Michell (Liquidator) v Delltta Holdings Pty Ltd

GLEESON J: 1 By originating process dated 5 March 2020, the plaintiff (liquidator) applied to be appointed without security as the receiver and manager (receiver) of the property, assets and undertakings of the SKC Family Trust (family trust) pursuant to s 57 of the Federal Court of Australia Act 1976 (Cth) (FCA Act), and for ancillary orders. 2 The application was supported by the liquidator's affidavit sworn 5 March 2020. 3 On 9 March 2020, I made orders substantially in accordance with the orders sought. These are my reasons for making the orders.

Background facts 4 The liquidator was appointed as liquidator of SKC & Co Pty Ltd (company) on 26 February 2020 pursuant to a resolution of the company's members. The members are Steven and Karen Clements, who are also the company's directors. 5 The company is named as the trustee of the family trust in a trust deed dated 20 January 2016. The named beneficiaries of the trust are Steven and Karen Clements. Clause 11 of the trust deed provided that the office of trustee is vacated, relevantly, if the trustee has a liquidator appointed. Ms Clements is the "Appointor" in the trust deed. By letter dated 4 March 2020, Ms Clements informed the liquidator that she had not appointed another trustee to the family trust and did not intend to do so. 6 The liquidator's investigations to date reveal that the company was the trustee of the family trust and did not act in any other capacity. 7 The business of the trust was sale of spare parts for American and Japanese trucks. 8 The liquidator estimates the assets of the trust at $233,500 and the company's liabilities at $729,000. The major assets are debtors, motor vehicles and inventory or stock. The creditors include priority, secured, partly secured and 68 unsecured creditors. 9 Unless the company's indemnity against the assets of the trust is enforced, and the trust assets are realised, there is unlikely to be any return to the creditors of the company. 10 The liquidator's view was that he had a limited time to realise the assets of the trust. In particular, his office had received an offer for the company's stock which he wished to accept in the interests of the company's creditors. The liquidator's view was that, if the stock and motor vehicle assets are not sold promptly, or the landlord required their removal from the business's rented premises, the amount likely to be realised for the trust assets will be reduced.

Legal principles 11 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. 12 The general ground on which the Court appoints a receiver is the protection or preservation of property for the benefit of the persons who have an interest in it: Hosking, in the matter of Business Aptitude Pty Ltd (in liquidation) [2016] FCA 1438 (Hosking) at [17]. The Court may appoint a receiver over trust property to secure a former trustee's right of indemnity out of the assets of the trust: Hosking at [22]. This includes where it is necessary for a liquidator "to realise the assets of the trust so that the liabilities incurred by the defendant in the performance of the trust can be met, or met as far as possible": Sapphire (SA) Pty Ltd v Ewens Glen Pty Ltd [2011] FCA 600 at [15]. 13 In Michell (Liquidator) v Delltta Holdings Pty Ltd (in liq) atf The Brookhill Trust [2019] FCA 2133 (Delltta) at [8]-][10], Davies J explained the relevant principles as follows: [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: see [Hosking] at [17]-[22]; Cremin, in the matter of Brimson Pty Ltd (in liquidation) [2019] FCA 1023 ("Cremin") at [48]-[51]. [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: Jones v Matrix Partner Pty Ltd; re Killarnee Civil & Concrete Contractors Pty Ltd (in liquidation) [2018] FCAFC 40; 260 FCR 310 at 323 [44] per Allsop CJ, Farrell J agreeing at 351 [196]. 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): Cremin at [49]. [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: Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth [2019] HCA 20; 93 ALJR 807 at 821-2 [40] per Kiefel CJ, Keane and Edelman JJ, Gordon J agreeing at 835 [106].

Consideration 14 There are no defendants to the application, although notice was given to Ms Clements, the "Appointor", under the trust deed. Ms Clements did not oppose and liquidator's appointment as receiver and did not wish to be heard on the application for appointment as receiver. 15 As in Delltta, where the company did not conduct any activity other than as trustee of the family trust, proceeds of sale of the trust assets will be used solely to satisfy the debts owed to trust creditors (after payment of the costs of the receivership). 16 There is no obvious conflict between the duties of the liquidator as liquidator and as receiver and manager because both the company and the family trust appear to be insolvent.

Costs 17 It was appropriate to make orders that the liquidator's costs, expenses and remuneration in connection with the receivership, including the costs and expenses of and incidental to this application, are to be paid in priority from the assets of the family trust. 18 Further, it was appropriate to make an order for payment of remuneration in respect of the receivership, capped at the amount of $10,000: see Hosking at [27]-[28].

Other orders 19 To the extent necessary, the need for the receiver to file a guarantee under r 14.21 and r 14.22 of the Federal Court Rules 2011 was dispensed with. 20 Liberty to apply was granted for the liquidator and any person with sufficient interest under the family trust to apply for a variation or discharge of the orders on 3 days' notice. I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gleeson.