Re Kralcopic Pty Ltd (Deregistered) [2023] VSC 306 (7 June 2023)

2 The State's application is supported by the affidavit of Muthukumaran Muthukaruppan, Assistant Director, Technical Services with the Department of Energy, Environment and Climate Action ('Department') sworn 17 March 2023 ('Muthukaruppan Affidavit'). Dr Muthukaruppan's affidavit is the principal affidavit in support of the application. The affidavits of Minoli Fernando, Emily MacDonald and the first affidavit of Rebecca Johnston, all affirmed on 23 May 2023, depose as to service on potentially interested parties and, in the case of the second of Ms Johnston's affidavits, the requirements of the Registrar of Titles in respect of applications under s 59 of the Transfer of land Act 1958 (Vic) ('TLA').

3 On 31 May 2023, I made orders vesting the land in the State pursuant to s 568F of the Corporations Act and indicated that I would provide reasons subsequently.

4 Kralcopic Pty Ltd (ACN 007 222 086) ('Kralcopic') formerly held mining licenses over three mining sites in Victoria.[1]

5 On 16 August 2019, Anthony Hurst, an authorised delegate of the Minister for Energy and Resources ('Minister'), refused to renew Kralcopic's mining licenses pursuant to s 31(2)(f) of the Mineral Resources (Sustainable Development) Act 1990 (Vic) ('MRSD Act'). The reason for this decision was the delegate was not satisfied that Kralcopic was likely to be able to finance the proposed work and rehabilitation of the land under the licences as required by s 15(6)(d) of the MRSD Act.

6 Kralcopic made application for judicial review of the delegate's decision on 4 September 2020. Justice Ginnane of this Court refused that application on 9 March 2021.[2]

7 On 23 April 2021, Kralcopic was ordered to be wound up in insolvency on the application of the Minister by order of the Federal Court of Australia. Brendan Richards and Peter McCluskey ('liquidators') were appointed as liquidators in the winding up.

8 On 14 May 2021, by a notice in Form 525, Notice of Disclaimer of Onerous Property, lodged with ASIC, the liquidators disclaimed Kralcopic's interest in the following parcels of land as onerous property pursuant to s 568(1) of the Corporations Act:

(a) the land described as Crown Allotment 14 Section 5 Parish of Nerring being land more particularly described in Certificate of title Volume 00899 Folio 650;

(b) the land described as Crown Allotment 14A Section 5 and Crown Allotment 14B Section 5 Parish of Nerring being land more particularly described in Certificate of title Volume 01838 Folio 512;

(c) the land described as Crown Allotment 14G Section 5 Parish of Nerring being land more particularly described in Certificate of title Volume 03830 Folio 968;

(d) the land described as Crown Allotment 13 Section 5, Crown Allotment 13A Section 5 and Crown Allotment 13B Section 5 Parish of Nerring being land more particularly described in Certificate of title Volume 04046 Folio 046;

(e) the land described as Lot 1 on Title Plan 225951B being land more particularly described in Certificate of title Volume 09092 Folio 533;

(f) the land described as Crown Allotment 14C Section 5, Crown Allotment 14D Section 5 and Crown Allotment 14E Section 5 Parish of Nerring being land more particularly described in Certificate of title Volume 09176 Folio 721;

(g) the land described as 160 Macdougall Road Golden Gully, Victoria being land more particularly described in:

(i) Certificate of Title Volume 09429 Folio 815; and

(ii) Certificate of Title Volume 09481 Folio 381;

(h) the land described as Crown Allotment 12A Section 2 Parish of Nerring being land more particularly described in Certificate of title Volume 09831 Folio 319;

(i) the land described as Golden Gully Road Golden Gully, Victoria being land more particularly described in Certificate of title Volume 10158 Folio 845;

(j) the land described as 1 Pearson Street Eaglehawk, Victoria being land more particularly described in Certificate of title Volume 10213 Folio 756; and

(k) the land described as Crown Allotment 220 Section A, Crown Allotment 221 Section A and Crown Allotment 223 Section A Parish of Nerring being land more particularly described in Certificate of title Volume 10261 Folio 140;

(together, 'Land')

9 The liquidators failed to notify the Land Titles Office of the disclaimer at the time the Form 525 was lodged with ASIC. This was rectified on 29 April 2022 when they notified the Victorian Registrar of Titles of the disclaimer.

10 Earlier, in May 2016, Unity Mining Pty Ltd ('Unity') had registered caveats on the titles for the Land, claiming an interest over the Land pursuant to a charge contained in an agreement between Kralcopic and Unity.

11 On 8 June 2022, the Registrar registered a Registrar's caveat on the title to each parcel of the Land, apparently to notify those searching the register of the disclaimers.

12 Kralcopic remains the registered proprietor of the Land on the Victorian Register of Land. The State requires a vesting order to facilitate an application under s 59 of the TLA to be recorded.

13 On 16 July 2022, after the affairs of the company had been wound up and at the conclusion of the three-month statutory period after the filing of the administration return by the liquidators, Kralcopic was deregistered by operation of s 509 of the Corporations Act.

14 On 19 December 2022, Unity withdrew the caveats it had registered over the Land.

15 On 23 February 2023, title searches for the Land were conducted confirming that the only caveat registered on each title was the Registrar's caveat.

16 The State, by the Minister exercising her statutory power under s 83 of the MSRD Act, has commenced rehabilitation of the Land and surrounding Crown Land, which has been affected by the mining activity. The State intends to undertake further rehabilitation works on the Land, which will include conducting groundworks, dealing with contaminated soil together with the removal of buildings, infrastructure, equipment and sealed bitumen surfaces. Before undertaking the works involved in such rehabilitation, the State wishes to be registered on title as the proprietor of the Land.

17 On 4 November 2022, the Registrar, through Land Use Victoria, informed an officer of the Department that the Registrar required a court order to give effect to the vesting of the Land in the Crown and that such court orders could then be filed in support of an application pursuant to s 59 of the TLA. Section 59 of the TLA provides:

Application to become registered proprietor by person who land is vested in by Act or court order

(1) A person may apply to the Registrar to become the registered proprietor of land that has been vested in the person -

(a) by or under any Act, including a Commonwealth Act; or

(b) by order of a court.

(2) An application under subsection (1) must be in the appropriate approved form.

(3) Upon granting of an application made under subsection (1), the Registrar must register the applicant as the proprietor of the land, and that person becomes the registered proprietor and transferee of the land.

18 In December 2014, Land Use Victoria issued a customer information bulletin in respect of, among other things, disclaimers of onerous freehold property. The bulletin stated:

Persons wanting to deal with disclaimed property must prove that they are able to do so. This may mean they must seek a vesting order from a court of competent jurisdiction; or, they produce the relevant declarations from a court, together with the appropriate application for dealing with the land.

19 The State's solicitors served the originating process and Dr Muthukaruppan's affidavit on its former liquidators and on ASIC on 27 March 2023. In the circumstances of Kralcopic being deregistered, I assume this was done in an attempt to best comply with r 2.7(b) of the Supreme Court (Corporations) Rules (Vic) (which requires that if the corporation to which a proceeding relates is not a party to the proceeding, the applicant for relief must serve a copy of the originating process and any supporting affidavit on the corporation).

20 The former caveator, Unity, was also served with the originating process and Dr Muthukaruppan's affidavit on 22 May 2023.

21 The State's written submissions make reference to the legal principles in respect of disclaimer of property by a liquidator. Section 568(1) of the Corporations Act concerns the entitlement of a liquidator of a company to disclaim property. It provides:

(1) Subject to this section, a liquidator of a company may at any time, on the company's behalf, by signed writing disclaim property of the company that consists of:

(a) land burdened with onerous covenants; or

(b) shares; or

(c) property that is unsaleable or is not readily saleable; or

(d) property that may give rise to a liability to pay money or some other onerous obligation; or

(e) property where it is reasonable to expect that the costs, charges and expenses that would be incurred in realising the property would exceed the proceeds of realising the property; or

(f) a contract;

whether or not:

(g) except in the case of a contract--the liquidator has tried to sell the property, has taken possession of it or exercised an act of ownership in relation to it; or

(h) in the case of a contract--the company or the liquidator has tried to assign, or has exercised rights in relation to, the contract or any property to which it relates.

22 The legal principles applying when real property is disclaimed under Division 7A of the Corporations Act have been described as 'being as clear as mud',[3] but it seems in the circumstances of this case it vests in the Crown in right of the State of Victoria[4] by operation of the doctrine of escheat. This doctrine has its origins going back to feudal times,[5] but the only remnants are said to be in the context of disclaimers of onerous property in bankruptcy under s 133 of the Bankruptcy Act 1966 (Cth) ('Bankruptcy Act') and corporate insolvency under s 568 of the Corporations Act.[6]

23 In Rams, Heenan J discussed the effects of disclaimer in the context of the provisions of the Bankruptcy Act. His Honour stated:[7]

According to Butt P, Land Law ..., the only remnants of the doctrine of escheat now appear to be, first, where a land owner's trustee in bankruptcy exercises the statutory power to disclaim land that is subject to onerous covenants or is difficult to sell (s 133 of the Bankruptcy Act ...), and second, where a liquidator exercises a similar power to disclaim land of a company: s 568 of the Corporations Act 2001 (Cth) ...

In these instances of statutory disclaimer, it is accepted that disclaimed land escheats to the Crown ... In Australia, disclaimed land will escheat to the Crown in right of the State which originally granted the land.

Where land escheats to the Crown, the Crown becomes the "absolute owner" of that land; it does not succeed to the tenant's rights, nor hold an estate in that land. Rather, the Crown takes back because of its own title paramount which is again assertable ...

24 In Westpac Banking Corporation v Western Australia; Re Conco Construction Services Pty Ltd,[8] Jackson J of the Federal Court observed:[9]

In Sullivan v Energy Services International Pty Ltd (in liq) [2002] NSWSC 937 at [37]-[40] Young CJ in Eq traced the legislative history of the provision. The relevant standard for a vesting order was originally that it seem 'just' to the Court, in 1981 the relevant adjective was changed to 'proper' (in the Companies Code), and in s 568F it must seem to the Court that it is 'appropriate' that the property be vested. There is no reason to think that these changes in wording changed the substance of the standard to be applied. Also, there are obvious parallels between s 568F and the cognate provision of the Bankruptcy Act 1966 (Cth), s 133(9), where the standard is that it be 'just and equitable' that the property vest in the person: see e.g. AFSH Nominees [Pty Ltd v State of Western Australia [2022] FCA 1168] at [20].[10]

25 When a third party has a security interest over the property such as a mortgage or a charge, those interests survive the vesting.[11] The State's ownership of the land that has escheated to it is subject to any existing mortgages or charges[12] and if Unity had not withdrawn its caveats it would have been necessary to make it a party to the proceeding.[13]

26 In Re Energy Brix Australia Corporation Pty Ltd ('Energy Brix'),[14] Hetyey AsJ observed inter alia, that escheat to the Crown is qualified by the vesting power under s 568F of the Corporations Act or the court setting aside the disclaimer under s 568E.[15] He stated:

[T]here is also a tension between the doctrine of escheat, which relies on a feudal concept of tenure, and the modern statutory basis for a registered proprietor's interest in real property.[16]

27 The State contends, and I agree, that it is unnecessary to resolve these conceptual difficulties because the uncertainty concerning property interests in disclaimed land can be addressed by the Court ordering that disclaimed land vest in a person pursuant to s 568F of the Corporations Act.

28 Section 568F(1) of the Corporations Act provides that the Court may order that disclaimed property vest in, or be delivered to:

(a) a person entitled to the property; or

(b) a person in or to whom it seems to the Court appropriate that the property be vested or delivered; or

(c) a person as trustee for a person of a kind referred to in paragraph (a) or (b).

29 Section 568F(2) provides that the Court may make an order under sub-s (1):

(a) on the application of a person who claims an interest in the property, or is under a liability in respect of the property that this Act has not discharged; and

(b) after hearing such persons as it thinks appropriate.

30 Section 568F(3) provides that, subject to sub-s (4), where an order is made under sub-s (1) vesting property, the property vests immediately, for the purposes of the order, without any conveyance, transfer or assignment.

31 Section 568F(4) provides for circumstances where transfers of property are required to be registered. It states:

Where:

(a) a law of the Commonwealth or of a State or Territory requires the transfer of property vested by an order under subsection (1) to be registered; and

(b) that law enables the order to be registered;

the property vests in equity because of the order but does not vest at law until that law has been complied with.

32 Section 27(1) of the TLA provides that the Victorian Registrar of Titles must keep a register of land that is under the operation of the TLA.

33 In this application, the State seeks a vesting order pursuant to s 568F of the Corporations Act so that it can become the registered proprietor of the Land pursuant to s 59(1)(b) of the TLA, before incurring additional expense in rehabilitating the Land. Under the provisions of s 568F, the State will be entitled to a vesting order if the Court is satisfied that:

(a) a disclaimer of onerous property has occurred (ss 568 and 568D of the Corporations Act);

(b) the plaintiff claims to have an interest in the disclaimed property (s 568F(2)(a)); and

(c) the plaintiff is entitled to the disclaimed property (s 568F(1)(a)) or is a person in or to whom it seems to the Court appropriate that the property be vested or delivered (s 568F(1)(b)).

34 In Energy Brix, Hetyey AsJ observed, drawing upon the text of s 568F(1)(b), that the Court has a broad jurisdiction to vest disclaimed property in appropriate recipient[17] and stated that there is support for the view that the scope of s 568F should be construed to give effect to the purpose of Div 7A of the Corporations Act of ensuring as little disturbance as possible to the rights and liabilities of all interested parties.[18]

(a) it was clear that the State had an interest in the land because, as a consequence of the disclaimer, the land had escheated to it, albeit likely on a provisional basis (due to the potential for the Court to make a vesting order under s 568F in favour of any other person with a claimable interest or for the disclaimer to be set aside under s 568E).[19] The State was effectively holding the land as custodian pending the making of an application under s 568F;[20] and

(b) a vesting order would confirm the State's interest in the land as being absolute and enable the State to be recorded as registered proprietor of the estates in fee simple of the land in accordance with the TLA and the requirements of the Registrar of Titles.[21]

36 The State submits that in the circumstances of this case, the Land should be ordered to be vested in the State under s 568F for the following reasons:

(a) the State has an interest in the Land for the purposes of s 568F(2)(a) of the Corporations Act because the Land has escheated to it as a consequence of the liquidators' disclaimer.

(b) because there is no apparent time limit on the making of an application under s 568E to set aside the disclaimer after it has taken effect, the State's interest remains susceptible to the making of an application for any such order in the future.

(c) a vesting order would confirm the State's interest in the Land as being absolute and enable the State to be recorded as registered proprietor of the estates in fee simple of the Land in accordance with the TLA and the requirements of the Registrar of Titles.

(d) such an order is appropriate because it enables the State to then undertake rehabilitation work with respect to the Land that has escheated to it as the registered proprietor of the Land. This mitigates the risk that a person with an unregistered security interest in the Land could apply to the Court for an order vesting the Land in that person once the State has incurred the expense of rehabilitating the Land.

(e) no person has a registered interest over the Land, and therefore such person's interests will not be disadvantaged by an order in favour of the State.

37 I consider that this is a clear case in which the Land should vest in the State so as to facilitate the process of the titles to the Land being registered in the name of the State. The State has a clear interest in the property by operation of the doctrine of escheat. In my opinion, the State is a person in or to whom it appears to the Court 'appropriate' the Land be 'vested or delivered' within the meaning of s 568F(1)(b). In my opinion, there should be a vesting order to enable the State to make application pursuant to s 59 of the TLA. Until that occurs, the interest in the Land does not vest at law, only in equity (see s 568F(4)).

38 For the sake of completeness, I recite the orders that I made on 31 May 2023 at the hearing of the application:

(a) The Court orders under s 42E(1) of the Evidence (Miscellaneous Provisions) Act 1958 (Vic) that all persons shall appear, give evidence and make submissions in this proceeding on 31 May 2023 by audio-visual link.

(b) Pursuant to s 568F of the Corporations Act 2001 (Cth), the estates in fee simple in the land described as:

(i) Crown Allotment 14 Section 5 Parish of Nerring being land more particularly described in Certificate of title Volume 00899 Folio 650;

(ii) Crown Allotment 14A Section 5 and Crown Allotment 14B Section 5 Parish of Nerring being land more particularly described in Certificate of title Volume 01838 Folio 512;

(iii) Crown Allotment 14G Section 5 Parish of Nerring being land more particularly described in Certificate of title Volume 03830 Folio 968;

(iv) Crown Allotment 13 Section 5, Crown Allotment 13A Section 5 and Crown Allotment 13B Section 5 Parish of Nerring being land more particularly described in Certificate of title Volume 04046 Folio 046;

(v) Lot 1 on Title Plan 225951B being land more particularly described in Certificate of title Volume 09092 Folio 533;

(vi) Crown Allotment 14C Section 5, Crown Allotment 14D Section 5 and Crown Allotment 14E Section 5 Parish of Nerring being land more particularly described in Certificate of title Volume 09176 Folio 721;

(vii) 160 Macdougall Road Golden Gully, Victoria being land more particularly described in Certificate of title Volume 09429 Folio 815 and Certificate of title Volume 09481 Folio 381;

(viii) Crown Allotment 12A Section 2 Parish of Nerring being land more particularly described in Certificate of title Volume 09831 Folio 319;

(ix) Golden Gully Road Golden Gully, Victoria being land more particularly described in Certificate of title Volume 10158 Folio 845;

(x) 1 Pearson Street Eaglehawk, Victoria being land more particularly described in Certificate of title Volume 10213 Folio 756; and

(xi) Crown Allotment 220 Section A, Crown Allotment 221 Section A and Crown Allotment 223 Section A Parish of Nerring being land more particularly described in Certificate of title Volume 10261 Folio 140;

vest in the Plaintiff free of encumbrances.

(c) The Plaintiff serve a sealed copy of these orders on:

(i) Brendan Richards and Peter McClusky of KPMG as former liquidators of Kralcopic Pty Limited (Deregistered);

(ii) The Australian Securities and Investments Commission; and

(iii) Unity Mining Pty Limited.

[1] Mining Licences 5344, 5364 and 4878. See Affidavit of Muthukumaran Muthukaruppan sworn 17 March 2023, [6] and Exhibit 'MM-1', 7 ('Muthukaruppan Affidavit').

[2] Kralcopic Pty Ltd (admins apptd) v Minister for Resources [2021] VSC 101.

[3] National Bank of Australia v New South Wales [2009] FCA 1066, [28] (Rares J).

[4] Rams Mortgage Corporation Ltd v Skipworth (No 2) [2007] WASC 75; (2007) 239 ALR 799, 801 [8] (Heenan J) ('Rams'); Tonic Pty Ltd v South Australia [2019] FCA 1361, [8] (Charlesworth J) ('Tonic'); Westpac Banking Corporation v Burton [2021] FCA 773, [8] (Logan J) ('Westpac v Burton').

[5] See generally Sandhurst Trustees Ltd v 72 Seventh Street Nominees Pty Ltd (in liq) (1998) 45 NSWLR 556, 561-6 (Bryson J) ('Sandhurst'), particularly at 563A-D; A_ustralia and New Zealand Banking Group Ltd v Fairfield City Council_ [2016] NSWSC 668, [33]-[34] (Emmett AJA) ('Fairfield City Council'); Environment Protection Authority v Australian Sawmilling Company Pty Ltd (in liq) [2020] VSC 550; Bank of Queensland Ltd v Western Australia [2020] FCA 442, [36] (McKerracher J) ('Bank of Queensland v WA'); Commonwealth Bank of Australia v Queensland [2021] FCA 22, [15] (Derrington J); Westpac v Burton (n 4); David Barry Logistics Pty Ltd v Victoria (2021) 65 VR 233, 265 [113] (M Osborne J).

[6] Rams (n 4) 801 [7].

[8] [2022] FCA 1213 ('Conco Construction').

[10] See also Sandhurst (n 5) 563-6 (Bryson J); Bank of Queensland v WA (n 5) [33] et seq (McKerracher J) (in the context of the provisions of the Bankruptcy Act 1966 (Cth); Fairfield City Council (n 5) [23]-[26] (Emmett AJA).

[11] See, eg, Tonic (n 4) [8] (Charlesworth J); Conco Construction (n 8) [20] (Jackson J); Rams (n 4) 802 [10] (Heenan J); National Australia Bank Ltd v Victoria [2010] FCA 1230; (2010) 118 ALD 527, [15].

[13] Westpac v Burton (n 4) [10] (Logan J).

[14] [2022] VSC 700, [25] ('Energy Brix').

[21] Ibid [40]. The judgment refers to s 29 of the Transfer of Land Act 1958 (Vic) here, but presumably this is intended to be to s 59.