Kugel (Liquidator) (Trustee) v Hopemaid Pty Ltd

MARKOVIC J: 1 The plaintiff (Liquidator) is the liquidator of Triangle Sheetmetal Pty Ltd (in liq) (Company). By originating process filed on 1 May 2018 the Liquidator seeks, among others, an order pursuant to s 57(1) of the Federal Court of Australia Act 1976 (Cth) (Federal Court Act) appointing him receiver and manager of the property of the Triangle Sheetmetal Unit Trust (Trust).

background 2 The Company was incorporated on 5 October 2011. Adam Nathan Hannant was appointed its sole director. 3 On 5 October 2011 the Trust was established by deed of the same date (Trust Deed) and the Company appointed as its trustee. The Trust Deed relevantly provides: (1) at cl 13.1.2 and cl 13.1.3 that the trustee has a right of indemnity out of the Trust fund against all liabilities it incurs as trustee of the Trust; and that the trustee is entitled to a lien on and may use the Trust fund for the indemnity; (2) at cl 19.2.2(a) that the trustee will be automatically removed as trustee of the Trust if, relevantly, being a company it goes into liquidation; and (3) at cl 19.3.1 that subject to members' approval, the trustee made by deed, appoint a person or corporation to be a trustee of the Trust. 4 On 10 April 2018 the Company was wound up and the Liquidator appointed as liquidator of the Company. 5 Upon its winding up the Company was automatically removed as a trustee of the Trust. To the best of the Liquidator's knowledge no replacement trustee has been appointed as trustee of the Trust. 6 The Liquidator has carried out investigations into the affairs of the Company since his relatively recent appointment. Those investigations have included discussions with Mr Hannant in relation to the Company's assets and liabilities incurred as trustee of the Trust and reviewing the books and records of the Company provided by Mr Hannant. 7 As a result of those investigations the Liquidator identified: (1) that the Company, in its capacity as trustee of the Trust, operated a ducting and sheet metal manufacturing business from leased premises situated at Acacia Ridge in Queensland; (2) certain assets and attempted to ascertain their value including, where relevant, by obtaining valuations of assets such as inventory; and (3) that there is a secured creditor but has not ascertained the validity of the security interests which have been registered in respect of the Company. 8 At this stage the Liquidator is uncertain whether the Company's assets were held and liabilities incurred by it in its capacity as trustee of the Trust, or in its own right. The Liquidator also anticipates that the proceeds of realisation from the assets will be insufficient to discharge all of the liabilities.

consideration 9 Section 57(1) of the Federal Court Act empowers the Court to appoint a receiver on such terms and conditions as the Court thinks fit in any case in which it appears to the Court to be just and convenient to do so. The general ground upon which the Court appoints a receiver is the protection or preservation of property for the benefit of persons who have an interest in it: see Hosking, in the matter of Business Aptitude Pty Ltd (in liquidation) [2016] FCA 1438 (Business Aptitude) at [17] and the cases cited therein. 10 Where a trustee is removed as trustee of the trust, the former 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: see Re Stansfield DIY Wealth Pty Limited (in liq) (2014) 291 FLR 17; [2014] NSWSC 1484 at [10]. 11 In Business Aptitude at [19] Gleeson J recognised that there was a conflict of authority as to whether the liquidator of a corporate trustee which has ceased to be trustee has the power to sell trust assets to enforce the former trustee's right of indemnity. Notwithstanding that conflict, 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 Business Aptitude at [21] and the authorities cited therein. In addition, the observations of Griffiths J in Deputy Commissioner of Taxation, in the matter of Manor Holdings (NSW) Pty Ltd v Manor Holdings (NSW) Pty Ltd [2018] FCA 590 at [11] should be noted where his Honour said: It is also relevant to refer to the discussion of the Full Court in Jones (Liquidator) v Matrix Partners Pty Ltd, in the matter of Killarnee Civil & Concrete Contractors Pty Ltd (in liq) [2018] FCAFC 40 on the issues which arise where a corporate trustee becomes insolvent and there is a resulting bare trust and, in particular, the consequential complex ramifications for the trustee's right of indemnity (see at [31]-[44] per Allsop CJ). While a trustee may exercise its right of indemnity without the need to seek the Court's intervention where a property is not required to be sold, the lien does not confer a power of sale. Consequently, if a sale is necessary as is the case here, a Court order or appointment of a receiver is a necessary step. 12 The Liquidator makes this application because of his uncertainty about whether the Company, having ceased to be the trustee of the Trust, has power under s 477(2) of the Corporations Act 2001 (Cth) to deal with the Trust property. In addition, the Liquidator faces the uncertainty of whether the Company held the assets and incurred the liabilities in its own right, or in its capacity as trustee of the Trust. That uncertainty provides another reason why the Liquidator makes this application. 13 I am satisfied that the orders sought by the Liquidator should be made and that he should be appointed as receiver and manager of the property of the Trust for the following reasons: (1) such an appointment will enable the Liquidator as receiver and manager of the Trust to realise the assets of the Trust and apply the proceeds of the assets to discharge the liabilities of the Trust; (2) importantly, the appointment will ensure the Liquidator is in a position to convey a secure title to those assets; and (3) there is no obvious conflict between the Liquidator's duties as liquidator and his duties as receiver and manager of the property of the Trust because it appears to the Liquidator that both the Trust and the Company are insolvent. 14 I am also satisfied that the beneficiaries of the Trust, who are defendants to the application, were given sufficient notice of it. The first and third defendants consent to the Liquidator's application, the fourth defendant does not oppose it and, while the second defendant's position is not known, a copy of the originating process and the Liquidator's affidavit were served on it. 15 The Liquidator also seeks an order in relation to his remuneration as receiver and manager of the property of the Trust and that his remuneration be capped at $25,000. The Liquidator, who has 30 years' experience in the insolvency industry, has provided a breakdown of the nature of the work likely to be undertaken and has prepared his estimate based on the hourly rates of his firm having regard to those tasks. I am satisfied that it is appropriate to cap the remuneration in the amount sought, namely $25,000 plus GST, to avoid the cost of any future applications in relation to the Liquidator's remuneration as receiver and manager.

conclusion 16 I will make the orders sought by the Liquidator.

I certify that the preceding sixteen (16) numbered paragraph is a true copy of the Reasons for Judgment herein of the Honourable Justice Markovic.

Associate: Dated: 15 June 2018 SCHEDULE OF PARTIES NSD 685 of 2018 Defendants Fourth Appellant THUAN PHUOC LIMITED LIABILITY COMPANY