Re Pires Consulting Holding Pty Ltd (In Liquidation) [2019] VSC 384 (11 June 2019)

1 This was an application by the plaintiff liquidator, Mr David Quin, for appointment as receiver and manager of the assets of the Pires Family Trust (Trust).

2 There were two issues to be determined by the Court. First, whether a preliminary application by the director, Mr Clifton Pires, for a (further) adjournment of 15 - 21 days ought to be granted. Secondly, whether Mr Quin ought to be appointed as receiver and manager and, if yes, what was the appropriate costs order.

3 On 11 June 2019, I refused the application for a further adjournment and made orders to appoint Mr Quin as receiver and manager of the assets of the Trust. My reasons for these orders now follow.

4 On 21 November 2018, Mr Quin was appointed as the liquidator of Pires Consulting Holding Pty Ltd (the Company). Mr Pires is the sole director and shareholder of the Company.

5 Immediately prior to the liquidation, the Company was the sole trustee of the Trust.

6 Pursuant to the trust deed of the Trust (Trust Deed), the Company was named as the trustee (item 4 of the Schedule to the Trust Deed), with Mr Pires named as appointor of the Trust (item 6 of the Schedule to the Trust Deed). The beneficiaries of the Trust are Mr Pires, Ms Christine Pires and Ms Daphne Pires, together with their children (item 5 of the Schedule to the Trust Deed).

The office of a Trustee shall be ipso facto determined and vacated if such Trustee being an individual shall be found to be a lunatic or of unsound mind or if he shall become subject to any bankruptcy law, or if such a trustee being a company shall enter into liquidation or bankruptcy whether compulsory or voluntary but not being merely a voluntary liquidation for the purposes of amalgamation or construction. (Emphasis added)

8 Consequent on the liquidation of the Company, the office of trustee was thereby vacated, with the Company becoming a bare trustee only.

9 Further, although cl 8(e)(ii) of the Trust Deed made provision for the appointment of a new trustee, this has not been effected by Mr Pires (as Appointor). Nor has Mr Pires provided any response to Mr Quin's requests (to his lawyers) to amend the Trust Deed so that the Company might be re-appointed as trustee.

10 The Company is the registered owner of a number of properties:

(a) Flat 1, 25 Nepean Highway, Elsternwick, Victoria, more particularly described in Volume 11280 Folio 229;

(b) Flat 2, 25 Nepean Highway, Elsternwick, Victoria, more particularly described in Volume 11280 Folio 230; and

(c) Unit 19, Level 6, 313-315 Flinders Lane, Melbourne, Victoria, more particularly described in Volume 10526 Folio 286;

(collectively, the Properties).

11 These are the only assets Mr Quin expects to be realisable for the benefit of the creditors of the Company.

12 Based on his investigations, Mr Quin believes that, immediately prior to the liquidation of the Company, it did not trade, hold assets, incur liabilities or carry on activities otherwise than in its capacity as trustee of the Trust.

13 Thus, he states that the Properties were assets owned by the Company in its capacity as trustee of that Trust. There was also objective support for this conclusion in the loan documents provided by Westpac Banking Corporation (which has a first ranking mortgage registered over each of the Properties).

14 The known debts of the Company totalled $2,429,236.82 and were predominantly owing in relation to the Properties. These include a debt of $1,935,627.04 in respect of the Westpac debt. They also include a (financing) debt in the name of Finance Group Australia Pty Ltd (formerly Kazzi Family Holdings Pty Ltd) (Kazzi) in an amount of $292,521.08, with interest accruing on that sum at a rate of 36 per cent per annum, plus a default management fee accruing at $70 per day. Kazzi has also lodged a caveat over each of the Properties, claiming an 'interest as mortgagee.'

15 Mr Quin estimates that the total value of the Company's assets is $2,255,000 plus cash held in a liquidation bank account in the sum of $35,060.99. Accordingly, he estimates that there is a net deficiency of $139,175.83 before realisation costs, his remuneration and expenses. He states that, unless there is recovery for the Company from the Properties, it is not likely that there will be any funds available for distribution to creditors of the Company such that the liquidation cannot be finalised.

16 Notice of the application was given to each of the beneficiaries, Westpac, the director and appointor, as well as Kazzi.

17 The matter was first returnable on 22 May 2019 at which time Mr Pires sought an adjournment to take legal advice. He was accordingly given an opportunity to do so, with the hearing of the originating process adjourned to 29 May 2019 at 10.00 am (and subsequently relisted for 30 May 2019 at the instigation of the Court). An order was also made that if Mr Pires wished to file and serve any affidavits, such affidavits were to be filed and served by 12.00 pm on or before 27 May 2019.

18 As at 27 May 2019, Mr Pires had not filed and served any affidavits (although there had been an attempt to file an unsworn affidavit). On 30 May 2019, his Counsel nevertheless sought a further adjournment to make an application to terminate the winding up of the Company.

19 On 30 May 2019, orders were therefore made for Mr Pires to file and serve any application to terminate the winding up by 4.00 pm on or before 6 June 2019 and that the originating process was otherwise adjourned to be heard on 11 June 2019 (unless Mr Quin wished an opportunity to file and serve material in response and thereby seek a further adjourned date).

20 However by 6 June 2019, Mr Pires had still not filed and served any application to terminate the winding up. Instead, the Court received notice on 6 June 2019 that his solicitors, WJ Gilbert & Co, had ceased to act.

21 On 11 June 2019 Mr Pires nevertheless orally sought a further adjournment for a period of some 15 -21 days on the basis of the following matters:

• finance had been approved in June of last year for $800,000 which would have paid out the Kazzi debt (then at $580,000) leaving a surplus to pay other debts;
• he had retained experts and there were 'strong' prospects of obtaining favourable expert opinion and finance within the period sought of 15 to 21 days;
• Kazzi was intending on bringing its own application which would make this application redundant;
• he disagreed with the inclusion of two of the debts, namely that of Kazzi and of Collins Capital Partners (who has also lodged a caveat as 'chargee' for an amount of $30,415); and
• that he had been distracted by the birth of a new baby and a dispute surrounding the care of that child (who had previously been placed into foster care in the context of allegations of domestic violence).

22 In the absence of material in support of the adjournment, I am unable to be generally satisfied that any of the matters identified by Mr Pires are substantiated.

23 More particularly, the obtaining of finance last year does not assist, particularly given the evidence before the Court was that the debt was now much larger than $800,000.

24 In relation to the alleged 'strong prospects', not only was there no evidence to support this assertion (despite two opportunities to adduce material), there had also been no positive action taken at all to even pay for the costs and expenses of the liquidator, Mr Quin.

25 Insofar as Kazzi was concerned, it appeared that it was considering bringing its own application to appoint receivers and managers, but has, in the result, chosen not to do so, apparently based on its understanding as to the liquidator's fees.[1]

26 Insofar as the two debts are concerned, the challenge was vague and does not warrant any further adjournment. Rather, Mr Pires is able to, and apparently intends to, raise these matters directly with Mr Quin who will investigate the extent of the debts as appropriate.

27 Overall, then, I am not satisfied that it is appropriate to grant any further adjournment of Mr Quin's application for appointment as receiver and manager.

28 First, I highlight the previous opportunities that have been given to Mr Pires, which he has not taken up. Although it is unfortunate if he has experienced family issues in the past, no explanation was provided as to why this prevented him from adducing any material (either by 27 May 2019 or 6 June 2019) in circumstances where he was able to retain legal representation.

29 Secondly, it does not appear that there is any utility in the grant of any further adjournment in circumstances where Mr Pires' proposed ground for terminating the liquidation appears to be that the Company is solvent.

30 Mr Pires accepts that he has not sought to notify any creditors of his intention to make any such application to terminate the winding up[2] which ought to have occurred.[3]

31 More significantly, there does not appear to be any realistic probability of such an application being successful given Mr Pires has not demonstrated any likely refinancing options, and where there is strong evidence from Mr Quin that the Company is in a negative asset position (where properties are subject to a registered mortgage and a variety of caveats). The Company has also failed to make any repayments on the Westpac mortgages since 2017.

32 Finally, the further adjournment of the matter will merely serve to further increase the costs, in circumstances where high interest charges are also being incurred.

33 I have taken into account the overarching purpose, as well as the matter contained in s 9 of the Civil Procedure Act 2010, particularly the importance of efficiency, minimising delay, and determining this application in a timely manner (see especially ss 9(1) (c), (d), (e) and (f)).

34 I was therefore not satisfied that it was in the interests of justice to accede to the application by Mr Pires for a further adjournment.

35 Pursuant to s 37 of the Supreme Court Act 1986 (Vic), the Court may, by order, whether interlocutory or final, appoint a receiver if it is 'just and convenient' to do so.

36 Rule 39.02 of the Supreme Court (General Civil Procedure) Rules 2015 states that the Court may also appoint a receiver at any stage of a proceeding.

37 The general principles applicable to the appointment of a receiver were considered by Warren J in a decision of Vladymir Martyniuk v Cecil King & Ors,[4] as well as the decision of Yunghanns v Candoora No 19 Pty Ltd (No 2).[5] In particular, her Honour emphasised that the Court might appoint a receiver where it is a step necessary for the protection or preservation of trust property for the benefit of persons who have an interest in that property.[6] Her Honour also noted that the power should be exercised with caution, citing National Australia Bank Ltd v Bond Brewing Holdings Ltd[7] (although also noting the different circumstances pertaining therein where the Court was concerned with a bank creditor rather than appointment of a receiver to a trust).

38 Mr Pires made oral submissions in opposition to the appointment of Mr Quin as receiver and manager. He reiterated his concern that Kazzi was intending to bring its own application, and again sought to challenge the debts relied upon by Mr Quin, particularly those of Kazzi and Collins Capital Partners.

39 As I have identified already, no relevant application has been made by Kazzi, notwithstanding that it was informed of this application. It is therefore not appropriate to take into account a hypothetical application.

40 The issue of debts also ought be finalised by Mr Quin who, as an officer of the Court, is entitled to, and will, investigate the relevant debts claimed and may take into account any matters Mr Pires wishes to put to him, preferably in writing.

41 Turning then to the issue before the Court, the first issue is whether or not an order to appoint a receiver is necessary, in particular, whether Mr Quin would already have a power of sale by reason of the trustee's right of indemnity and lien.

42 Thus, consistent with the terms of the trust (cl 16 of the Trust Deed), the trustee is entitled to be indemnified against debts and liabilities incurred in the proper execution of its duties and powers under the trust out of the assets of the trust. If the trustee has not paid the debts it has a right of exoneration to use the trust assets to exonerate itself from liability for the debts. The trustee also has a lien over the trust assets for the right of indemnity.[8]

43 However, the trustee's lien does not confer a power of sale over trust assets so that, if a sale is necessary, a Court order for the appointment of a receiver to sell trust assets is required.[9] In the decision of the Full Court of the Federal Court in Killarnee, Allsop CJ also found that the liquidator did not have power to sell trust assets by reference to the power contained in s 477 of the Corporations Act 2001 (the Act).[10] Thus, although the right of exoneration is 'property of the company' for the purposes of s 477, this does not extend to the sale of the underlying trust property secured by the lien.[11] This was agreed to by both Siopis[12] and Farrell JJ.[13]

44 It is accordingly necessary for the Court to appoint a receiver so that the assets of the Trust may be sold.

45 This is further appropriate in the circumstances of this particular case for the reasons identified in the affidavit of Mr Quin. In particular:

• the liquidation cannot be finalised unless the Properties are realised in circumstances where the Properties cannot be sold without Court order;
• there are significant amounts of interest accruing while the Properties are held; and
• no alternative option is available in circumstances where Mr Pires has not cooperated with the efforts of Mr Quin towards the appointment of a new trustee.

46 I am further fortified in this approach given work has already commenced towards a sale, including by the obtaining of market proposals.

47 Pursuant to rule 39.05 of the Supreme Court (General Civil Procedure) Rules 2015 I am ordinarily required to make an order for security unless the Court otherwise orders. However, in a decision of Sapphire (SA) Pty Ltd v Ewens Glen Pty Ltd (No 2), Besanko J held that it was an appropriate case to 'otherwise order', given that the receivers and managers were joint and several liquidators and, therefore, already subject to obligations under the Act.[14]

48 It is similarly appropriate to 'otherwise order' in this case as Mr Quin is the liquidator of the Company.

49 There will therefore be an order for the appointment of Mr Quin, without security, as receiver and manager of the assets of the Trust, with appropriate powers to take possession, preserve, maintain and sell the assets comprising the Trust property.

50 The Court of Appeal in Commonwealth v Byrnes (as joint and several receivers and managers of Amerind Pty Ltd)(Recs and Mgrs) Appointed (Amerind) unanimously held that funds obtained from the exercise of the trustee's right of exoneration was 'property of the company' to be distributed in accordance with the priority regime set out in s 556 of the Act.[15]

51 This position was also generally accepted by the majority (with Siopis J dissenting) in Killarnee[16] although Allsop CJ observed that each provision in s 556 should be examined for its meaning and that the analysis worked best where the company had only ever acted as corporate trustee for one trust.

52 In terms of payment of liquidator's costs, the Chief Justice in Killarnee also generally agreed with the approach of King CJ in Re Suco Gold Pty Ltd (Re Suco Gold) that they were payable out of the trustee's right of indemnity.[17] This was because, upon a winding up, the trust debts could only be paid if there was a liquidator who necessarily incurred costs and expenses and was paid remuneration. This approach has been similarly applied in subsequent cases.[18]

53 As the sole function of the Company was as a trustee of the (one) Trust, I therefore accept that the costs of the receivership and the liquidation are costs and expenses incurred in the course of Mr Quin discharging the trustee company's duties.

54 Thus I consider it is appropriate to order that the costs, expenses and remuneration, whether they were incurred by Mr Quin in his capacity as liquidator or receiver, be payable from Trust property with such costs to be paid in accordance with the statutory priorities contained in s 556 of the Act.

1. David Charles Quin be appointed without security as receiver and manager (Receiver) of the assets of The Pires Family Trust established by deed of settlement dated 15 March 2010 (Trust Property).
2. The Receiver is authorised to take possession of, preserve, maintain and sell the assets comprising the Trust Property.
3. The Receiver will have the following powers:
   • (a) to do all things necessary or convenient to effect the sale or realisation of the Trust Property, with the powers that a liquidator has in respect of property of a company pursuant to section 477(2) of the Corporations Act 2001 (Cth);
   • (b) to apply the proceeds from the sale of the Trust Property to discharge the liabilities of Pires Consulting Holding Pty Ltd (in liquidation) (all of which were incurred by it in its capacity as trustee) in accordance with the priorities set out in section 556 of the Corporations Act 2001 (Cth);

(c) to distribute any surplus proceeds from the sale of the Trust Property (if any) to the new trustee of The Pires Family Trust or, if there is no new trustee, to the beneficiaries of The Pires Family Trust.

1. The costs, expenses and remuneration incurred by the plaintiff in relation to the Trust Property, whether incurred as liquidator of Pires Consulting Holding Pty Ltd (in liquidation) or as Receiver of the Trust Property pursuant to order 1 above (including this application), be paid in accordance with order 3(b) above, from the assets of The Pires Family Trust, with the quantum of such costs, expenses and remuneration to be approved by the Court.
2. Liberty to apply.

[1] See email dated 28 May 2019 from Paul Reese of Summers Lawyers to DLA Piper (solicitors for the liquidator Mr Quin).

[2] Transcript of Proceedings, In the Matter of Pires Consulting Holding Pty Ltd (In Liquidation)(ACN 082 866 902), (Supreme Court of Victoria, Kennedy J, 11 June 2019) 7.

[3] Stolar Joinery (Aust) Pty Ltd v Charterarm Investments Pty Ltd (In Liquidation) (2011) VSC 577, [17].

[4] [2000] VSC 319 ('Martyniuk').

[5] [2000] VSC 300; [2000] 35 ACSR 34.

[7] Ibid [27]-[30] citing National Australia Bank Ltd v Bond Brewing Holdings Ltd [1991] VicRp 31; (1991) 1 VR 386.

[8] Jones (in his capacity as liquidator of Killarnee Civil & Concrete Contractors Pty Ltd (In Liq) v Matrix Partners Pty Ltd [2018] FCAFC 40; (2018) 124 ACSR 568, 576 [35] (Allsop CJ) ('Killarnee').

[14] [2011] FCA 714, [4].

[15] Commonwealth v Byrnes (as joint and several receivers and managers of Amerind Pty Ltd)(Recs and Mgrs) Appointed [2018] VSCA 41; (2018) 354 ALR 789, 840-2 [269]-[281].

[16] Killarnee, (n8) 585 [69] and 592 [101]-[102] (Allsop CJ); 608-13 [200]-[223] (Farrell J).

[17] (1983) 33 SASR 99, 110 cited in Killarnee (n8) 592 [105].

[18] See e.g. Deputy Commissioner of Taxation v Fairsales Pty Ltd [2018] FCA 499; Amirbeaggi (in her capacity as liquidator of Simpkiss Pty Ltd (In Liq)) v Simpkiss Pty Ltd (In Liquidation) [2018] FCA 2121.