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

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.

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. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Introduction 1 This application concerns two issues that arise in the liquidation of the second applicant, Second ICO Pty Ltd (In Liq) (Company). The application is brought by Mr Andrew Knight, the liquidator of the Company (Liquidator), and the Company. 2 The first issue is that the Liquidator seeks an order that he be appointed receiver of the property of the Crestnut Family Trust (Trust) (in respect of which the Company was trustee prior to its liquidation). This is so the Liquidator can do all things necessary and convenient to collect in, realise and distribute that property. 3 The second issue is that the Liquidator is in a position to distribute a surplus. He requires special leave under s 488(2) of the Corporations Act 2001 (Cth) (Act) to do so. 4 Today, on 7 May 2020, I gave ex tempore reasons for making the orders sought by the applicants in the proceeding. A revised version of those reasons is set out below.

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.

Hearing of the application 14 The proceeding was listed for a first case management hearing today, 7 May 2020. However, the applicants' solicitors indicated to my chambers yesterday that the applicants sought the making of final orders at the hearing. For this purpose, the applicants provided my chambers last night with a written outline of submissions in support of their application. 15 At the start of today's hearing, I asked for the matter called for a second time, and there was no appearances other than by Mr Purton of counsel appearing for the applicants. After hearing Mr Purton, I made the orders sought by the applicants, which are set out below at [29].

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.

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.

Appointment as receiver 24 In the present case, the Company has been removed as trustee of the Trust by virtue of the liquidation. The Company holds assets - specifically, the proceeds of sale of the Property - as bare trustee. I accept that it is appropriate in these circumstances for the Liquidator to be appointed as receiver of the trust property under s 57(1) of the FCA Act to facilitate distribution of the proceeds.

Special leave to distribute surplus 25 It is also appropriate in the circumstances for the Court to give leave under s 488(2) of the Act. I accept that it is appropriate for the surplus to be distributed in the manner proposed by the Liquidator for the following reasons: (a) first, the Liquidator has taken appropriate steps to identify all creditors, and all known creditors will be paid in full. To identify all creditors, the Liquidator called for proofs of debt. The only proofs of debt received were from the SRO (who was the petitioning creditor) and ASIC (for outstanding fees). As the Company did not trade, and the only Trust asset was real property, it is unlikely that any other creditors will come forward; and (b) second, Mr Nikolakopoulos is the only beneficiary under the Trust. Accordingly, he is the person entitled to receive the surplus after creditors are paid. 26 As for the procedural requirements, r 7.9(1) of the Corporations Rules is satisfied as the Liquidator has stated in the Knight Affidavit that the whole of the final surplus will be paid to Mr Nikolakopoulos once the liquidation is finalised. 27 It is appropriate for the court to waive the procedural requirements in 7.9(2) of the Corporations Rules and reg 5.6.71(1) of the Corporations Regulations for the same reasons outlined in Re Hawden Property Group and Re Sakr Bros. As detailed in the Fay affidavit, the Liquidator has served the SRO, Westpac and ASIC with the originating process and affidavit in support. None of them have indicated that they wish to be heard. 28 Similarly, this is a simple case where there is a single beneficiary of the Trust. The form required by reg 5.6.71(1) is directed to cases where there are a large number of contributories who will each receive differing dividends based on the amount of shares held. It is appropriate for that requirement to be dispensed with in the present case.

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.