Re The Pizza Bar (Strathmore) Pty Ltd (Admins Apptd) [2024] VSC 646 (28 October 2024)

1. An order that, pursuant to s 90-15 of the [IPSC], being [S]chedule 2 of the Corporations Act 2001 (Cth), further or alternatively, s 37 of the Supreme Court Act 1986 [(Vic)], the [f]irst and [s]econd [p]laintiffs be appointed as joint and several [r]eceivers and managers [('Receivers')], without [provision by them of] security over all the assets and undertaking of the [Karvelas] Family Trust.[2]

2. An order that, pursuant to s 90-15 of the IPSC, that the Receivers have, in respect of the Trust, all of the powers provided by s 437A of [the Act] as if reference therein to 'the company' was a reference to the [Karvelas] Family Trust, including but not limited to, the power to do all things necessary and convenient to effect the sale of the assets and undertaking of the Trust.

3. Pursuant to s 90-15 of the IPSC, the [p]laintiffs are justified in treating and treat:

1. All of the business and assets of [T]he Pizza Bar (Strathmore) Pty Ltd (Administrators Appointed) (ACN 601 990 710) ('Company') as assets of the Trust.

2. All of the debts and liabilities which are provable in the external administration of the Company as having been incurred in the conduct of a business as trustee of the Trust.

3. All of the assets of the Trust, including the [p]roceeds of assets realised or due to be realised by the plaintiffs in the course of the external administration of the Company as being subject to an indemnity in favour of the Company as to its power to exonerate the debts and liabilities.

4. The costs and expenses incurred by and the remuneration of the Receivers in acting as receivers and managers of the Trust be paid from the assets of the Trust and, if they be insufficient, from the assets of the Company.

5. The Receivers be entitled to be paid remuneration for their services, from time to time, calculated on a time basis at the rates ordinarily charged by the firm Hall Chadwick and such remuneration is to be approved by the Court.

6. The [p]laintiffs have liberty to apply, including for approval of their remuneration in acting as Receivers.

7. The [p]laintiffs' costs of this application to date be paid from the assets of the Trust, and if insufficient be their costs in the voluntary administration of the Company, and if the Company is wound up be their costs in the winding up.

1. On 25 September 2024 I made orders in the terms which appear at the conclusion of these reasons and indicated that I would provide reasons at a later date which I now do.

1. Since its incorporation in September 2014, the Company has operated a business known as 'The Pizza Bar Strathmore'. The business operates as a restaurant and a take-away food business in conjunction with food delivery companies such as UberEats and Menulog from its premises in Strathmore, Victoria.
2. In support of their application, the Administrators rely principally on Mr Wollinski's affidavit affirmed 20 September 2024. Several affidavits of service are sworn by Amanda Caitlin Hiscock ('Ms Hiscock') including an affidavit sworn 24 September 2024 which deposes to service upon ASIC and several secured creditors, and another affidavit of service sworn on the same day which deposes to service upon several unsecured creditors. Mr Wollinski also deposes in an affidavit affirmed 24 September 2024 as to service of the application and his earlier affidavit on the sole director, Mr Karvelas. He deposes in a separate affidavit affirmed 25 September 2024 as to service on the Company's most prominent creditor, the Australian Taxation Office ('ATO').
3. By a trust deed dated 24 September 2014 ('Trust Deed'), the Company became the trustee ('Trustee') of the Karvelas Family Trust ('Trust'). The Trust is a discretionary trust and the schedule to the Trust Deed nominated Mr Karvelas and any of his children and future children as the primary beneficiaries of the Trust. The general beneficiaries were defined in an elaborate clause in the body of the Trust Deed. The schedule named Mr Karvelas as appointor of the Trust ('Appointor').
4. Mr Wollinski deposes he is advised by Mr Karvelas and believes that the Company operated the business through the Trust and did not conduct any business or activity other than as trustee of the Trust. Further, he states there have been no amendments or variations to the Trust Deed since the establishment of the Trust.
5. Mr Wollinski deposes he is not aware of any activities carried on by the Company other than operating the business. He describes the Company's various records with which he has been provided and which are exhibited to his affidavit affirmed 20 September 2024. Mr Wollinski states that as he and Mr Albarran were only appointed to act as Administrators on 29 August 2024, their investigations into the Company's affairs have not been finalised and are ongoing.
6. Significantly, in the present context, the Trust Deed contains an ipso facto provision whereby the office of the Trustee is vacated, among other events, upon the appointment of administrators to the Trustee. Clause 35 of the Trust Deed provides:
   1. Vacation of office. The office of Trustee will be determined and vacated if:

(10) an administrator, official manager, provisional liquidator or similar officer is appointed to the Trustee

1. As such, by operation of cl 35 of the Trust Deed, the Company ceased to be the Trustee of the Trust on 29 August 2024 and the Company became the bare trustee of the property of the Trust.[3]
2. Clause 83 of the Trust Deed provides powers of appointment to the Appointor under the Trust to appoint a new trustee in place of the Trustee.
3. Mr Wollinski states he is informed by Mr Karvelas, the Appointor and sole nominated primary beneficiary of the Trust, and believes:

(a) Mr Karvelas does not have any children over the age of 18 who would be considered primary beneficiaries of the Trust;

(b) since the Company entered into administration, there has been no replacement Trustee appointed to the Trust; and

(c) Mr Karvelas has no intention of causing another trustee to be appointed to the Trust; rather he intends to reappoint the Company as the Trustee should his proposed Deed of Company Arrangement ('DOCA') (to which reference will be made below) be approved by creditors.

1. Mr Wollinski states that since the Administrators' appointment, they have continued to trade the Company to preserve its business and allow the director to put forward a proposal to its creditors. The costs of operating the Company's business, including payment of its employees' wages, are presently being met by the Administrators.
2. Mr Wollinski states he has been provided with the Company's Report into Company Activities and Property ('ROCAP'). In addition to this, he has been provided with access to the Company's accounts maintained on Xero, a cloud-based accounting system. Mr Wollinski exhibits the Company's balance sheet (headed in the name of the Trust) which he has extracted from the Xero records.
3. Mr Wollinski also states he has liaised with a number of the Company's creditors in relation to the debts owed to them by the Company. He exhibits a schedule identifying the creditors, including secured, priority and unsecured creditors, based on the Administrators' investigations to date.
4. On 2 September 2024, the creditors were provided with the first report to creditors, and the first meeting of creditors took place on 10 September 2024.
5. Mr Wollinski states that based on his investigations into the Company's affairs, it has unsecured creditors totalling $275,391 in value. Those creditors are identified in his affidavit affirmed 20 September 2024. The most significant of those is the ATO, which is said to be owed $217,080 in the ROCAP, but has made a claim of $235,280.78 to the Administrators. The other creditors include suppliers, energy utilities and a provider of accounting services.
6. Mr Wollinski states that in addition to its unsecured liability to the Deputy Commissioner of Taxation ('DCT'), the Company owes a further $70,792.14 in respect of unpaid Superannuation Guarantee Charges, which he classifies as a priority debt.
7. Mr Wollinski states his investigations reveal the Company has secured creditors in the amount of $140,589.20, together with an amount currently unknown owing to the National Australia Bank ('NAB'). He is in the process of liaising with NAB in relation to ascertaining the amount of that debt. The nature of the debts owed to various secured creditors, so far as they are known, are identified in Mr Wollinski's affidavit. The proposed DOCA provides that the Company will continue to meet its obligations to the secured creditors throughout its term.
8. Mr Wollinski states that a valuer has been engaged to prepare a list of the Company's assets. Those assets consist of the types of plant and equipment one would expect a restaurant business to have. The balance sheet records the value of those assets as being $266,191.21; a figure inconsistent with the ROCAP. Mr Wollinski's investigations regarding the assets are ongoing.
9. In Mr Wollinski's opinion, based on his review of the documents described and the matters stated in his affidavit, the assets owned by the Company are held in its capacity as Trustee of the Trust and the Company's assets are trust assets.
10. Mr Wollinski states that at the time of sending out the first report to creditors, the Administrators estimated their remuneration to be $75,000 (excluding GST) and, taking into account the work required in respect of this application, he estimates the remuneration will be of the order of $85,000 (excluding GST). In addition, there have been estimated disbursements of $20,000 (excluding GST) which relate to the costs of obtaining necessary searches, posting documents, sundry office related costs and costs incurred in relation to this application.
11. Mr Wollinski anticipates further remuneration will be incurred for future work in respect of trading the business, preparing the second report to creditors required by the Insolvency Practice Rules (Corporations) 2016 (Cth), and convening and conducting a meeting of priority employees in relation to any DOCA proposal (which will occur prior to the second meeting of creditors required to be conducted in accordance with s 439A of the Act).
12. Mr Wollinski states that on 19 September 2024, the Administrators received a DOCA proposal from Mr Karvelas. The deed fund described in the DOCA proposal will be comprised of:

(i) the cash at bank held, or subsequently received, by the Administrators;

(ii) $50,000 contribution within 30 days of executing the DOCA;

(iii) $150,000 on settlement from the sale of a property located at Enterprize Drive, Sunbury;

(iv) $100,000 contributions paid in 10 equal monthly instalments, commencing six months after receipt of the contribution referred to in (ii); and

(v) any other assets of the Company.

1. In respect of this application, Mr Wollinski states he is satisfied that:

(a) the business was a business of the Trust;

(b) the Company's assets, which shall partly comprise the deed fund under the DOCA, are Trust assets ('Trust Property');

(c) the Company's creditors, including the secured creditors, are creditors of the Trust; and

(d) the Company did not conduct any activities or own property in its own right.

1. Mr Wollinski asserts, which is uncontroversial, that a company which is a corporate trustee (or even a bare trustee) is entitled to a right of indemnity exoneration with respect to the debts owed to trust creditors, from trust property. He states that because of the legal position arising from the decision in Jones v Matrix Partners Pty Ltd,[4] the Administrators are not presently able to deal with the Trust Property so as to be able to:

(a) satisfy their right of indemnity in respect of the Company's assets;

(b) administer the deed fund in accordance with the proposed DOCA, should the creditors vote in its favour at the second meeting of creditors; or

(c) deal with the Company's assets for the purposes of a winding-up, should the Company be placed into liquidation at the second meeting of creditors.

1. This situation arises because the Company has been removed as the Trustee by operation of the ipso facto provision in the Trust Deed and now acts solely as a bare trustee in favour of the Trust.
2. Mr Wollinski states the Company does not have any assets other than the Trust Property and, as such, there is no property available in the administration (or any subsequent liquidation, should the proposed DOCA not eventuate) to pay the remuneration for necessary work properly performed by the Administrators.
3. Mr Wollinski lists the parties that are potentially affected by the orders sought in this proceeding, which are:

a. ASIC;

b. Campoli Foods;

c. the DCT (ATO);

d. GC Leasing;

e. Geared Asset Finance;

f. Macquarie;

g. NAB;

h. Pepper Asset Finance; and

i. Propsa.

1. Mr Wollinski also indicates that he advised Mr Karvelas of the Administrators' intention to make this application.[5] This application was served on Mr Karvelas on 24 September 2024, and he has not sought to oppose it. I consider that such service also serves to inform him as the Appointor and primary beneficiary of the Trust.[6]
2. This matter has been brought on as a matter of urgency. In this regard, Mr Wollinski explains that pursuant to s 439A of the Act, the last day by which the second meeting of creditors may be conducted is 4 October 2024. The Administrators expect to hold that meeting on 4 October 2024 to allow as much time as possible for this application to be made and for the other necessary steps to occur prior to the meeting.
3. He states that during this time, the Administrators are required to prepare a report to creditors,[7] required pursuant to the Insolvency Practice Rules (Corporations) 2016 (Cth), wherein they are obliged to provide their recommendation to the Company's creditors regarding the DOCA proposal and the Company's future generally.
4. To ensure the DOCA can be properly administrated (should the creditors vote in favour of the DOCA proposal), the Administrators seek that the Court hear and determine this application on an urgent basis, that the Administrators be appointed as Receivers of the Trust and for this appointment to be made prior to the second creditors' meeting.

1. Applications of the type brought by the Administrators in this proceeding have become common in the Corporations Lists of state Supreme Courts and in the Federal Court. The principles are settled and are collected and considered by Moshinsky J in Re Cremin, Brimson Pty Ltd (in liq).[8] Many of the authorities involve applications by liquidators of insolvent trustee companies, however I consider that they are also apt for application in the case of a company in administration under Part 5.3A of the Act.[9] In brief terms, a company that is trustee of a trading trust has a right of indemnity to resort to the trust assets so it may vindicate its right to be exonerated from a liability incurred in the course of carrying out trust business. Where that company enters into liquidation, its right of indemnity and accompanying equitable lien over the assets survives, notwithstanding that the company has been removed as trustee of the trust, for example by operation of an ipso facto clause such as the Disqualification Clause in this case. The Company presently only holds the trust assets as bare trustee. The rationale for this is that, on a proper understanding, the trust assets are not 'property of the company' but rather are trust property in which the corporate trustee has a proprietary interest by way of lien or charge to secure its right of exoneration.
2. Moshinsky J observed that courts are generally willing to make orders permitting the liquidator to sell trust assets in these circumstances. Where the property of the trust will be exhausted following its sale and subsequent distribution to creditors, it may be appropriate to only give the liquidator a power of sale. However, Moshinsky J observes the more common course is for the liquidator of the insolvent former corporate trustee to apply to be appointed as receiver for the purpose of selling the trust assets and distributing the proceeds among trust creditors.[10]
3. The proceeds from the exercise of a corporate trustee's right of exoneration may only be applied to satisfy liabilities of the trust to which that right relates. The liquidator of a former corporate trustee may only apply the proceeds of sale of trust assets to satisfy assets owed to trust creditors and not those owing to general creditors. This would include costs of the liquidation, and the liquidator's remuneration, as such costs constitute debts incurred by the company in discharging duties imposed by the trust. Where, as is apparently the case here, a company that has only ever acted as trustee of one trust, which is the totality of its affairs, no issue arises as to the application of trust assets to general creditors because all the company's creditors are trust creditors. Where this is the case, the proceeds from the exercise of the right of exoneration are to be distributed to the trust creditors in accordance with the priorities prescribed by the Act.

1. I am satisfied on the evidence that the Company carried on a business solely in its capacity as Trustee of the Trust, that all of its assets are properly characterised as property held by it as Trustee of the Trust and that all of its creditors are trust creditors. By reason of the Administrators' appointment, the ipso facto clause in the Trust Deed operates such that the Company no longer has the power to realise or deal with the trust assets, or to rely upon its right of indemnification. It is appropriate that orders be made to enable the Administrators to deal with the trust assets. Moshinsky J observed in Re Cremin that it was well established and 'more common course' for a court to appoint insolvency practitioners as receivers and managers of the trust assets without being required to provide security.[11]
2. I will make an order in the terms of paragraph 1 of the originating motion pursuant to s 37 of the Supreme Court Act 1986 (Vic) that the first and second plaintiffs be appointed as joint and several receivers without security over all of the assets and undertaking of the Karvelas Family Trust.
3. I will also make orders pursuant to s 90-15 of the IPSC that the Administrators, as receivers, have in respect of the Trust all of the powers provided by a s 437A of the Act as if reference in that section therein to 'the company' was a reference to the Karvelas Family Trust. This includes, but is not limited to, the power to do all things necessary and convenient to effect the sale of the assets and undertaking of the Trust.
4. I will also order, pursuant to s 90-15 of the IPSC that the plaintiffs are justified in treating and treat:

(a) all of the business and assets of The Pizza Bar (Strathmore) Pty Ltd (Administrators Appointed) (ACN 601 990 710) as assets of the Trust;

(b) all of the debts and liabilities provable in the Company's external administration as having been incurred in the conduct of business as Trustee of the Trust; and

(c) all of the Trust assets, including the proceeds of assets realised or due to be realised by the plaintiffs in the course of the Company's external administration as being subject to an indemnity in favour of the Company as to its power to exonerate the debts and liabilities.

1. The Administrators make application for their remuneration and expenses. In Re Stansfield DIY Wealth Pty Ltd (in liq),[12] Brereton J observed that the liquidator of a company whose only function is to act as trustee is entitled to be paid remuneration and expenses, whether for administrating the trust assets or for 'general liquidation work', out of the trust assets. This position is to be distinguished from a case where a company has other functions in addition to its role as trustee, in which only remuneration and expenses referable to the administration of the trust are payable out of the trust assets. The evidence in this case is that the Company has only ever operated as Trustee of the Trust, and all of the creditors are trust creditors. I consider that the same position applies in respect of administrators under Part 5.3A of the Act being appointed as receivers, as in this case.
2. I now recite the orders I made on 25 September 2024:
   1. Pursuant to s 37 of the Supreme Court Act 1986 (Vic), the first and second plaintiffs be appointed joint and several receivers ('Receivers') of the assets and undertaking of the Karvelas Family Trust (ABN 62 192 140 376) ('Trust').
   2. The requirements of rr 39.04, 39.05 and 39.07 of the Rules be dispensed with.
   3. The Receivers have, in respect of the assets of the Trust, the powers that an administrator has in respect of the business and property of a company under s 437A of the Corporations Act 2001 (Cth) as if the reference in that section to 'the company' were a reference to the Karvelas Family Trust (ABN 62 192 140 376) including, without limitation, the power to do all things necessary and convenient to effect the sale of the assets and undertaking of the Trust.
   4. The remuneration, costs and expenses of the Receivers as administrators of The Pizza Bar (Strathmore) Pty Ltd (Administrators Appointed) (ACN 601 990 710) and as the Receivers of the assets of the Trust, be paid from the assets of the Trust.
   5. The first and second plaintiffs have liberty to apply, including for approval of their remuneration in acting as receivers.
   6. The Receivers may apply to the Court for orders discharging and releasing themselves as receivers of the assets of the Trust on seven business days' notice by sending an email to the Commercial Court Registry.
   7. The plaintiffs' costs of this application to date be paid from the assets of the Trust and if the Company is wound up be their costs in the winding up.
   8. The plaintiffs serve a sealed copy of these orders on:

(b) the Australian Securities & Investments Commission; and

(c) the creditors of The Pizza Bar (Strathmore) Pty Ltd (Administrators Appointed) (ACN 601 990 710) as identified in the creditor listing for The Pizza Bar (Strathmore) Pty Ltd (Administrators Appointed) (ACN 601 990 710) appearing at page 189 of the exhibit bundle to the affidavit of Nicholas Stephen Wollinski affirmed 20 September 2024, by email or post to their respective last known email or postal addresses by 26 September 2024.

1. There be liberty to apply to any person who can demonstrate sufficient interest to modify or discharge these orders on not less than five (5) business days' written notice to the plaintiffs.

NICHOLAS STEPHEN WOLLINSKI in his capacity as Joint and Several Administrator of THE PIZZA BAR (STRATHMORE) PTY LTD (ADMINISTRATORS APPOINTED) (ACN 601 990 710)

RICHARD ALBARRAN in his capacity as Joint and Several Administrator of THE PIZZA BAR (STRATHMORE) PTY LTD (ADMINISTRATORS APPOINTED) (ACN 601 990 710)

THE PIZZA BAR (STRATHMORE) PTY LTD (ADMINISTRATORS APPOINTED) (ACN 601 990 710)

[1] The Administrators also filed an interlocutory process on the same date which seeks identical relief.

[2] In the originating process, the name of the Trust was incorrectly spelled as 'Kervalas Family Trust' instead of 'Karvelas Family Trust'.

[3] Jones v Matrix Partners Pty Ltd [2018] FCAFC 40; (2018) 260 FCR 310, 342 [126] (Siopsis J).

[4] See generally Jones v Matrix Partners Pty Ltd (n 3).

[5] As stated in the affidavit of service of Mr Wollinski, affirmed 24 September 2024.

[6] See Re Indopal Pty Ltd (1987) 12 ACLR 54 (McLelland J).

[7] Required pursuant to r 75-225 of the Insolvency Practice Rules (Corporations) 2016.

[8] [2019] FCA 1023; [2019] 136 ACSR 649, [48]-[51] (Moshinsky J) ('Re Cremin').

[9] See Re Mecfab Holdings Pty Ltd [2015] NSWSC 46 (Brereton J).

[12] [2014] NSWSC 1484; [2014] 291 FLR 17, 20 [7] (Brereton J).