The plaintiff Darren John Vardy, an official liquidator, was appointed voluntary administrator of the company Mecfab Holdings Pty Ltd pursuant to (Cth) Corporations Act 2001, s 436A, on 30 January 2015, the directors having resolved that the company was, or was likely to become, insolvent. By originating process leave to file which is sought, he seeks to be appointed receiver of the property of the Mecfab Unit Trust ("the Trust"), a trading trust of which the company was trustee, and in which the three unit holders are, equally, Christopher Paul Nicholson, Michael Dolso and Mark Antony Cutts, who are also the equal shareholders in and directors of the company.
The company's sole function was in its capacity as trustee of the Trust. As such, it was engaged in the business of light fabrication, labour hire and the provision of mechanical maintenance services, and has 5 managerial and about 20 other employees.
The financial statements of the Trust as at 30 June 2014 disclose total assets of $1,285,912, of which $986,000 are current assets, against liabilities of $1,285,899, of which $1,171,809 are current liabilities, leaving net equity of $13. However, of the current liabilities, in excess of $660,000 are beneficiary loan accounts. PAYG and superannuation obligations appear to be up to date. A valuation prepared in late 2014, as at 30 June 2014, opines that the business of the trust is worth $2,170,000, it having traded profitably for the last three years, with assessed annual future maintainable earnings of almost $625,000.
There is no direct evidence before me of the financial position of the company, but presumably its liabilities are those of the Trust, and are entirely offset by its only asset, being its right of indemnity against the trust assets. On what basis it was resolved that the company was or was likely to become insolvent is not readily apparent. According to the administrator's circular to creditors, his appointment was precipitated by a dispute between the shareholders.
The present application is occasioned by the circumstance that clause 81 of the trust deed provides that the appointment of a trustee terminates automatically if, inter alia, the trustee enters into compulsory or voluntary liquidation (except for the purposes of amalgamation or reconstruction), or has an administrator, receiver, official manager, or receiver and manager appointed to any part of its assets. Clause 78 of the trust deed provides that the unit holders may appoint a new trustee by passing a special resolution (defined as a resolution passed by 75% of unit holders), but it does not appear that that power has been exercised. It is said that the appointment of a receiver is required to protect the company's right of indemnity, as former trustee, against the trust assets.
In his initial circular to creditors, the administrator indicates that he proposes at least in the short term to continue to trade the company. However, he is concerned that as administrator of a company which is now but a bare trustee of the assets that comprise the business, he may not be in a position to do so.
As there appears to be no current threat or jeopardy to the trust assets, and as the effect of the administration is to impose a moratorium on creditors, the need and urgency for the appointment of a receiver at this stage is not immediately apparent to me. On an application such as this, the beneficiaries are proper and necessary parties [cf Re Indopal Pty Limited (1987) 12 ACLR 54], and I propose to require that they be joined. However, there is evidence that two of them - Mr Cutts and Mr Dolso - consent to the application, while the third Mr Nicolson does not oppose the application, does not wish to be heard, and will abide by the orders of the Court. In those circumstances, there does not seem to be any reason for deferring dealing with the matter.
Where the trustee is removed, 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 former trustee's right of indemnity does not of itself give the former trustee a power of sale, but is only by judicial sale or appointment of a receiver with a power of sale [In the matter of Stansfield DIY Wealth Pty Limited (in liquidation) [2014] NSWSC 1484, [10], and the cases there cited].
On the present state of the evidence, it appears that the company is entitled to be indemnified out of the assets of the trust, in respect of liabilities incurred by it by virtue of being trustee, including (because its sole function was to act as trustee) the costs and expenses of the winding up. While I would not finally decide that issue now, at least until the beneficiaries have been joined and afforded an opportunity to be heard and the outcome of the administration is clearer, given the expressed attitudes of the beneficiaries and that there is no current trustee, it is expedient to appoint a receiver and manager of the trust business and assets, to protect the company's interests [cf Re Indopal, 57; In the matter of Gramarker Pty Ltd [2014] NSWSC 243, [6]-[9]; SMP Consolidated Pty Ltd (in liq) v Posmot Pty Ltd [2014] FCA 1382]. 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).
However, as the purpose and intention of the appointment is to facilitate the administration of the trust in parallel with the administration of the company of which it is trustee, and as the fate of the company will remain unknown until the second creditors' meeting, it seems to me that at this stage the appointment should be an interim one only, with a view to preservation rather than distribution of the trust property, as ultimately the outcome of the administration will influence if not determine the future of the Trust. Accordingly, the powers conferred on the receiver should be assimilated to those of an administrator, rather than those of a liquidator; and the receiver should not make distributions without further direction from the court. I do not see any necessity, at least at this stage, for a vesting order.
Upon the undertaking of Sally Nash, solicitor, to pay the appropriate filing fees, the Court grants leave to Darren John Vardy to file an originating process in the form initialled by me, dated this day and placed with the papers, subject to the addition thereto of Christopher Paul Nicholson, Michael Dolso and Mark Antony Cutts as second, third and fourth defendants. The Court directs that the Originating Process be returnable on Monday 16 February 2015 at 09.45 in the Corporations Judge Motions List and that time for service be abridged to 11 February 2015.
Subject to any submissions that counsel may make, I propose to make orders that:
1. Until further order, the plaintiff Darren John Vardy, an official liquidator, be appointed without security as receiver and manager ("the Receiver") of the business and property of the Mecfab Enterprises Trust ("the Trust").
2. The Receiver has in respect of the trust business and property the powers that an administrator has in respect of the business and property of a company under Corporations Act, s 437A.
3. The Receiver not distribute the assets of the trust to creditors or beneficiaries without the further direction of the Court.
4. Within 7 days after the completion of the second meeting of creditors of the first defendant, the Receiver file and serve an affidavit accounting for the receivership to date and including a copy of his report to creditors under Corporations Act, s 439A, and the minutes of the second meeting of creditors.
5. The Receiver have liberty to apply for approval of his remuneration upon having filed the affidavit referred to in para (4), and thereafter as the court may direct or permit.
6. The plaintiff's costs of the application be costs and expenses in the administration of the first defendant.
7. There be liberty to apply on 3 days' notice, any such notice to specify the relief to be sought.
8. The plaintiff serve a copy of these orders and this judgment on the defendants together with the originating process.
In the event that there is no opposition to the continuation of the receivership on 9 February, the matter may be removed from the list that day on application in Chambers, and relisted for a date after the anticipated date of the second meeting of creditors.
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Decision last updated: 11 February 2015
Parties
Applicant/Plaintiff:
In the matter of Gramarker Pty Ltd, Clifford Sanderson (as liquidator of Gramarker Pty Limited)