Naidenov, in the matter of The Sweet Life Farms Australia Pty Ltd (in liq) v Dahbella Pty Ltd

MARKOVIC J 1 On 16 September 2020 I made orders including an order pursuant to s 57 of the Federal Court of Australia Act 1976 (Cth) appointing the plaintiffs, Steven Naidenov and Ian Niccol as joint and several liquidators of The Sweet Life Farms Australia Pty Ltd (Sweet Life), as joint and several receivers of all of the property, assets and undertakings of The Sweet Life Farms Australia Unit Trust (Trust). 2 These are my reasons for making those orders.

Background 3 On 21 April 2020 Messrs Naidenov and Niccol (Liquidators) were appointed as joint and several administrators of Sweet Life. 4 On 28 July 2020 the creditors of Sweet Life resolved that Sweet Life execute a deed of company arrangement. However, it failed to do so. Accordingly, on 19 August 2020, in accordance with s 444B of the Corporations Act 2001 (Cth) (Act), Sweet Life passed a special resolution that it be wound up voluntarily pursuant to s 446A of the Act. On that day the Liquidators were appointed as joint and several liquidators of Sweet Life. 5 Prior to the appointment of the Liquidators as administrators of Sweet Life, Sweet Life traded as trustee of the Trust in operating a business of melon farming. 6 The Trust is constituted by a deed dated 9 December 2015 (Trust Deed) which relevantly provides: (1) at cl 85, that the office of trustee is vacated if, among other things, Sweet Life has an administrator appointed to any part of its assets or enters into compulsory or voluntary liquidation; (2) at cl 81, that the unit holders may appoint a new trustee by passing a special resolution; and (3) in the schedule for the names and addresses of the initial unit holders, Dahbella Pty Ltd, Maxson Investments Pty Ltd and Three Devils Pty Ltd (now known as Fourfront Pty Ltd), each of which hold 10 units in the Trust (collectively, Unit Holders). The Unit Holders are the first, second and third defendants respectively. 7 Mr Naidenov says that, based on his investigations, which have included communications between his staff and the directors of Sweet Life, he has not identified any entity purporting to act as trustee of the Trust other than Sweet Life nor is he aware of the Unit Holders having passed any resolution to appoint a new trustee pursuant to cl 81 of the Trust Deed. Similarly, Mr Naidenov has not received any communication from any third party contending that it acts as trustee of the Trust since the date of appointment of the Liquidators as administrators of Sweet Life. 8 The Liquidators are satisfied that Sweet Life did not trade in its own right but only in its capacity as trustee of the Trust. 9 Mr Naidenov says, based on his investigations and searches of the personal, property and securities register, that as at the date of the Liquidators' appointment as administrators of Sweet Life the Trust held assets but none of those assets is encumbered. 10 Since the time of their appointment as administrators of Sweet Life, the Liquidators and their staff have undertaken work in relation to the assets of the Trust. In particular, they have identified the assets, ensured they were secured and obtained a valuation of them. Apart from the water rights, the Liquidators are satisfied that the balance of the assets included in the valuation report are assets of the Trust. 11 While the Liquidators have taken steps to identify, value and secure the assets of the Trust, as Sweet Life is no longer the trustee of the Trust, they have not taken any steps to deal with those assets. 12 The Liquidators have also obtained a copy of a list of creditors of Sweet Life and are of the opinion that those liabilities were incurred by Sweet Life in its capacity as trustee of the Trust given that Sweet Life did not trade any business which was not related to the melon farms which it operated as trustee of the Trust. 13 On 20 August 2020 the Liquidators, through their solicitors, notified the defendants of their intention to make this application to be appointed as receivers of the assets and undertakings of the Trust and arranged for service of copies of the originating process and affidavits in support on them. 14 The defendants have each responded indicating, in the case of the second defendant, that it consents to the appointment of the Liquidators as receivers of the Trust and, in the case of the first and third defendants, that they do not object to the appointment of the Liquidators as receivers of the Trust.

Relevant principles 15 The principles applicable to the appointment of a receiver in circumstances such as the present have been considered on a number of occasions. Those principles were conveniently summarised by Banks-Smith J in Mohen (Liquidator), in the matter of Willco Breads Pty Ltd (in liq) [2019] FCA 1539 at [19] and [21]-[22] where her Honour relevantly said: 19 … It is established that where upon the appointment of a liquidator or administrator a company becomes a bare trustee, if a sale is necessary the liquidator or administrator must obtain a court order to sell or an order for the appointment of a receiver: Jones (Liquidator) v Matrix Partners Pty Ltd, in the matter of Killarnee Civil & Concrete Contractors Pty Ltd (in liq) [2018] FCAFC 40 at [44] (Allsop CJ). … 21 Further, the liquidators seek to be appointed receivers by this Court under s 57(1) of the Federal Court of Australia Act 1976 (Cth) over all assets but with effect nunc pro tunc insofar as the Holden Rodeo is concerned. Section 57(1) empowers the Court at any stage of a proceeding and on such terms and conditions as it thinks fit to appoint a receiver by interlocutory order in any case in which it appears to be just or convenient to do so. There are many recent examples where the Court has appointed receivers under s 57(1) where the appointment of an administrator or liquidator has led to the termination of the ability of a trustee to continue to hold that position under a trust deed: see for example Amirbeaggi, in the matter of Simpkiss Pty Ltd (in liq) [2018] FCA 2121 at [27]-[28] (Markovic J); and Cremin, in the matter of Brimson Pty Ltd (in liq) [2019] FCA 1023 at [48]-[51] (Moshinsky J). I respectfully acknowledge that in both of those cases the principles are usefully collected and summarised. I do not need to repeat the principles in these reasons. 22 In circumstances where a company has only ever acted as a trustee of one trust and that has been the totality of its affairs, no issue arises as to the application of trust assets to general creditors because all of the company's creditors are trust creditors. Accordingly, it is appropriate that the proceeds from the exercise of the trustee's right of indemnity (exoneration) be distributed to the Trust creditors in accordance with the order of priority prescribed by the Corporations Act: Jones v Matrix at [100]-[108] (Allsop CJ); Carter Holt Harvey Woodproducts Australia Pty Ltd v The Commonwealth [2019] HCA 20 at [93]-[96] (Bell, Gageler and Nettle JJ), [111], [156]-[158] (Gordon J); and see also Cremin at [51].

Consideration 16 As submitted by the Liquidators, and given their investigations and the circumstances in which they find themselves, it was appropriate that I make the order appointing them as joint and several receivers of the assets and undertakings of the Trust for the following reasons: (1) Sweet Life traded only in its capacity as trustee of the Trust and has a right to be indemnified out of the assets of the Trust; (2) upon the appointment of the Liquidators as administrators, Sweet Life ceased to be the trustee of the Trust. No replacement trustee was appointed pursuant to the mechanism included in the Trust Deed; (3) at present, the Liquidators are unable to realise the assets of the Trust; (4) if appointed as receivers, the Liquidators will be able to realise the Trust assets and to distribute the proceeds of sale to creditors in the way described by Mr Naidenov; and (5) the defendants do not oppose the appointment of the Liquidators as receivers of the assets and undertakings of the Trust.

Conclusion 17 For those reasons I made the orders sought by the Liquidators. I certify that the preceding seventeen (17) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Markovic.