Martyniuk v King

WHITE J: 1 On 23 April 2021, I made ex parte orders appointing the liquidator of Scope Plastics Pty Ltd as receiver of the property of the Col Van Staveren Family Trust (the Trust), of which Scope Plastics was until recently the trustee. I also made orders empowering the liquidator to sell that property and ancillary orders. 2 I said that I would publish reasons for the orders later. The following are those reasons. 3 Scope Plastics was engaged in the business of fabricating plastic products. It did so as trustee of the Trust. 4 Mr Colin Van Staveren is the sole director, secretary and shareholder of Scope Plastics. 5 The Trust is a discretionary trust and Mr Van Staveren its primary beneficiary. 6 On 13 April 2021, the Supreme Court of Queensland made an order for the winding up of Scope Plastics in insolvency and the first plaintiff, Mr Phillips, was appointed its liquidator. Scope Plastics ceased trading on the following day. One of the effects of the order of the Supreme Court was that, by the operation of cl 21.3(b)(iii) of the Trust Deed, Scope Plastics was deemed "automatically removed" as trustee of the Trust. 7 Mr Phillips' investigations to date indicate that Scope Plastics has a substantial indebtedness, exceeding $580,000, excluding employee entitlements. Two entities, ANZ Banking Group Ltd (ANZ) and My Stirling Ideas Pty Ltd (Stirling) are recorded on the Personal Property Securities Register as holding security interests over the property of Scope Plastic. 8 Mr Van Staveren has informed Mr Phillips that Scope Plastics did not operate in any capacity other than as the trustee of the Trust. That information has been confirmed by the investigations of Mr Phillips and by Scope Plastics' accountants. Scope Plastics does not hold any assets beneficially in its own name. 9 Mr Van Staveren, who is the appointor of the Trust, has not appointed any replacement trustee. Mr Phillips has deposed that he is not aware of any proposal to appoint a new trustee. 10 Scope Plastics has the usual right of a trustee to indemnity and exoneration from the Trust assets in respect of the liabilities it incurred as trustee. This is in any event confirmed by cll 18.3 and 18.5 of the Trust Deed. 11 Mr Phillips makes the application to be appointed as receiver and for the ancillary orders pursuant to s 90-15 of the Insolvency Practice Schedule (Corporations) in Sch 2 to the Corporations Act 2001 (Cth) and pursuant to s 57 of the Federal Court of Australia Act 1976 (Cth) (the FCA Act). Section 90-15(1) provides that the Court may make such orders as it thinks fit in relation to the external administration of a company. 12 It is uncontroversial that the power conferred by s 90-15 is broad: see, for example, Re Pako Supermarkets [2020] VSC 487 at [39]. 13 Section 57 of the FCA Act provides: 57 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. (2) A receiver of any property appointed by the Court may, without the previous leave of the Court, be sued in respect of an act or transaction done or entered into by him or her in carrying on the business connected with the property. (3) When in any cause pending in the Court a receiver appointed by the Court is in possession of property, the receiver shall manage and deal with the property according to the requirements of the laws of the State or Territory in which the property is situated, in the same manner as that in which the owner or possessor of the property would be bound to do if in possession of the property. 14 As is apparent, s 57(1) empowers the Court to appoint a receiver by interlocutory order in any case in which it appears to the Court to be "just or convenient so to do". The circumstances in which the Court may be satisfied that it is "just or convenient" are various but the general ground upon which a court appoints a receiver is to protect or preserve property for the benefit of the persons who have an interest in it: Martyniuk v King [2000] VSC 319 at [14]; University of Western Australia v Gray (No 6) [2006] FCA 1825 at [71]-[72]; and Sapphire (SA) Pty Ltd v Ewens Glen Pty Ltd [2011] FCA 600 at [15]. 15 It is now well established that a receiver may be appointed over trust property to secure the trustee's right of indemnity out of the assets of the trust: Hosking, in the matter of Business Aptitude Pty Ltd (in liquidation) [2016] FCA 1438 at [21]-[22], and see the authorities cited therein. 16 The underlying principles were summarised by Davies J in Michell (Liquidator) v Delltta Holdings Pty Ltd (in liq) atf The Brookhill Trust [2019] FCA 2133: [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 … [9] [I]t is now settled that the liquidator cannot sell the trust property without an order of the court, or by the appointment of a receiver over the trust assets … 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) … [10] It has also recently become settled law that the proceeds from the exercise of a corporate trustee's right of exoneration may only be applied in satisfaction of the trust liabilities to which that right relates … In the present case, as Diamond Ace did not conduct any other activity other than as trustee of the Brookhill Trust, there is no issue about the application of the proceeds of the sale of trust assets otherwise than to satisfy the debts owed to trust creditors. (Citations omitted) 17 Mr Phillips has deposed, and I accept, that the application is brought in aid of the enforcement of Scope Plastics' right of indemnity and its equitable lien as former trustee of the Trust over the Trust assets. His appointment as receiver will permit those assets to be sold and to be applied to meeting the costs and expenses of the liquidation and meeting, at least in part, the debts of Scope Plastics in accordance with the priorities set out in s 556 of the Corporations Act. 18 I was satisfied that each of Mr Van Staveren, the Australian Securities and Investments Commission, ANZ and Stirling have been served with the proceedings and had been notified of the hearing on 23 April 2021. None of them appeared to oppose the making of the orders sought by Mr Phillips. I note in this respect that Mr Phillips has deposed that Mr Van Staveren has told him that he supports the application and does not wish to be heard on it. 19 Mr Phillips has brought the application relatively soon after his appointment as liquidator and he sought an urgent hearing. He did so for a number of reasons, including that Mr Van Staveren has told him that he does not have the capacity to recommence the operation of the business by the appointment of another trustee of the Trust, the disadvantage to the creditors if the plant and equipment cannot be realised in a timely manner and because, by reason of his receipt of various expressions of interest from parties seeking to purchase the plant and equipment, he expects to receive suitable offers in the very near future. 20 There are alternative means by which the assets of the Trust could be realised so as to meet Scope Plastics right of indemnity: the appointment of a replacement trustee or the appointment of some other person as receiver. There is no proposal before the Court for either alternative, and there is no reason to suppose that either would be less expensive or more efficacious than the appointment of Mr Phillips as receiver. 21 There do not seem to be any disqualifying factors in existence, such as a potential conflict of interest between Mr Phillips' position as liquidator, on the one hand, and receiver, on the other. 22 For these reasons, I was satisfied that it was appropriate to make the principal order sought by Mr Phillips. The ancillary orders he seeks are also appropriate and are in a form commonly made by the Court in like circumstances. 23 However, I declined to make a declaration sought by Mr Phillips in the following terms: The Second Plaintiff has a right of exoneration from, and an equitable lien over, the property of the Col Van Staveren Family Trust (Trust) for debts incurred by the Second Plaintiff and the trustee of that Trust which are provable in the Second Plaintiff's liquidation (Trust Creditors). 24 I did so because, ordinarily, the Court does not grant a declaration unless satisfied that doing so will serve a real purpose and that there is a proper contradictor to the issue to be resolved by the making of the declaration. In this case, it was not apparent that the proposed declaration would serve any real purpose being, in effect, no more than a statement of the underlying legal position. It is not as though there is a dispute about whether Scope Plastics may have recourse to particular assets in the exercise of its right of indemnity or exoneration. 25 These are my reasons for the orders made on 23 April 2021. I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice White.