Knight, in the matter of Second ICO Pty Ltd (In Liq) [2020] FCA 608 - FCA 2020 case summary — Zoe

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Knight, in the matter of Second ICO Pty Ltd (In Liq) [2020] FCA 608

[2020] FCA 608

Federal Court of Australia|2020-05-07|Before: Anderson J

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At a glance

Source facts

Court

Federal Court of Australia

Decision date

2020-05-07

Before

Anderson J

Source

Original judgment source is linked above.

Judgment (11 paragraphs)

[1]

Pursuant to section 57 of the Federal Court of Australia Act 1976 (Cth) the first applicant (Liquidator) be appointed as receivers and managers over the assets of the Crestnut Family Trust (Trust).
The Liquidator has, in respect of the assets of the Trust, the powers that a receiver has in respect of the property of a company under section 420 of the Corporations Act 2001 (Cth) (other than sections 420(2)(s), (t), (u) and (w)) as if the reference in that section to "the corporation" was a reference to the Trust including without limitation, the power to do all things necessary and convenient to: (a) carry on any business of the Trust; (b) employ any person in connection with any business of the Trust; (c) collect in and realise the assets of the Trust; (d) pay the creditors of the trust from the proceeds of the assets, pursuant to the priorities prescribed under the provisions of the Corporations Act 2001 (Cth); (e) compromise any claim made against the Liquidator or the second applicant in the capacity as trustee of the Trust or against any of the Trust property on any terms the Liquidator sees fit; (f) bring any claim against any party on behalf of the Trust; (g) execute any tax returns, financial statements or other documents relating to the Trust; and (h) distribute any surplus in the winding up.
The costs, expenses and remuneration incurred by the Liquidator as the liquidator of the second applicant (Company) and as the receiver of the Trust, including the costs of this application, be paid in priority from the property of the Trust.
Pursuant to section 488(2) of the Corporations Act 2001 (Cth), the Liquidator be granted special leave to distribute the surplus in the winding up of the Company.
The requirements of rules 7.9(2) and (3) of the Federal Court (Corporations) Rules 2000 (Cth), that the applicants publish a notice in accordance with Form 15, be dispensed with.
Upon distribution of the Trust Property to the creditors and finalisation of the liquidation, the Liquidator is deemed to have automatically resigned as receiver.

[5]

Background 5 On 10 July 2019, the Liquidator was appointed as liquidator of the Company by order of the Supreme Court of Victoria. 6 The sole beneficiary of the Trust is Mr Mario Nikolakopoulos (Mr Nikolakopoulos). Clause 11(D) of the trust deed of the Trust provides that the trustee's office is determined and vacated if, among other things, the trustee, being a corporation, has a petition for its winding up presented to the Court. 7 The Company had no assets in its own right. The only Trust asset identified by the Liquidator was the property situated in McKinnon, Victoria (Property). On 24 October 2019, the Property was sold by Westpac as mortgagee in possession. 8 After repayment of the secured debt and associated costs, there was a surplus of $890,992.55. Initially, the surplus was held by the solicitors for Westpac. However, on around 20 December 2019, the surplus was transferred to the Liquidator's trust account, where it remains. 9 This proceeding was commenced by originating process on 30 March 2020. In order to distribute the Trust property, the Liquidator seeks: (a) an order under s 57(1) of the of the Federal Court of Australia Act 1976 (Cth) (FCA Act) that he be appointed as receiver of the Trust property; and (b) special leave under section 488(2) of the Act. 10 The applicants' application is supported by the following evidence: (a) an affidavit affirmed by the Liquidator dated 24 March 2020 (Knight affidavit); and (b) an affidavit of Andrew Fay filed on 6 May 2020 (Fay affidavit). 11 On 28 April 2020: (a) Mr Nikolakopoulos was served with the originating process and the Knight affidavit. (Mr Nikolakopoulos is the sole director and shareholder of the Company and is the only beneficiary of the Trust); and (b) the State Revenue Office in the State of Victoria (SRO) was served with a copy of the originating process and Knight affidavit. (The SRO is a creditor of the Company.) 12 On 29 April 2020: (a) Westpac Banking Corporation (Westpac) was served with the originating process and Knight affidavit. (Westpac was a secured creditor of the Trust); and (b) the Australian Securities and Investments Commission (ASIC) was served with the originating process and Knight affidavit. (ASIC is a creditor of the Company in relation to outstanding fees.) 13 No party served with the originating process has written to the Liquidator to say that they intend to be heard on the application.

[7]

Appointment as receiver 16 A company that holds trust assets in circumstances where that company no longer acts as trustee holds those assets as bare trustee. There is conflict in the authorities as to a liquidator's powers as bare trustee of trust property and, in particular, whether the liquidator has a sufficient interest to sell the trust property. This conflict was detailed by Gleeson J in Hosking, in the matter of Business Aptitude Pty Ltd (in liquidation) [2016] FCA 1438; 34 ACLR 16 (Hosking) at [19]-[20]. However, Gleeson J continued to explain the following: [21] Notwithstanding this conflict of authority, 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: SMP Consolidated Pty Ltd (in liquidation) v Posmot Pty Limited [2014] FCA 1382 ("SMP Consolidated") at [7] citing Re Indopal Pty Ltd (1987) 12 ACLR 54 at 57; Kerr, in the matter of Angel's Castle Pre-School Pty Ltd (In Liquidation) [2010] FCA 786 ("Angel's Castle Pre-School") at [25]; In the matter of Gramarker Pty Ltd; Clifford Sanderson (as liquidator of Gramarker Pty Ltd) v Kerr [2014] NSWSC 243 at [6]-[7]; Re Stansfield at [31], [33], [45]. [22] This Court has exercised its power under s 57(1) of the FCA Act for the purpose of appointing a liquidator of a former trustee company as receiver and manager of the trust, for example, in QBE Insurance and in Kite v Mooney, in the matter of Mooney's Contractors Pty Ltd (in liq) [2016] FCA 886. 17 For reference, s 57(1) of the FCA Act, as referred to by Gleeson J at [22], provides as follows: Receivers (1) 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. … 18 While the focus in Hosking was on a liquidator's power of sale, the same observations made by Gleeson J are, in my view, equally true of other powers that a liquidator may need to exercise in the conduct of a liquidation, including, relevantly to the present case, the distribution of proceeds from such a sale.

[8]

Special leave to distribute surplus 19 Section 488(2) of the Act provides that a liquidator may distribute a surplus only with the Court's special leave. In Re Hawden Property Group Pty Ltd (ACN 003 528 345) (in liq) [2018] NSWSC 481; 125 ACSR 355 (Re Hawden Property Group), Gleeson JA expressed the following at [57]: The phrase "special leave" only requires that an application be made to the Court, rather than the matter being dealt with as part of some other administrative process: Maertin v Klaus Maertin Pty Ltd (in liq) (2009) 232 FLR 239; [2009] NSWSC 618 at [40]-[41] (Austin J) citing Re DS Millard & Son Pty Ltd (1997) 24 ACSR 71 (Young J); Re RH Trevan at [6]. The purpose of the provision is to ensure that there is, in reality, a surplus, in that creditors' claims have been recognised and met in full, and that the correct relativities among the contributories have been observed: CGU Workers Compensation (NSW) Ltd v Ascom Service Automation (Australia) Pty Ltd [2005] NSWSC 747 at [4] (Barrett J). 20 Additional rules are relevant to an application for special leave under s 488(2). First, r 7.9 of the Federal Court (Corporations) Rules 2000 (Cth) (Corporations Rules) provides as follows: Distribution of surplus by liquidator with special leave of the Court (Corporations Act s 488 (2)) - Form 15 (1) The affidavit in support of an application for special leave to distribute a surplus in relation to a company must state how the liquidator intends to distribute the surplus including the name and address of each person to whom the liquidator intends to distribute any part of the surplus. (2) At least 14 days before the date fixed for hearing of the application, the liquidator must publish a notice of the application in a daily newspaper circulating generally in the State or Territory where the company has its principal, or last known, place of business. (3) The notice must be in accordance with Form 15. 21 In Re Hawden Property Group at [60], Gleeson JA dispensed with the requirement under r 7.9(2) to publish a notice in circumstances where the debts of unsecured creditors had been discharged and that notice of the application had been given to contributories and ASIC. 22 Second, reg 5.6.71(1) of the Corporations Regulations 2001 (Cth) (Corporations Regulations) provides as follows: Distribution of surplus in a winding up by the Court (1) An order in a winding up by the Court authorising the liquidator to distribute any surplus to a person entitled to it must, unless the Court otherwise directs, have annexed to it a schedule in accordance with Form 551. … 23 In both Re Hawden Property Group (at [63]) and Warner (liquidator), in the matter of Sakr Bros Pty Ltd (in liq) [2019] FCA 547 (Re Sakr Bros) at [26] per Griffiths J, the Court was willing to dispense with this requirement in a simple case where there is no need for adjustment between contributories.

[11]

Orders 29 For the reasons expressed above, I make the following orders: THE COURT ORDERS THAT: 1. Pursuant to section 57 of the Federal Court of Australia Act 1976 (Cth) the first applicant (Liquidator) be appointed as receivers and managers over the assets of the Crestnut Family Trust (Trust). 2. The Liquidator has, in respect of the assets of the Trust, the powers that a receiver has in respect of the property of a company under section 420 of the Corporations Act 2001 (Cth) (other than sections 420(2)(s), (t), (u) and (w)) as if the reference in that section to "the corporation" was a reference to the Trust including without limitation, the power to do all things necessary and convenient to: (a) carry on any business of the Trust; (b) employ any person in connection with any business of the Trust; (c) collect in and realise the assets of the Trust; (d) pay the creditors of the trust from the proceeds of the assets, pursuant to the priorities prescribed under the provisions of the Corporations Act 2001 (Cth); (e) compromise any claim made against the Liquidator or the second applicant in the capacity as trustee of the Trust or against any of the Trust property on any terms the Liquidator sees fit; (f) bring any claim against any party on behalf of the Trust; (g) execute any tax returns, financial statements or other documents relating to the Trust; and (h) distribute any surplus in the winding up. 3. The costs, expenses and remuneration incurred by the Liquidator as the liquidator of the second applicant (Company) and as the receiver of the Trust, including the costs of this application, be paid in priority from the property of the Trust. 4. Pursuant to section 488(2) of the Corporations Act 2001 (Cth), the Liquidator be granted special leave to distribute the surplus in the winding up of the Company. 5. The requirements of rules 7.9(2) and (3) of the Federal Court (Corporations) Rules 2000 (Cth), that the applicants publish a notice in accordance with Form 15, be dispensed with. 6. Upon distribution of the Trust Property to the creditors and finalisation of the liquidation, the Liquidator is deemed to have automatically resigned as receiver. AND THE COURT DECLARES THAT: 7. The Liquidator is entitled to be indemnified out of the trustee's right of exoneration over the Trust assets in respect of any debts owing by the Company incurred in its capacity as trustee of the Trust, together with the costs and expenses of the winding up. AND THE COURT DIRECTS THAT: 8. Pursuant to regulation 5.6.71 of the Corporations Regulations 2001 (Cth), the order authorising distribution of the surplus to a person entitled to it need not have annexed to it a schedule in accordance with Form 551. I certify that the preceding twenty-nine (29) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Anderson.