Jones (Liquidator) v Matrix Partners Pty Ltd, in the matter of Killarnee Civil & Concrete Contractors Pty Ltd

GLEESON J: 1 By originating process filed 18 August 2020, the plaintiff (deed administrator) applied to be appointed without security as the receiver and manager (receiver) of the property owned by The Cambria Management Corporation Pty Ltd (subject to deed of company arrangement) (CMC) as trustee for The Cambria Corporation Unit Trust (Trust) pursuant to s 57 of the Federal Court of Australia Act 1976 (Cth) (FCA Act), and for ancillary orders. 2 The application was supported by the deed administrator's affidavit sworn 17 August 2020 and written submissions prepared by John Anderson of counsel. 3 Initially, the order was sought nunc pro tunc, however, the deed administrator did not maintain his claim for appointment on that basis.

Background facts 4 CMC was registered as a company on 14 July 2017. Mr Servi is the sole shareholder and director of CMC. 5 The Unit Trust Deed of The Cambria Corporation Unit Trust dated 21 August 2017 identifies CMC as the trustee of the Trust. 6 A recital to the Trust Deed states that the "initial unit holders have paid the initial amount to the Trustee to establish a trust on the terms of this deed." The deed identifies Adviser Family Pty Ltd as trustee for The Adviser Family Trust as "Initial Unitholder". Schedule 2 to the Trust Deed identifies CMC as a holder of one unit in the Trust and does not identify any other unit holder. A company search shows that Mr Servi is the sole shareholder and director of Adviser Family Pty Ltd. The deed administrator is not aware of any other unitholder. 7 Clause 14.1 of the Trust Deed concerns the power to appoint and remove a trustee of the Trust. It provides relevantly: (a) In this sub-clause the power to appoint a new trustee in the place of an existing trustee, the power to appoint a trustee in addition to and jointly with any existing trustee and the power to remove a trustee is called the appointment power. (b) Where the Trustee is a sole trustee which is a company, the appointment power is vested in the persons holding shares in the Trustee and may only be exercised by a resolution that has been passed by persons holding 75% or more of the votes able to be cast by members or the Trustee entitled to vote on the resolution. 8 By cl 1.1 of the Trust Deed, "Trustee" is defined to mean "the trustee for the time being of this Trust". 9 Clause 17.4 provides for the Trustee to be indemnified out of the trust fund in respect of liabilities broadly specified in cl 17.4. 10 Clause 17.11 of the Trust Deed provides relevantly: The office of trustee is determined and vacated: … (b) if the Trustee, being a company, enters into liquidation, whether compulsory or voluntary (not being a voluntary liquidation for the purposes of amalgamation or reconstruction), or have administrator, receiver or official manager or receiver and manager appointed. 11 The deed administrator was appointed as administrator of CMC on 13 March 2020 by CMC's sole secured creditor, Terrence Hartmann, pursuant to s 436C of the Corporations Act 2001 (Cth). 12 Based on his investigations to date, the deed administrator has formed the view that CMC's sole business undertaking was acting as trustee of the Trust. 13 The deed administrator has identified a rent roll as the only substantial asset of CMC. The rent roll was purchased in August 2017 and, as at the date of his appointment as administrator, consisted of approximately 210 to 250 properties requiring management on behalf of their owners. Since its purchase, the rent roll was managed by a related entity, The Cambria Corporation Pty Ltd (CC) pursuant to a Deed for Property Management Services between CC and CMC dated 21 August 2017. In his capacity as administrator, the deed administrator engaged CC to manage the rent roll on similar terms as existed prior to his appointment. 14 Upon the appointment of an administrator, the office of trustee of the Trust was vacated by the operation of cl 17.11 of the Trust Deed. Since then, no replacement trustee has been appointed. 15 A deed of company arrangement (DoCA) was propounded by Mr Servi and recommended to the creditors of CMC by the deed administrators in a report to creditors dated 25 May 2020. 16 On 2 June 2020, CMC's creditors resolved that CMC should execute a DoCA in accordance with the DoCA proposed by Mr Servi as amended by a schedule of changes tabled during the meeting. All of CMC's creditors were present at this meeting. The creditors resolved that Alan Hayes be appointed as deed administrator. 17 The DoCA was executed on 23 June 2020. By cl 1.1 of the DoCA, Deed Fund is defined to include the assets of the Trust. 18 Clause 7 of the DoCA provides: 7.1 The Administrator may apply to Court for an order that the Company be reappointed as the trustee of the Trust or, in the alternative, that the Administrator be appointed receiver & manager of the Trust Assets (or such other appropriate order), and the Director and any Related Entity will do all things reasonably necessary to support that application, and otherwise ensure that the Company is returned to its role as trustee of the Trust. 7.2 Subject to clause 7.1, the Administrator to be granted security over the Trust's Assets within 7 days of an entitlement to do so and the Director and any Related Entity will do all things reasonably necessary to support that security being granted. 19 Clause 8(a) provides: (a) The Administrator will apply the Deed Fund in the following order of priority: (i) first, in reimbursement and payment to the Administrator in respect of the Administrator's Costs, Expenses and Remuneration (including GST), in full; and (ii) second, in payment of Employment Entitlements; (iii) third, a sum of up to $25,000 in payment to the Participating Creditors other than the Secured Creditor in satisfaction of the Admitted Claims of Participating Creditors other than the Secured Creditor, on a pari passu basis; and (iv) fourth, in payment of all amounts owing to the Secured Creditor, in full, with any balance to be remain [sic] with the Company. 20 The deed administrator gave the following reasons for his application to be appointed as receiver: 28. Because of the terms of the Trust Deed …, CMC is now merely a bare trustee of the Trust, and there is no available mechanism to reappoint CMC to that office. One of the primary reasons that I have applied to be appointed receiver is so that there is no doubt about my ability to deal with the trust property, or the receipts from the rent roll; or if the DOCA is unable to be effectuated for any reason and CMC proceeds into liquidation, in which case it would likely become necessary for me to undertake a sales process in relation to that asset. It would not presently be possible for me to do so, given that neither I (as CMC's deed administrator or potentially CMC's liquidator) nor CMC (as bare trustee of the Trust Assets (as defined by the DOCA)) has a power of sale. 29. In the event that I am appointed receiver, I would deal with the Trust Assets as contemplated by the DOCA and apply any proceeds from the Trust Assets in accordance with the order of priority as set out in cl.8 of the DOCA.

Legal principles 21 Section 57(1) of the FCA Act provides that the Court may, at any stage of a proceeding on such terms and conditions as the Court thinks fit, appoint a receiver by interlocutory order in any case in which it appears to the Court to be just or convenient so to do. 22 In Michell (Liquidator) v Delltta Holdings Pty Ltd (in liq) atf The Brookhill Trust [2019] FCA 2133 (Delltta) at [8]-[10], Davies J explained the relevant principles as follows: [8] The relevant principles in considering the application are not in doubt and are well-established. In short, where a trustee is removed, it retains a right of indemnity from the trust assets secured by an equitable charge over them for the liabilities it incurred by reason of acting as a trustee. The trustee does not have the right to retain as against the defendant possession of the trust assets in order to secure its right of indemnity but 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: see [Hosking] at [17]-[22]; Cremin, in the matter of Brimson Pty Ltd (in liq) [2019] FCA 1023 ("Cremin") at [48]-[51]. [9] … [I]t is now settled that the liquidator [of a trustee company] cannot sell the trust property without an order of the court, or by the appointment of a receiver over the trust assets: Jones v Matrix Partner Pty Ltd; re Killarnee Civil & Concrete Contractors Pty Ltd (in liquidation) [2018] FCAFC 40; 260 FCR 310 [Killarnee] at 323 [44] per Allsop CJ, Farrell J agreeing at 351 [196]. The reason, as explained by Moshinsky J in Cremin, is that 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 and 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 2001 (Cth): Cremin at [49].

Consideration 23 There are no defendants to the application, although notice was given to Mr Servi and Mr Hartmann. Mr Hartmann supported the application. Mr Servi did not respond to the notification. 24 It is just and convenient to appoint the deed administrator as receiver of the assets of the Trust in order to give effect to the DoCA and, in the event of a liquidation, to permit the deed administrator as liquidator to deal with the assets. Prior to the administration, CMC was obliged to use the Trust assets to pay the debts owed to the creditors of CMC, in the absence of any suggestion that there were any creditors of CMC other than creditors in respect of liabilities incurred in the conduct of the business of the Trust: cf. Jones (Liquidator) v Matrix Partners Pty Ltd, in the matter of Killarnee Civil & Concrete Contractors Pty Ltd (in liq) [2018] FCAFC 40; (2018) 260 FCR 310; (2018) 124 ACSR 586 at [49] and [53].

Costs 25 It is appropriate to make an order that the deed administrator's costs, expenses and remuneration in connection with the receivership, be paid from the assets of the Trust. 26 It is also appropriate to make the order sought that the deed administrators' costs of the application for appointment as receiver be paid out of the deed fund, having regard to cl 7 of the DoCA.

Other orders 27 I will grant liberty to apply to the deed administrator for the relief claimed in prayer 3 of the originating process and for approval of his remuneration as deed administrator and or liquidator of CMC from the Trust assets. I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Gleeson.