, of course, now commonplace for the Court to appoint the liquidator of a trustee company, which has a right to indemnity against trust assets, as receiver of those trust assets, both to protect that right of indemnity and to assist the process of realisation of trust assets for the benefit of trust creditors. I should add, in addition to the observations made in my oral ex tempore judgment, reference to my summary of the applicable principles in Re Glenvine Pty Limited (in liq) [2020] NSWSC 866 at [42]ff as follows: "[In] Re Stansfield DIY Wealth Pty Ltd (in liq) (2014) 103 ACSR 401; [[2014] NSWSC 1484], … Brereton J 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. His Honour also noted (at [10]) that: "Where the trustee is removed and replaced, the outgoing trustee 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 …. However, the equitable lien securing the trustee's right of indemnity and exoneration does not of itself give the former trustee a power of sale; rather, it is a security which is enforceable by the trustee only by judicial sale or appointment of a receiver with a power of sale … . If the company has ceased, or ceases, to be trustee of the trust, then the powers of sale given to the trustee under the trust deed (or otherwise given, for example by statute, to a trustee) are no longer available to it." After a careful review of the authorities, Brereton J there noted that it was open to a liquidator of a corporate trustee (or former trustee) 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 earlier authorities where such an order had been made: Kerr, Re Angel's Castle Pre-School Pty Ltd (in liq) [2010] FCA 786; Re Gramarker Pty Ltd; Clifford Sanderson (as liquidator of Gramarker Pty Ltd) 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. In Hosking, Re Business Aptitude Pty Ltd (in liq) [2016] FCA 1438 at [17] -[19] and [21] , Gleeson J in turn noted that "[t]he 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; that, 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"; and that: "… 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." The view taken by Brereton J in Re Stansfield DIY Wealth Pty Ltd (in liq) above has since been taken by the Full Court of the Federal Court in Jones v Matrix Partner Pty Ltd; Re Killarnee Civil & Concrete Contractors Pty Ltd (in liq) [2018] FCAFC 40; (2018) 260 FCR 310 at [44] , [89] and [196]; see also Re Taylor, Re CJ & KL Bond Pty Ltd (in liq) [2018] FCA 1430 at [16(c)]. … [In] Cremin, Re Brimson Pty Ltd (in liq) [2019] FCA 1023 … Moshinsky J observed (at [50]) that: "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… . 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 … [citations omitted]." In Re Parkway One Pty Limited (No 2) [2020] NSWSC 191, Rees J in turn referred to Hosking, in the matter of Business Aptitude Pty Ltd (in liq) and several of the other cases to which I have referred above and observed (at [14]-[17]) that, in a somewhat similar context to this case: "It seems to me that, as submitted by the liquidator, the relief sought is necessary and appropriate as his appointment as receiver will enable the liabilities of the company to be met to the extent possible, with proper recourse to the trust assets. This is necessary to enable Mr Scott to fulfil his statutory function and "get in" the assets of the company. Those assets include its right of exoneration and lien with respect to debts incurred in the proper administration of the trust. Further, uncertainty persists regarding the office of the trustee. To the extent that the company may have been removed and replaced, it is proper and necessary that Mr Scott be appointed receiver, as the company's powers under the trust deed will have been extinguished. … To remove uncertainty as to the liquidator's powers and to enable the liquidator to bring in the assets and pay the debts of the company in an orderly fashion, the liquidator should be appointed as receiver and manager to all the assets of the Parkway One Trust Unit. The interests of creditors will likely be best served by the appointment of Mr Scott as receiver of the trust assets, such that creditor claims can be paid in an orderly fashion, thereby facilitating the proper winding up of the affairs of the company." I have also followed the same approach in several cases, the most recent being Re Aberdeen All Farm Pty Ltd (in liq) [2020] NSWSC 770 on which I have drawn for aspects of the summary that appears above."
Ms Ng recognises that, although there is no ipso facto clause in the trust deeds which has automatically vacated the role of CIPL or CTPL as trustee of the respective Trusts, there is a risk that CIPL or CTPL could be removed as trustee of the Trusts, by an action of Ms Cheema as appointor of the relevant Trusts, and that that could occur without notice to the companies, where there is no requirement for such notice in the terms of the Trusts. Ms Ng submits that, obviously enough, such a removal would frustrate the orderly winding up of CIPL and CTPL in their capacity as trustees of the Trusts. Ms Ng also refers to Re Parkway where, in a similar situation, Rees J made an order appointing a receiver to trust assets, where there was no ipso facto provision in the relevant trust deed, but there was a risk that the trustee companies could be removed as trustees of the trust in a manner that would prejudice the exercise of their rights of exoneration and potentially make it more difficult for them to exercise liens with respect to debts incurred in the proper administration of the trust. Her Honour also referred to the desirability of making such an appointment, where the existence of a removal power created uncertainty as to the position of the trust.
I am satisfied that the same position exists here, and that is sufficient basis to make the order that Mr Bailey be appointed, nunc pro tunc, as receiver and manager over the business and assets of each of the Trusts. I am also satisfied that I should make the direction that Mr Bailey seeks under s 90-15 of the Insolvency Practice Schedule (Corporations) in respect of each of the Trusts, so as to confirm the fact that he can properly act on the basis, plainly established by the relevant documents and conceded by Ms Cheema, that the relevant companies have carried on business as trustee of the respective Trusts. I am satisfied that the other orders that are sought, in respect of the powers to be conferred on the receiver and the payment of remuneration, costs and disbursements from trust assets, are properly made having regard to the conclusions which I have reached above.

In the matter of Cheema Investing Pty Ltd (in liq) and Cheema Trading Pty Ltd (in liq) [2024] NSWSC 1145

At a glance

Court

Decision date

Before

Source

Judgment (6 paragraphs)

Legislation Cited (1)

Cases Cited (11)

Cited By (1)