O'CALLAGHAN J:
1 On 15 March 2022 I made the orders set out above. These are my reasons.
2 The first plaintiff, Mr Scott Andersen (Liquidator), is the liquidator of the second plaintiff, Allabay Pty Ltd (the Company). By originating process dated 18 January 2022, he sought orders under the Corporations Act 2001 (Cth) (Act) and the Trustee Act 1958 (Vic) to facilitate his dealing with and distribution of the Company's assets, including to enable the winding up of the Company to be completed.
3 In support of his application, the Liquidator relied on his affidavit affirmed 14 January 2022 and the affidavit of Ms Charlie Clark affirmed on 1 March 2022, which deposed to the following facts.
4 Prior to the Company ceasing to trade in October 2021, it operated a motor vehicle and transport equipment rental and hiring business. The Liquidator was appointed on 11 October at a general meeting of the Company's members. The total value of creditors' claims is over $302,000.
5 According to a "Discretionary Trust Deed", the Company was appointed as trustee of the Allabay Discretionary Trust on 24 April 2015, the date of the Company's registration. The Liquidator's assessment is that the Company operated exclusively as trustee of the Trust. That assessment is based upon a review of corporate records (including financial statements, bank statements and commercial agreements) and advice from the Company's director and accountant. The Liquidator's belief, which he conveyed to the Company's creditors, is that the Company at all times held property on trust in its capacity as trustee.
6 The Trust Deed provides that the trustee has the power to sell Trust assets and "is entitled to an indemnity out of the assets of the trust in respect of any liability incurred in connection with acting as trustee of the trust".
7 Clause 48 of the Trust Deed also provides that the appointment of a trustee "terminates automatically" if "the trustee enters into compulsory or voluntary liquidation (except for the purposes of amalgamation or reconstruction)". As noted above, the Liquidator was appointed on 11 October 2021.
8 As a result of the operation of clause 48, the Company appears to have been a bare trustee of the Trust from 11 October 2021. Since that date, the Liquidator has sold and collected a number of assets.
9 Pursuant to orders made on 31 January 2022, the Liquidator notified potentially interested parties of his application, including the named beneficiaries of the Trust and two companies that were de-registered in October 2017 and May 2021 respectively. The Liquidator also advised the Company's creditors that an application would be made to obtain orders enabling him to deal with the Trust assets. I should also add that notice was provided to the Australian Securities and Investments Commission.
10 The Liquidator did not receive any comments or enquiries from any interested party.
11 Applications of the kind made by the Liquidator are necessary in circumstances where, by virtue of an "ipso facto" clause in a trust deed, like clause 48 here, a trustee company is automatically removed from office on the occurrence of a particular event, such as the appointment of a liquidator. See Deppeler; Re Old Port Road Pty Ltd (in liq) [2021] FCA 980 at [16] (O'Bryan J). The reasons for this are set out in Cremin; Re Brimson Pty Ltd (in liq) [2019] FCA 1023; (2019) 136 ACSR 649 at 655-656 [49]-[50] (Moshinsky J):
There has, until recently, been a difference of opinion as to whether, in such circumstances, the liquidator's power to sell the "property of the company" in s 477(2)(c) of the Corporations Act permits him or her to sell trust assets: see Re Aced Kang Investments Pty Ltd (in liq) [2017] FCA 476 at [12]. It is now settled that the liquidator of an insolvent (former) corporate trustee cannot sell the trust's property without order of the Court, or by appointment of a receiver over the trust assets: see Jones & Matrix at [44] per Allsop CJ (Farrell J agreeing at [196]); Re Stansfield DIY Wealth Pty Ltd (in liq) (2014) 291 FLR 17 at [10]; Apostolou v VA Corporation of Aust Pty Ltd [2011] FCAFC 103 at [45]. The rationale for this position is that, on a proper understanding, the 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: see Jones & Matrix at [89]. 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).
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: see Jones & Matrix at [91]. 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 …
12 The Liquidator sought, and I made, an order under s 90-15 of Schedule 2 of the Act confirming that he is justified and acting reasonably in proceeding on the basis that:
(a) the Company carried on business in its capacity as trustee of the Trust; and
(b) all of the Company's assets are properly characterised as property held by the Company in its capacity as trustee of the Trust.
13 The making of this order was appropriate, having regard to the enquiries made by the Liquidator to which he deposed, and in the absence of evidence that the Company traded or held assets other than in its capacity as trustee.
14 I also made an order pursuant to s 90-15 that the Liquidator is justified and otherwise acting reasonably in proceeding on the basis that his possession, realisation and distribution of the property of the Trust is governed by Parts 5.5 and 5.6 of the Act.
15 As counsel submitted, such an order accords with the conclusion of the Full Court in Jones (Liquidator) v Matrix Partners Pty Ltd; Re Killarnee Civil & Concrete Contractors Pty Ltd (in liq) (2018) 260 FCR 310, where Allsop CJ held at 337 [102] that "where the company has only ever acted as here as corporate trustee for one trust" (which is the case here):
… the property of the company that includes the right of exoneration and the funds obtained from its exercise is to be distributed in accordance with the statutory command: ss 501 and 556. In such circumstances, the words of the statute are to be applied to direct the distribution of the property of the company.
16 His Honour continued at 339 [108]:
Where the corporation has only ever acted as trustee of one trust and that has been the totality of its affairs, there is no reason either in principle or by reference to context or text why the words of the statute setting out the order of priorities should not be followed.
17 See also Re Matthew Forbes Pty Ltd (in liq) [2018] VSC 331 at [20] (Riordan J); Re St George's Development Company Pty Ltd (in liq) [2018] VSC 595 at [31] (Kennedy J); Deppeler; Re Asten Holdings Pty Ltd (in liq) [2020] FCA 1107 at [27] (Anderson J); and Lawrence (liquidator); Re LXNDR Group Pty Ltd (In liq) [2021] FCA 1243 at [24] (Anderson J).
18 Following his appointment and in the course of discharging his role as liquidator, the Liquidator dealt with the property of the Trust. That conduct relevantly entailed the sale of some motor vehicles and the recovery of receivables from debtors.
19 In light of these dealings (at a point in time when, it is now apparent, the Company had ceased to hold office as trustee), the Liquidator sought, and I made, an order pursuant to s 1318 of the Act that he be relieved from any potential liability arising from his dealings with Trust property. The purpose of that provision is to excuse company officers from liability in situations where it would be unjust and oppressive not to do so, recognising that such officers are business persons who act in an environment involving risk in commercial decision-making.
20 Here, the evidence showed that some of the motor vehicle sales and debtor collections occurred at a time when the Company's status as trustee was unclear because the Liquidator had not yet obtained a copy of the Trust Deed, despite his efforts to do so after his appointment. The making of the s 1318 order was thus appropriate.
21 The reports to creditors in evidence contained details of the tasks undertaken and being performed by the Liquidator. Further, the Liquidator identified the anticipated further work required to conclude the Company's winding up.
22 The Liquidator sought, and I made, an order confirming his entitlement to be indemnified out of the Trust assets in respect of the costs of the winding up. Here, the sole activities of the Company were as trustee of the Trust. And save for its right of exoneration and the supporting lien, the Company has no assets of its own. In such circumstances, it is appropriate that the Liquidator's remuneration and expenses be paid out of Trust assets. See Re JML Property Services Pty Ltd (in liquidation) [2018] NSWSC 1069 at [10] (Black J).
23 As at the date of making the orders, I was informed by counsel that creditors of the Company had approved remuneration totalling $105,393.82 plus GST, of which $93,442.45 plus GST has been both incurred and drawn from available funds.
24 As was submitted, it was also appropriate that the costs of this application be met from the property held on trust.
25 For those reasons, I made the orders sought.
I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice O'Callaghan.