Re Total Truss Systems Pty Ltd (in liq) [2021] VSC 205 (27 April 2021)

1 By originating process filed 29 October 2020, the first plaintiffs, Nathan Deppeler and Matthew Jess ('the liquidators') in their capacity as joint and several liquidators of the second plaintiff, Total Truss Systems Pty Ltd (in liq) (ACN 109 644 984) ('the Company'), make application under ss 90-15 and 90-20 of the Insolvency Practice Schedule (Corporations) ('IPSC')[1], s 1318 of the Act, alternatively s 63 of the Trustee Act 1958 (Vic) ('Trustee Act'), and the inherent jurisdiction of the Court for orders and declarations concerning matters arising in the liquidation of the Company which was the trustee of a trust.[2]

2 The application is supported by affidavits of Mr Deppeler sworn 28 October 2020 ('First Deppeler Affidavit'), 22 December 2020 ('Second Deppeler Affidavit'), 27 January 2021 ('Third Deppeler Affidavit') and 3 March 2021 ('Fourth Deppeler Affidavit'). The plaintiffs have also filed nine affidavits relating to service or attempted service, which is discussed below.

3 On 4 December 2014, the Company was placed into voluntary liquidation pursuant to s 491 of the Corporations Act 2001 (Cth) ('the Act') and the first plaintiffs were appointed joint and several liquidators. At the time it was resolved that the Company be wound up, its shareholders and directors were Daryn Kenneth McGregor and Scott Anthony Leith. There were three shares issued by the Company, one each held by Mr McGregor and Mr Leith, with the remaining share held jointly between them. Dean Barry Grant was a director of the Company until 10 June 2005 and is a former shareholder.[3]

4 The Company operated a business manufacturing trusses and frames for use in the construction industry ('the business'). The Company was trustee of a unit trust described as the Total Truss Systems Unit Trust ('the Trust'). The unit holders of the Trust are Messrs McGregor, Leith and Grant, who each hold one of the three issued units in the Trust in their respective capacities as trustees of their family trusts. The business operated from leased premises at Delacombe, Victoria, which was also the Company's principal place of business, and had 13 employees but ceased trading shortly before the appointment of the liquidators.

5 By their originating process, the liquidators seek the following orders:

(a) pursuant to s 90-15 of the IPSC, an order that the liquidators are and were justified and acting reasonably in proceeding on the basis that:

(i) the Company carried on business solely in its capacity as trustee of the Trust;

(ii) all of the assets of the Company are properly characterised as property held by the Company in its capacity as trustee of the Trust ('Trust Property'); and

(iii) all of the creditors of the Company are creditors of the Trust;

(b) pursuant to s 63 of the Trustee Act, an order conferring on the Company, nunc pro tunc, the necessary powers to enable the Company to:

(i) carry on the business of the Trust;

(ii) sell or otherwise dispose of, in any manner, all or any part of the Trust Property in its capacity as trustee of the Trust;

(iii) compromise any claim made against the Company in its capacity as trustee of the Trust, or against any of the Trust Property on any terms the Liquidators see fit; and

(iv) bring any claim against any party on behalf of the Trust;

(c) pursuant to s 90-15 of the IPSC, an order that the liquidators are and were justified and otherwise acting reasonably in proceeding on the basis that the possession and realisation of the Trust Property and distribution of proceeds of sale of Trust Property to creditors is governed by parts 5.5 and 5.6 of the Act;

(d) pursuant to s 90-15 of the IPSC, an order that the liquidators are and were justified and otherwise acting reasonably in proceeding on the basis that:

(i) the liquidators are entitled to be paid their remuneration (as approved pursuant to s 60-10 of the IPSC), costs and expenses properly incurred in preserving, realising or getting in the Trust Property or in conducting the winding up of the Company ('Remuneration and Expenses') from the property of the Trust; and

(ii) the Remuneration and Expenses, which include the remuneration, costs and expenses of and incidental to this application, are to be paid with the priority specified in s 556(1) of the Act;

(e) pursuant to s 1318 of the Act and further or alternatively s 67 of the Trustee Act, an order that the liquidators are relieved from any liability for dealing with the Trust Property between the date of their appointment and the date of the order.

6 The liquidators also sought an order that there be liberty to apply to any person who can demonstrate sufficient interest to modify any directions, orders and further or alternatively declarations made pursuant to this Originating Process on not less than 48 hours' notice to the liquidators.

7 The liquidators did not ultimately press for the relief sought in paragraph (e) under s 1318 of the Act and s 67 of the Trustee Act in respect of liability for dealing with Trust Property.

8 On 24 March 2021 I made orders granting the relief sought by the liquidators and indicated I would provide reasons for those orders at a later date.

9 The Australian Securities and Investments Commission ('ASIC') was served with a copy of the originating process together with the First Deppeler Affidavit with exhibits by post on 11 November 2020. ASIC was served with the Second Deppeler Affidavit on 22 December 2020. ASIC indicated that it did not intend to appear and did not consent to nor oppose the application.

10 Mr Grant has been served with a copy of the originating process, together with the First Deppeler Affidavit and exhibits and the Second Deppeler Affidavit. Mr Grant has not sought to participate in the proceeding.

11 In the course of the liquidation there were some initial contacts with Messrs McGregor and Leith but the evidence is that despite considerable efforts being made to locate each of them, including the engagement of private investigators, they have not been able to be located and have not been served with the originating process or supporting evidence.

12 The liquidators' evidence is that there is no prospect of any return to the unit holders of the Trust by reason of the deficiencies owing to secured and unsecured creditors of the Trust and submit that it is highly unlikely that even if service of the application had been effected on the unit holders they would have sought to participate in the application or to oppose it.

13 In response to an enquiry from me at the hearing of the application on 5 February 2021, counsel for the liquidators indicated that the creditors of the Trust had not been served, however noted that the application was foreshadowed to creditors in March 2020. If one has regard to the authorities dealing with these types of applications the prevailing view is that creditors should be served with the application.[4] I ordered an adjournment of the application to allow creditors to be served with the application, amongst others reasons.

14 The liquidators served all creditors of the Company prior to the second hearing on 24 March 2021. Forty-three creditors were served by email on 3 March 2021 and a further 35 creditors served by express post posted on 3 and 4 March 2021. Of the creditors served by express post, five of those letters were marked 'return to sender'. One creditor, Koroneos Lawyers, responded and indicated that they did not oppose the application.

15 I am satisfied that all persons who are entitled to be notified with this application have, as far as practicable, been given notice of it. The evidence would indicate that it has not been possible to serve the application on Messrs McGegor and Leith despite numerous attempts to do so evidenced in the various affidavits of attempted service which have been filed. I accept the liquidators' submission that even if they had been served it was unlikely that they would have sought to participate.

16 In his evidence, Mr Deppeler states that since their appointment on 4 December 2014, the liquidators have proceeded to obtain possession of and realise the property held in the name of the Company.

17 In his first and principal affidavit, Mr Deppeler deposes that the Company's assets were comprised of:

(a) cash of $23,746 held in a bank account with the Commonwealth Bank of Australia;

(b) trade debts of $340,543. Mr Deppeler deposes that the liquidators have recovered an amount of $148,090, determined that an amount of $35,477 of debts were paid prior to liquidation and that the balance, of $156,975, be written off;

(c) three motor vehicles and a truck. Mr Deppeler deposes that the liquidators determined that two of the motor vehicles were subject to finance and were disclaimed due to the Company's lack of equity and one motor vehicle was disclaimed after it was determined it was uncommercial to realise. The truck was included in the sale of the Company's plant and equipment;

(d) plant and equipment which the liquidators secured, investigated and arranged to be assessed by a valuer before negotiating a sale by private treaty. An amount of $51,500 was recovered;

(e) a loan of $109,388 to the Leith Family Trust for which the liquidators issued a letter of demand, before determining not to pursue recovery by reason of commercial considerations; and

(f) what are referred to as 'accumulated Bartercard points', which is not further described or elaborated upon. The liquidators' investigations resulted in a decision that this particular asset was not capable of realisation.

18 In the course of the liquidation, the liquidators investigated potential voidable transactions and after the commencement of proceedings, recovered $65,000 in respect of those transactions. The liquidators also investigated a potential insolvent trading claim of the order of $500,000 but did not pursue recovery action after conducting an assessment of the prospects of recovery.

19 The liquidators' investigations reveal that the Company was appointed trustee of the Trust under the terms of the deed of trust for the Total Truss Systems Unit Trust dated 23 June 2004 ('Trust Deed').

20 The Trust Deed provides that the appointment of a liquidator to a corporate trustee, ipso facto,[5] results in, among other things, the position of trustee becoming vacant.[6] Clause 18(11) of the Trust Deed relevantly provides:

Vacation of office

The office of trustee shall ipso facto be determined and vacated if... the Trustee being a company shall enter into liquidation whether compulsory or voluntary (not being a voluntary liquidation for the purposes of amalgamation or reconstruction) or have a receiver or official manager or receiver and manager appointed.

21 Mr Deppeler deposes that he is not aware of any replacement trustee being appointed to the Trust and that it is his understanding that the Company is now bare trustee of the Trust and without power under the Trust Deed. He states that in such circumstances there is a concern about the liquidators' ability to deal with Trust Property.

22 As is commonly the case, the Trust Deed confers an express right of indemnity from the assets of the Trust against liabilities incurred by the trustee in its capacity as trustee of the Trust. In this regard, Clause 18(4) of the Trust Deed provides as follows:

Indemnity

The Trustee acting in good faith shall be entitled to be indemnified out of the Fund in respect of all liabilities incurred by the Trustee relating to the execution of any powers, duties, authorities or discretions vested in it by virtue of the provisions of this deed and in respect of all actions, proceedings, costs, claims and demands in relation to any matter or thing done or omitted to be done concerning the Trust provided that the right of the Trustee to be indemnified in respect of any liability incurred by the Trustee or arising in or about the investment under any contract entered into by the Trustee, or by reason of the execution of any power, duty, authority or discretion vested in the Trustee, shall be limited always to the assets of the Fund in the hands of the Trustee for the time being and shall not extend to enable the Trustee to recover any loss or obtain reimbursement for any liability incurred from any unit holder or other person beneficially entitled to any unit.

23 Clause 21 of the Trust Deed, the terms of which I shall not recite here, confers broad powers on the Company in its capacity as trustee of the Trust to deal with Trust Property. Included amongst those powers is the ability to acquire and carry on any manufacturing, trading, primary production or other business.

24 Clause 22 of the Trust Deed confers broad general powers on the trustee of the Trust to carry on business and deal with Trust assets. These are prescribed from Clause 22(a) to (tt) and would clearly authorise the Company to carry on a commercial enterprise in its capacity as trustee.

25 In the First Deppeler Affidavit, Mr Deppeler deposes that the evidence that he and his staff had located indicates that the Company operated the business in its capacity as trustee of the Trust and that the business was not operated by any other entity**.** He considers that all assets of the Company used by it in the business were held by the Company on trust. In addition, the liquidators' investigations reveal that all liabilities incurred by the Company in operating the business were incurred in its capacity as trustee of the Trust. As such he contends that the Company enjoys a right of indemnity in respect of those liabilities under the terms of Clause 18(4) of the Trust Deed.

26 Mr Deppeler catalogues the documentary source of his opinion in that regard. They broadly consist of financial statements, taxation returns and bank accounts.

27 As to the financial statements, he deposes that unaudited financial reports were prepared for the Trust which demonstrate that the business was conducted by the Company in its capacity as trustee of the Trust. The financial report for the year ending 30 June 2014, headed 'Total Truss Systems Pty Ltd atf the Total Truss Systems Unit Trust ABN 45 996 610 102 Financial Report for the year ended 30 June 2014' includes:

(a) a balance sheet which records the current and non-current assets of the Trust including cash and cash equivalents, trade and other receivables, inventories and property and plant and equipment which pertain to the conduct of the business. The balance sheet also records the current and non-current liabilities of the Trust which relate to the trading of the business including trade and other receivables and financial liabilities pertaining to it;

(b) a profit and loss statement which identifies distributions to the McGregor Family Trust and Leith Family Trust and otherwise records the sales generated by the business for the period; and

(c) reference throughout to the 'trustee company'.

28 Mr Deppeler deposes that he is unaware of any financial statements amongst the Company's records which suggests that the Company acted in any capacity other than as trustee of the Trust.

29 As to the taxation returns Mr Deppeler has reviewed, he states that the Company lodged returns for the financial year ending 30 June 2013 in its capacity as trustee of the Trust and he is unaware of the company lodging tax returns in any other capacity. The return identifies the name of the Trust as the Total Truss Systems Unit Trust and the Company as trustee.

30 Mr Deppeler states the Company held an overdraft cheque account bank account with the Commonwealth Bank of Australia entitled 'Total Truss Systems Pty Ltd in trust for Total Truss Systems Unit Trust'. Mr Deppeler deposes that he is not aware of any account maintained by the Company in any other capacity.

31 Mr Deppeler states that, based on the liquidators' investigations and a review of the Company's books and records, at the date of their appointment there was a deficiency in the Company's assets over liabilities in the order of $1,300,000 before deductions for liquidators' remuneration, costs and expenses.

32 As to secured creditors, Mr Deppeler states that, by reference to the Personal Properties Securities Register ('PPSR'), these consist of registered security interests over equipment. He states that the shortfall to the secured creditors is of order of $308,000. The liquidators have disclaimed the property the subject of security interests.

33 In addition, the liquidators investigations reveal that the Company has liabilities to unsecured creditors of approximately $919,000. There are also unpaid employee entitlements which include liabilities of approximately $63,000 in respect of superannuation guarantee charges owed to the Commissioner of Taxation and approximately $58,000 for unpaid employee entitlements owing to the Fair Employment Guarantee Scheme.

34 By reference to the Report as to Affairs compiled by the directors, Mr Deppeler is of the opinion that the Company appears to be balance sheet insolvent. Mr Deppeler deposes that it appears that all of the Company's unpaid debts were incurred by it while acting in its capacity of trustee of the Trust and carrying on the business of the Trust and, by reason of the indemnity that the Company has an entitlement to have recourse to over the assets of the Trust, there will be significant deficiency in the assets of the Trust and no possibility of a return to the beneficiaries of the Trust.

35 In the First Deppeler Affidavit, Mr Deppeler deposes that to the extent the liquidators exceeded their powers by dealing with Trust Property at a time the Company was no longer trustee of the Trust, they did so inadvertently and in circumstances where the liquidators' intention was to maximise the return for creditors of the Company. He states that it is for this reason that the present application is made so as to ensure that the liquidators obtain the necessary powers and are justified, and otherwise are acting reasonably, to realise and to distribute the proceeds of the assets of the manufacturing business to meet the Company's indemnity from the Trust. The liquidators also seek to be absolved from any liability that may arise from their dealings with the assets of the Trust in the course of the liquidation.

36 The liquidators were appointed on 4 December 2014 but the present application was not made until almost six years later, on 29 October 2020. On the occasion of the adjournment of this matter on 5 February 2021, in addition to requiring service on the creditors of the Company, I directed that if Mr Deppeler had any further evidence he wished to put on to explain the delay in making the present application he should do so. I considered that this delay warranted explanation together with elaboration as to when the liquidators became aware that they were without power to deal with the Trust Property in the way that they have.

37 As will be seen below, in the Fourth Deppeler Affidavit, filed after the first hearing of the application, Mr Deppeler frankly concedes that his account of when the liquidators and their staff became aware of the terms of the Trust Deed and obtained advice as to the effect of the Company being placed into liquidation in the Second Deppeler Affidavit was incorrect. I shall turn to a closer consideration of that affidavit below but it is not true to say that the handling of the Trust Property without power could be said to be inadvertent, as Mr Deppeler deposed in the First Deppeler Affidavit.

38 In the Fourth Deppeler Affidavit, Mr Deppeler states that following the adjournment of the application of 5 February 2021, as contemplated by my observations at that hearing, he instructed his staff to conduct a further review of the file maintained by the liquidators to determine whether he was able to provide more evidence which explained the six year delay in making the present application. Mr Deppeler deposes that as a result of this review he has identified that certain statements made by him in the Second Deppeler Affidavit are incorrect and he seeks to clarify and correct those statements.

39 In this regard, he states that following the commencement of this proceeding he instructed his staff to prepare a memorandum which chronicled the events in the liquidation, more particularly those involving the liquidators' knowledge of the terms of the Trust Deed. This memorandum was used as the internal source for providing instructions to his lawyers, BJT Legal, in connection with the preparation of the Second Deppeler affidavit. He states that, as a consequence of the review conducted after 5 February 2021, it has come to his attention that that memorandum contained errors and included information concerning the Trust Deed that were taken from the file maintained for an unrelated liquidation. This resulted in statements being made in the memorandum which were completely incorrect.

40 Mr Deppeler states that he is extremely embarrassed that he has adduced incorrect evidence and seeks to withdraw a good deal of the evidence he gave in the Second Deppeler Affidavit. More particularly, he wishes to correct his earlier evidence that the Trust Deed was unable to be located when the liquidators were appointed and that unsuccessful enquiries were made of the Company's accountant as its whereabouts. In the Second Deppeler Affidavit, he had stated that the liquidators were unable to locate the trust deed and therefore unable to verify the powers and status of the Company as trustee of the trust which resulted in the delay in making this application to the Court. He now frankly concedes that this was not the case.

41 In the Fourth Deppeler Affidavit, Mr Deppeler states that on 21 November 2014, prior to the appointment of the liquidators, he received an email from the accountants for the Company in response to a request from him, attaching a copy of the constitution of the Company and a copy of the Trust Deed. He states that at the time of swearing the Second Deppeler Affidavit he had no independent recollection of receiving the Trust Deed or considering its terms at that time, instead relying on the memorandum prepared by his staff which he now knows to be incorrect.

42 Mr Deppeler deposes that following the appointment of the liquidators, his staff made enquiries of the Company's accountants regarding the books and records. In an email from the accountants to a member of the liquidators' staff sent on 4 December 2014, it was indicated that the constitution of the Company and the Trust Deed were able to be collected from them. Mr Deppeler's records indicate that he holds a physical copy of the Trust Deed together with the other records of the Company received from the directors. He states that his records do not record whether a physical copy of the Trust Deed was collected from the accountants but that he believes on balance that it was.

43 Mr Deppeler apologises to the Court for those incorrect statements but he says that at the time he made them he believed them to be true on the basis of the memorandum that was prepared by his staff and upon which he relied.

44 Further, in the Second Deppeler Affidavit he stated that it was not until the decision of the High Court in Carter Holt Harvey Woodproducts Australia Pty Ltd v Cth[7] was delivered that the liquidators realised that the current application would need to be made in the liquidation of the Company. He states that as a result of the review conducted by his staff of the liquidation file, he is now aware that this statement is not correct. Rather, he became aware of the need to make this application following the receipt of legal advice from Baird & McGregor, solicitors, on 27 August 2018. In the Fourth Deppeler Affidavit, Mr Deppeler contended that that advice was sought and obtained on the question of the appropriate distribution of funds in the liquidation having regard to the conflicting decisions regarding whether the priority provisions of s 556 of the Act governed the distribution to trust creditors or whether distribution on a pari passu basis was required.[8] This is not correct. If one examines the letter seeking the advice, it requests advice as to the position of the Company in its capacity as trustee in the context of the ipso facto clause in the Trust Deed.[9]

45 Mr Deppeler states that he has no recollection of reviewing the Trust Deed prior to October 2017 to assess whether it contained a clause removing the Company as trustee of the Trust upon appointment of liquidators. He states that in December 2014 his understanding was that, consistent with the decision of Finkelstein J in Apostolou v VA Corporation Aust Pty Ltd[10], a liquidator of an insolvent corporate trustee had the power to realise assets. He states he did not then appreciate what he now knows to be the consequences of the Company being removed as trustee upon the appointment of liquidators by operation of the ipso facto clause in the Trust Deed.

46 Mr Deppeler deposes that, by 2017, he and his staff had received advice on a number of liquidations to which he had been recently appointed of the need to approach the court and make application in respect of liquidations of a trustee company whose trust deed contained ipso facto clauses. He and his staff were aware of an increasing number of cases which involved this issue and commenced the process of reviewing older liquidation files, including that of the Company, as to whether this issue arose.

47 Mr Deppeler deposes that in October 2017, prior to providing instructions to his solicitors, he directed his staff to review the Trust Deed so as to confirm that it did not contain a clause removing the Company as trustee upon its insolvency.[11] Mr Deppeler states that Clause 18(11), the ipso facto clause by which the Company was removed as trustee, was not identified in that review which is curious because the purpose of the clause is identified and highlighted by a heading 'Vacation of office'.

48 Mr Deppeler states that in the email of 10 August 2018 in which a member of his staff provided Baird & McGregor with instructions, it was asserted there was no clause in the Trust Deed removing the trustee from office upon the Company entering liquidation. In response, Baird & McGregor drew Mr Deppeler's attention for the first time to the existence of Clause 18 and the need in the circumstances to make an application to the Court in relation to this issue.

49 Mr Deppeler states that he recognised immediately upon receipt of the advice of Baird & McGregor that the application which has now been made was required. He states that there were a number of files maintained by the liquidators in his firm, Worrells, which were identified as requiring similar applications. In at least three of those matters he was the liquidator and those applications have been made. He states that he recalls being made generally aware that the question of priority of payments was before the High Court in Carter Holt Harvey.[12] He states that he was told in discussion with his solicitors in regard to other liquidations that the High Court might be reluctant to decide this question. In order to avoid incurring costs in multiple matters, Mr Deppeler therefore held off making any applications until that decision was delivered.

50 Mr Deppeler concedes in the Fourth Deppeler Affidavit that he now accepts that it was not accurate to say, as he did in the Second Deppeler Affidavit, that the decision of the High Court in Carter Holt Harvey was the occasion when he realised that the application of the current type might need to be made. He states that he realised on 27 October 2018 that an application was required but consciously decided not to make an application until the decision of the High Court was delivered, which it ultimately was on 19 June 2019. By that time, the primary litigation partner at Baird & McGregor had left the firm and he sought and obtained a quotation for the cost of making this application from another firm, BJT Legal. He states that he subsequently instructed BJT Legal to proceed with the application and that from August 2019:

(a) preliminary advice as to the form and content of the application was obtained from former counsel;

(b) instructions and documents were provided to BJT Legal in two tranches in connection with the drafting of the affidavit material;

(c) former counsel was briefed in June 2020 to settle the affidavits and application materials;

(d) further instructions and documents were sought and provided over the period of August to October 2020; and

(e) the application and affidavit were finalised and filed in October 2020.

51 Mr Deppeler states that he is extremely embarrassed by the extent of the delays that have occurred in this matter and the issues that have been identified in the Fourth Deppeler Affidavit. Mr Deppeler deposes that as a result of the decision in Carter Holt Harvey,[13] it became clear that, although declaratory orders would be sought consistent with that decision regarding the distribution of proceeds in accordance with s 556 of the Act, the liquidators had realised and distributed Trust Property without the power to do so by reason of the operation of Clause 18(11) of the Trust Deed. He says that this gave rise for the need to make the current application.

52 Mr Deppeler apologises to the Court for the delay and issues identified above and states that as a consequence the liquidators will not be seeking remuneration from creditors in respect of the costs associated with the Second and Fourth Deppeler Affidavit as these issues arose from errors in his own office and for which he accepts responsibility.

53 As has been mentioned, the originating process sought relief from liability by resort to s 67 of the Trustee Act and s 1318 of the Act but Mr Deppeler now states that by reason of the errors and delay that have occurred that he no longer presses to obtain those orders. Rather, although he is not aware of any circumstance of potential liability, he requests the Court to reserve the liquidators' right to make such an application in the future if circumstances require it.

54 For the period to 28 October 2020, the creditors approved remuneration for the liquidators of $206,914 (inclusive of GST). The liquidators have been paid this sum from funds sourced in the realisation of Trust Property in the winding up of the Company. Mr Deppeler contends that given the Company only traded as trustee of the Trust the liquidators should be entitled to an order that it be appropriate that their remuneration, costs and expenses in the winding up of the Company be paid from the assets of the Trust. In this regard, he states that all remuneration has been, or will be, approved by creditors of the Company under s 60-10 of the IPSC.

55 Mr Deppeler states that in the event that the relief is not granted, the liquidators do not, and did not, have any power to realise and dispose of the Trust Property and would be unable to comply with their statutory duties under the Act, including the finalisation of the winding up of the Company.

56 Since the proliferation of trading trusts in the last several decades, Courts have had to consider the position of corporate trustees of trading trusts entering into insolvency administration and the ability of liquidators appointed to those corporate trustees to have access to the assets of the trust to discharge the liabilities incurred by that trust.[14] From time to time, liquidators made applications of various kinds to the Courts to enable proper access to such assets.[15] What follows is a selection of some of the recent authorities relating to corporate trustees which have gone into liquidation and where the trust deed constituting the trust contained an ipso facto clause.

57 In Caterpillar Financial Australia Ltd v Ovens Nominees Pty Ltd,[16] Gordon J, sitting as a judge of the Federal Court of Australia, considered circumstances where the liquidator appointed to a corporate trustee made application to the Court for relief in circumstances where the subject trust deed contained an ipso facto clause. Gordon J observed that the corporate trustee became a bare trustee upon losing office as trustee and held the assets of the trust for the beneficiaries of the trust.[17] Her Honour observed that the company (and the liquidator that had been appointed) as bare trustee had limited powers to deal with the assets of the trust but that the rights of exoneration and indemnity (and the creditors' rights of recourse against the assets of the trust) remained unaffected.

58 In Caterpillar, the liquidator made application to be given the powers necessary to deal with the assets of the trust to realise or otherwise account for those assets in the winding up of the company. Her Honour described a number of basic principles which applied when considering the position of a corporate trustee (citations omitted):

First, a liquidator of a corporate trustee may have recourse to trust assets to satisfy trust liabilities in the course of a corporate winding up... That is consistent with the general principles that:

1. Where a corporate trustee incurs a liability it has a right of indemnity out of trust assets and retains an equitable lien or equitable charge over trust assets to secure the right of indemnity;
2. Where a trustee is still to incur a liability, it has a right of exoneration out of trust assets in respect of any prospective liability. The right of indemnity and/or right of exoneration out of trust assets is limited to circumstances where the trustee is properly acting in its capacity as trustee of the trust and is not guilty of any gross negligence or breach of trust; and
3. A corporate trustee has a right to deal with trust assets in accordance with the terms of the trust for the purposes of satisfying any liabilities in respect of which the right of indemnity or the right of exoneration attaches, and this includes the power to sell trust assets.[18]

59 Her Honour went on to observe that creditors of a corporate trustee are entitled to claim in the winding up of the corporate trustee and to rank on the basis of any provable claim they have against the corporate trustee. The corporate trustee is entitled to meet such claims out of the assets of the trust through the trustee's right of indemnity, provided that there are assets available to meet the claims. Such a claim, to be payable, must relate to a liability incurred by the corporate trustee in its capacity as trustee of the trust in respect of which the right of indemnity, or right of exoneration, attaches. Those rights are not automatically lost in the event that a corporate trustee is wound up in insolvency. Such right extends to providing an entitlement to a liquidator to claim the costs and expenses incurred in the winding up. Providing that those costs relate to the performance of trust duties and in respect of any liability incurred, the liquidator has a right of indemnity against trust assets and, in respect of any prospective liability, a right of exoneration against those assets. The rights survive after the resignation or removal of a corporate trustee but her Honour observed that at that time there was a conflict in the authorities which dealt with circumstances such as here, where the disqualification arose by reason of an ipso facto provision in the trust deed. Her Honour referred to the decision of Re Suco Gold Pty Ltd (in liq),[19] where King CJ observed:

The trustee's lien is an equitable lien which confers on him a charge over the trust property, whether in his possession or not, for the purpose of protecting and enforcing the right of indemnity. It also confers on the trustee a right to possession of the trust property for the purpose of protecting and enforcing the right of indemnity, Jennings v Mather [1902] 1 KB 2. The right of possession of the trustee, until his right of indemnity is exercised, is superior to those of a new trustee or the cestuis que trust. The rights conferred by the lien passed to the liquidator. They would enable him to obtain and retain possession of the trust property until the right of indemnity has been exercised, and to realize the trust property in the course of exercising it. The lien is ancillary to the right of indemnity. When the right of indemnity has been exercised by recoupment of any amounts which the trustee has paid in connection with the trust and by payment out of the trust fund of any outstanding liabilities, the lien ceases and the balance of the trust property becomes available to a new trustee or the cestuis que trust as the case may be.

...

On these principles which I have discussed, the liquidator is entitled to have recourse to the property of each trust for the purpose of meeting the costs and expenses of winding up, the petitioner's costs and the liquidator's remuneration, so far as they are incurred in relation to each trust.[20]

(emphasis as added by Gordon J)

60 In Caterpillar, as here, there was no likelihood of a new trustee being appointed and the corporate trustee remained a bare trustee. It could still hold the assets of the trust, but its duties, powers and rights were limited to protecting the trust assets. Gordon J observed that the bare trustee retains its rights of indemnity or exoneration and its lien over the assets of the trust but noted that the powers of a bare trustee do not include a power of sale, and required relief under an application of s 63 of the Trustee Act. Section 63 enables the Court to make an order to confer power on trustees to enter into transactions in respect of trust property when they otherwise would not have the power to do so.

61 Her Honour considered that the Court in that case had the power to authorise the liquidators of the insolvent trustee to deal with trust assets and apply them to meet claims under s 556 of the Act, which prescribes the priority of payment of debts and claims in winding up administrations.

62 Following on from that analysis, her Honour considered there were two questions to determined, the first of which was whether it was appropriate, in the absence of power in the corporate trustee, to sell the assets of the trust and for the Court to confer on the corporate trustee the power to sell the assets of the trust pursuant to s 63 of the Trustee Act. Secondly, if it is, is it appropriate for the Court to excuse the liquidators from selling trust assets when the corporate trustee did not have that the power to do so.

63 In the circumstances, her Honour answered the first question in the affirmative and then proceeded to consider the question of the sale of trust assets in circumstances where there was no power of sale conferred. Her Honour, referring to s 67 of the Trustee Act, observed that that provision will not assist a trustee that has failed to adduce evidence of honesty and reasonableness. However, where a trustee's conduct would have been authorised by the Court had the trustee approached the court for directions prior to such sale, the trustee may expect to be excused. In support of this proposition, her Honour relied on a decision of this Court in Kerferd v Perpetual Executors and Trustees Association of Australasia Ltd.[21] In Kerferd, Holroyd J considered, amongst other things, whether the Court would retrospectively authorise trustees to deal with trust assets when, at the time of such dealing, they had no authority to do so. His Honour stated:

I quite assent to the proposition of counsel for the trustees, that, if the Court would upon application have authorised them to expend for the support of the widow and children any portion of the corpus, the Court would not hold them liable to account for having incurred such expenditure without previous authority.[22]

64 In Caterpillar,[23] Gordon J proceeded to make orders permitting the liquidator to sell the assets of the trust in the course of the winding up and for the proceeds be dealt with by the liquidator as assets in the winding up. In addition, her Honour ordered that the costs and expenses incurred in realising the trust assets be costs in the winding up. Gordon J also made declarations pursuant to s 1318 of the Act and s 67 of the Trustee Act excusing the liquidator from breaches, failures or omissions relating to the administration of the company in that case, but as I have said, the liquidators no longer pursue that relief in this application.

65 Of more recent times, there have been a number of authorities of this Court and of the Federal Court of Australia which have considered applications made by liquidators of companies which are trustees of trusts which have ipso facto clauses in their trust deeds. I shall briefly survey several of those authorities.

66 The general position was surveyed by Moshinsky J in Re Brimson Pty Ltd (in liq)[24], where his Honour summarised the general position as follows:

A company that is the trustee of a trading trust has a right of indemnity to resort to the trust assets to vindicate its right to be exonerated from a liability that it has incurred in the course of carrying out trust business. In circumstances where such a company goes into liquidation, its right of indemnity and accompanying equitable lien over the trust assets endures, notwithstanding that the company has been removed as trustee of the trust and only holds the trust assets as a bare trustee: see Jones (in his capacity as liquidator of Killarnee Civil & Concrete Contractors Pty Ltd (in liq)) v Matrix Partners Pty Ltd (2018) 260 FCR 310; 354 ALR 436; 124 ACSR 568; [2018] FCAFC 40 (Jones v Matrix) at [85], [142], [198].

There has, until recently, been a difference of opinion as to whether, in such circumstances, the liquidator's power to sell the "property of the company" in s 477(2)(c) of the Corporations Act permits him or her to sell trust assets: see Re Aced Kang Investments Pty Ltd (in liq) [2017] FCA 476 at [12]. It is now settled that the liquidator of an insolvent (former) corporate trustee cannot sell the trust's property without order of the Court, or by appointment of a receiver over the trust assets: see Jones v Matrix at [44] per Allsop CJ (Farrell J agreeing at [196]); Re Stansfield DIY Wealth Pty Ltd (in liq) (2014) 103 ACSR 401; 291 FLR 17; [2014] NSWSC 1484 at [10]; Apostolou v VA Corporation of Aust Pty Ltd [2011] FCAFC 103 at [45]. The rationale for this position is that, on a proper understanding, the 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: see Jones v Matrix at [89]. 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).

The courts are generally willing, upon an appropriate application, to make orders permitting the liquidator of a (former) corporate trustee to sell trust assets. In situations where the property of the trust will be exhausted following its sale and subsequent distribution to creditors, it may be appropriate merely to give the liquidator a power of sale: see Jones v Matrix at [91]. The more common course is, however, for the liquidator of the insolvent (former) corporate trustee to apply to be appointed a receiver for the purpose of selling the trust assets and distributing the proceeds among trust creditors: see Jones v Matrix at [142] per Siopis J; Amirbeaggi (in her capacity as liquidator of Simpkiss Pty Ltd (in liq)) v Simpkiss Pty Ltd (in liq) [2018] FCA 2121 (Amirbeaggi); Taylor (in his capacity as CJ & KL Bond Super Pty Ltd (in liq)) v CJ & KL Bond Pty Ltd (in liq) (as trustee for the CJ & KL Bond Superannuation Fund) [2018] FCA 1430 (Taylor v CJ & KL Bond Super Pty Ltd); Staatz (as liquidator of Wollumbin Horizons Pty Ltd (in liq) v Berry (No 3) [2019] FCA 924. Orders appointing a liquidator as a receiver for this purpose may be made nunc pro tunc to authorise sales of trust assets that have already occurred: Jones v Matrix at [91], [152], [198].

The proceeds from an exercise of a corporate trustee's right of exoneration may only be applied in satisfaction of the trust liabilities to which that right relates: see Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth (2019) 368 ALR 390; [2019] HCA 20 (Carter Holt) at [40] per Kiefel CJ, Keane and Edelman JJ; at [92] per Bell, Gageler and Nettle JJ; at [106] per Gordon J. Thus, the liquidator of a (former) corporate trustee may only apply the proceeds of a sale of trust assets to satisfy debts owed to trust creditors (as opposed to general creditors). This includes the costs of the liquidation (including the liquidator's remuneration) because such costs constitute debts incurred by the company in discharging the duties imposed by the trust: Re Suco Gold Pty Ltd (in liq) (1983) 33 SASR 99 at 110; 7 ACLR 873 at 883 per King CJ; Jones v Matrix at [105]-[106]. 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. In this situation, the proceeds from the exercise of the right of exoneration are to be distributed to the trust creditors in accordance with the order of priority prescribed by the Corporations Act: Jones v Matrix at [100]-[108] per Allsop CJ; see also Carter Holt at [93]-[96] per Bell, Gageler and Nettle JJ; at [111], [156]-[158] per Gordon J.[25]

67 His Honour determined that in relation to each trust the subject of consideration, that the corporate trustee was entitled to a right of indemnity with respect to the debts owed to creditors of the trust. Moshinsky J determined that each company acted solely as trustee of the relevant trust and this was the totality of its affairs, i.e. it carried on no other activity. As such, all the creditors of the corporate trustee were therefore trust creditors and no issue arose concerning the application of trust assets to general creditors as distinct from trust creditors. In those circumstances, Moshinsky J determined that it was appropriate to make orders to facilitate the sale of trust assets and to apply the proceeds in favour of trust creditors and determined to make an order to the effect that the liquidator had, in respect of the business and assets of each trust, the powers the receiver has in connection with the business and property of a company under s 420 of the Act.

68 In the circumstances of the case now before me, it seems to be that where the liquidators have already got in all the property of the Company and realised it prior to the making of this application, such an order would not be appropriate.

69 In Brimson, Moshinsky J made other orders granting relief from any liability from dealing with the property of the trust since its appointment (which is not pressed here) and further provided that the costs, expenses and remuneration of the liquidator in that case, as both liquidator and receiver, be paid in priority from the assets of that trust.

70 In Re Mutton (in his capacity as liquidator of Balsub Pty Ltd (in liq)),[26] Anastassiou J of the Federal Court of Australia considered an application which was very close in substance to that made by the liquidators here. On the circumstances of the case before him, his Honour made findings that the corporate trustee had traded in its own right.[27] Anastassiou J went on to make orders under s 63 of the Trustee Act referring, in that regard, to the decision of Gordon J in Caterpillar.[28]

71 Unlike the decision in Caterpillar and the circumstances here, however, the corporate trustee in Balsub acted both in its capacity as trustee and in its own right but given that no creditor or other interested person who had been served with the application had sought to be heard Anastassiou J proceeded to make orders under s 63 of the Trustee Act providing powers to sell or dispose of the trust property. His Honour declined to make orders under s 67 of the Trustee Act or s 1318 of the Act because he did not consider that there was sufficient evidence before him but, significantly in the present context, he noted that his refusal to make the orders at that point did not preclude the liquidator raising s 67 of the Trustee Act or s 1318 of the Act as a defence to any proceedings that might be later issued.[29]

72 In Re Pako Supermarkets Pty Ltd (in liq)[30] Connock J of this Court considered an application by liquidators of a corporate trustee for directions that they were justified that they proceeded on the basis that the company carried on business in its capacity as trustee, that the assets of the company were characterised as properly held in its capacity as trustee and that the possession, realisation and distribution of the assets of the trust were governed by s 556 of the Act. In addition, orders were sought under s 63 of the Trustee Act to empower the liquidators to deal with the property of the trust together with orders pursuant to s 67 of the Trustee Act and s 1318 of the Act.

73 In Pako the company was the sole trustee of the trust and operated a supermarket business. So far as the liquidators were aware, the company did not trade, hold assets or otherwise carry on any activity other than as trustee of the trust. The trust deed constituting the trust contained an ipso facto clause. Liquidators were appointed to the trustee and no replacement trustee had been appointed.

74 Connock J observed that the power conferred by s 90-15 of the IPSC was a broad one and that it was appropriate to make an order under that provision that the liquidators were justified on proceeding on the basis that the company operated in its capacity as trustee of the trust only and that the property was trust property.

75 His Honour also made an order under s 63 of the Trustee Act. Connock J confirmed that by operation of the ipso facto clause, the trustee became a bare trustee only and having regard to the fact that the company only traded as trustee of the trust and the costs and other efficiencies associated with the liquidators knowledge, experience and activities carried out to date and the absence of any conflict that it was expedient to make orders to allow the liquidators to sell and otherwise deal with the assets of the trust, including compromising any claims made in respect of the trust property.[31]

76 As to the directions sought by the liquidators under s 90-15 of the IPSC that they were justified in proceeding on the basis that the realisation and distribution of trust property was governed by parts 5.5 and 5.6 of the Act, Connock J referred to the decision of the Court of Appeal of this State in Cth v Byrnes (in their capacity as joint and several receivers and managers of Amerind Pty Ltd[32] and the Full Court of the Federal Court of Australia in Re Killarnee Civil & Concrete Contractors Pty Ltd (in liq)[33] to the effect that the corporate trustee's right for indemnity out of trust assets that are 'property of the company' and the priority regime of the Act applies to the distribution of trust property in the winding up of the corporate trustee.[34]

77 As there was no suggestion in Pako that the trust property might be available to creditors which were not trust creditors, Connock J declined to make orders under s 67 of the Trustee Act or s 1318 of the Act by reason of the limited state of evidence in that regard but did observe that the liquidator had the right to make a similar application in the future should circumstances arise where it was considered to be necessary or desirable.

78 Connock J concluded that it was appropriate to make an order that the liquidators' remuneration and expenses were debts incurred in the company's capacity as liquidator of the trustee of the trust could therefore be paid out as a priority under s 556(1) of the Act, again referring to the decision of the Full Court in Killarnee. His Honour's reasons for doing so included that the company had only ever operated as trustee of the trust and all creditors were trust creditors.

79 In Re Civil Construction Network Services Pty Ltd (in liq),[35] Delany J considered an application by the liquidator of the corporate trustee of a trust. The evidence was that all assets owned by the company were held by it in its capacity as trustee of the trust. Again, the relevant trust deed contained an ipso facto clause, the appointor of the trust had not exercised the power to appoint a replacement trustee since the liquidation of the corporate trustee and there was no suggestion that the appointor would likely do so in the future. The liquidator made the application so as to be given the powers necessary to deal with the assets of the trust and distribute those assets in the liquidation of the corporate trustee. Delany J made reference to the decision of Robson J at first instance in Re Amerind Pty Ltd (in liq)[36] where a series of indicia which had been taken into account by Courts in order to determine whether a company has traded in its own right or as trustee of the trust were listed. Those indicia were as follows:

(a) the existence of constituent trust documents which establish a trust, including any draft trust documents which cross-reference one another;

(b) whether accounts were maintained separately to the company's operational expenditure accounts and/or the company's own property;

(c) whether the company's name in its capacity as trustee was noted on key employment documents, such as letters of employment and tax file declarations;

(d) whether invoices rendered by the company in question were issued by the company in its capacity as trustee of the trust;

(e) whether company meeting minutes disclosed the existence of a trust, or disclosed that the company was operating as a trust;

(f) whether expenses were accounted as receipts of the company as trustee; and

(g) whether records, contained in the general ledger of the company, recorded activity consistent with the operation of a trust, such as the issue of units.[37]

80 In Civil Construction, Delany J considered that the evidence showed that the company was only ever acting as trustee of the trust. In this regard his Honour pointed to the fact that:

(a) the trust deed was in evidence;

(b) financial accounts showed that the company only carried out business as trustee of the trust;

(c) tax returns were of the company in its capacity as trustee of the trust;

(d) the Australian Business Register extract in respect of the company noted that the company operated under an ABN as trustee of the trust; and

(e) the trading name of the trust was 'Civil Construction Network Services Pty Ltd', ie the full name of the company.

81 Delany J, referring to Caterpillar and Killarnee, observed that the liquidator of an insolvent corporate trustee is not empowered to sell trust property without an order of the Court or appointment of a receiver for the trust assets. In this regard Delany J observed the trust assets were not 'property of the company' but rather trust property in which the corporate trustee has a proprietary interest by way of lien or charge to secure its right of exoneration.[38] His Honour declined to make orders pursuant to s 1318 of the Act by reason that there was no the suggestion that the liquidator had engaged in any past conduct for which he may need to be excused in relation to the trust property, nor was there any evidence of any foreshadowed claim which might attract the operation of s 1318(2). Nonetheless, he observed that his observations in that regard did not mean that the liquidator would not be able to raise s 1318 of the Act as a defence to any proceedings subsequently issued. In regard to the application by the liquidators for payment of remuneration and expenses out of trust assets, Delany J referred to the decision of Re Mandeville Group Pty Ltd (in liq)[39] where Sloss J considered that a liquidator of an insolvent corporate trustee is entitled to be paid such remuneration and expenses properly incurred in realising or getting in the assets of the trust, including the trust property and of and incidental to the application to the Court in that regard. Her Honour also considered that such remuneration, costs and expenses are to be paid in accordance with the priority specified in s 556(1) of the Act.[40]

82 Delany J considered that the circumstances of the matter before him were very much akin to that the subject of consideration by Sloss J and that it was appropriate to make an order in relation to remuneration and expenses from the date appointment of the liquidator. The circumstances the subject of consideration by Delany J in Civil Construction are also very much akin to the features of the Company's situation in this proceeding.

Section 90-15 of the IPSC

83 Mr Deppeler's evidence is that the Company carried on business as trustee of the Trust, that all property was characterised as property held by it as trustee and that all creditors were creditors of the Trust. His evidence in his first affidavit was that investigations carried out by him and his staff indicated the Company operated the business in its capacity as trustee of the Trust and that that business was not operated by any other entity. Mr Deppeler's evidence establishes to my satisfaction that all assets of the Company used by it in the business were held by the Company on trust and that all liabilities incurred by it in operating the business were incurred in its capacity as trustee of the Trust.[41] I consider that it is therefore appropriate to make orders pursuant to s 90-15 of the IPSC that the liquidators were justified in acting reasonably in proceeding on the basis that the Company carried on business solely in its capacity as trustee of the Trust, that all property was characterised as property held by it as trustee and that all creditors were creditors of the Trust.

84 The authorities referred to above conclude that a corporate trustee's right of indemnity out of the trust assets which are property of the Company and the priority regime in the Act should apply to the distribution of the trust property in the winding up of a corporate trustee.[42] On the evidence before me there is no suggestion that Trust Property might be available to creditors who are not Trust creditors. As has been observed, all of the Company's activities were conducted under the aegis of trustee of the Trust and I therefore consider it is also appropriate to make an order to the effect sought by the liquidators in relation to parts 5.5 and 5.6 of the Act.

85 As to the application by the liquidators in respect of their Remuneration and Expenses, I respectfully adopt the observations of Brereton J in Re Stansfield DIY Wealth Pty Ltd (in liq)[43] where his Honour observed that the liquidator of a company whose only function is to act as trustee is entitled to be paid their remuneration and expenses, whether for administering the trust assets or for 'general liquidation work', out of the trust assets. This is to be distinguished from the case of where the company has other functions in addition to its role as trustee, in which only such remuneration and expenses which are referable to the administration of the trust are payable out of the trust assets. As has been indicated, I am satisfied that the Company has only ever operated as trustee of the Trust and all of the creditors are Trust creditors. I will accordingly order that the liquidators are entitled to be paid their Remuneration and Expenses as so defined from the Trust Property.

Section 63 of the Trustee Act, nunc pro tunc

86 Here, as in Caterpillar,[44] the evidence is that the ipso facto clause operated to render the Company a bare trustee of the assets of the Trust upon the appointment of the liquidators. The evidence is that the Company only ever acted as trustee of the trust and in no other capacity and that all assets owned by the Company were held by it as trustee of the trust. All liabilities of the Company were incurred by it as trustee of the trust and no new trustee has been appointed.

87 Mr Deppeler and his co-appointee Mr Jess were appointed liquidators of the Company in December 2014. They have realised the assets of the Trust and have paid themselves remuneration when they had no power or entitlement to do so. I do not consider that their conduct in that regard was inadvertent. The liquidators were on notice, at the latest, on and from the time that their legal advisors indicated to them in clear terms in August 2018 that an application of the type which has now been made was required to be made. Nonetheless the liquidators pressed on with the liquidation without regard to the fact that the Company was bare trustee without power to deal with the trust assets.

88 This is clearly a very unsatisfactory state of affairs and Mr Deppeler concedes as much in the Fourth Deppeler Affidavit. If proper consideration had been given to the matter and the relevant legal authorities examined, the position would have been quite clear. The applicable principles were referred to by Gordon J in Caterpillar[45] in 2011. The central issue considered by the High Court in Carter Holt Harvey,[46] that of whether the priorities regime under s 556 of the Act are applicable to insolvent corporate trustees, was not of direct relevance the issue confronting the liquidators in what power they did or did not have to deal with the Trust Property.

89 The approach which is made to the Court in this application seeks to regularise the liquidators' position retrospectively as the order is sought nunc pro tunc. With some reluctance I am prepared to do so. In coming to this decision I have had regard to the evidence filed which indicates that, had the liquidators made a timely application shortly after their appointment, such an order would very probably have been made. Further I have regard to the observations of Allsop CJ and Siopsis J in Killarnee, who both indicated that nunc pro tunc orders could, as a general proposition, be made.[47] Nonetheless, the liquidators have been involved in what amounts to unauthorised dealings with trust property over a protracted period since their appointment. The orders are made on the assumption that there has been full disclosure to the Court in this regard. I will make orders in terms of the relief sought in paragraph 5(b) above.

90 I would have declined to make orders under s 67 of the Trustee Act or s 1318 of the Act if such part of the application had been pressed by reason of the absence of any evidence any foreshadowed claim against the liquidators, but I am prepared to observe that this does not preclude the liquidators seeking to raise defences which rely on those provisions if that course is subsequently necessary.

91 For the sake of completeness, the orders I made were as follows:

1. All persons shall appear, give evidence and make submissions in this proceeding this day by audio link.

1. Pursuant to sections 90-15 and 90-20 of the Insolvency Practice Schedule (Corporations) ('IPSC'), being Schedule 2 to the Corporations Act 2001 (Cth) ('Act'), the First Plaintiffs are and were justified and acting reasonably in proceeding on the basis that:

(a) Total Truss Systems Pty Ltd (in liquidation) ACN 109 644 984 ('Company') carried on business solely in its capacity as trustee of the Total Truss Systems Unit Trust ('Trust');

(b) all of the assets of the Company are properly characterised as property held by the Company in its capacity as trustee of the Trust ('Trust Property'); and

(c) all of the creditors of the Company are creditors of the Trust.

1. Pursuant to section 63 of the Trustee Act 1958 (Vic) ('Trustee Act'), the First Plaintiffs have, nunc pro tunc, the necessary powers in their absolute discretion to:

(b) sell or otherwise dispose of, in any manner, all or any part of the Trust Property;

(c) compromise any claim made against the Company in its capacity as trustee of the Trust, or against any of the Trust Property on any terms the First Plaintiffs see fit; and

(d) bring any claim against any party on behalf of the Trust.

1. Pursuant to section 90-15 of the IPSC, the First Plaintiffs are and were justified and otherwise acting reasonably in proceeding on the basis that the possession and realisation of the Trust Property and distribution of proceeds of sale of Trust Property to creditors is governed by parts 5.5 and 5.6 of the Act.
2. Pursuant to section 90-15 of the IPSC, the First Plaintiffs are and were justified and otherwise acting reasonably in proceeding on the basis that:

(a) the First Plaintiffs are entitled to be paid from the property of the Trust their remuneration (as approved pursuant to section 60-10 of the IPSC), costs and expenses properly incurred in preserving, realising or getting in the Trust Property or in conducting the winding up of the Company ('Remuneration and Expenses'); and

(i) do not include the remuneration and legal costs of and incidental to:

(1) the affidavit of Nathan Deppeler sworn on 22 December 2020 and filed in this proceeding;

(2) the affidavit of Nathan Deppeler sworn on 3 March 2021 and filed in this proceeding; and

(ii) but otherwise include the remuneration, costs and expenses of and incidental to this application; and

(iii) are to be paid with the priority specified in section 556(1) of the Act.

1. The First Plaintiffs have leave to file and serve any further material concerning the question of whether the First Plaintiffs should be relieved from liability for past dealings with Trust Property as sought by paragraph 5 of the Originating Process.
2. Liberty is reserved to the First Plaintiffs concerning the relief and materials referred to in paragraph 6 of these orders.
3. There is liberty to apply to any person who can demonstrate sufficient interest to modify any directions, orders and/or declarations made pursuant to this Originating Process on not less than 48 hours' written notice to the First Plaintiffs.

[1] Schedule 2 of the Corporations Act 2001 (Cth).

[2] This proceeding was referred to an Associate Judge for determination by orders made 10 November 2020.

[3] Exhibit NLD-1 to the First Deppeler Affidavit.

[4] See, for example, Re Brimson Pty Ltd (in liq) [2019] FCA 1023; (2019) 136 ACSR 649, [8], Re Waratah Group Pty Ltd (in liq) [2020] VSC 523, [11]-[14]; Amirbeaggi, in the matter of Simpkiss Pty Ltd (in liq) [2018] FCA 2121, [21].

[5] Latin for 'by the deed itself': Thomas Tayler, Law Glossary of the Latin, Greek, Norman, French and Other Languages (W. Clarke and Sons, 1819).

[6] Ipso facto clauses, as they are commonly described, are often accompanied by provisions that the appointor of the trust could appoint a new trustee in place of a trustee who had lost office.

[7] [2019] HCA 20; (2019) 368 ALR 390 ('Carter Holt Harvey').

[9] Exhibit NLD-13 to the Fourth Deppeler Affidavit.

[10] [2010] FCA 64; (2010) 77 ACSR 84.

[11] Mr Deppeler deposes that the advice was sought from his solicitors in connection with obtaining advice in the present liquidation on the priority question however, as noted above, the letter providing instructions, Exhibit NLD-13 to the Fourth Deppeler Affidavit, by its terms seeks advice in regard to any ipso facto clause, not s 556 of the Act, ie the priority question.

[14] See B H McPherson, 'The insolvent trading trust' in P D Finn (ed), Essays in Equity (Law Book Company, 1985).

[15] See, for example, Re Suco Gold Pty Ltd (in liq) (1983) 33 SASR 99; Octavo Investments Pty Ltd v Knight [1979] HCA 61; (1979) 144 CLR 360.

[16] [2011] FCA 677 ('Caterpillar').

[19] (1983) 33 SASR 99.

[20] Ibid 109 as extracted in Caterpillar (n 16) [19].

[21] [1893] VicLawRp 103; (1893) 19 VLR 700 ('Kerferd').

[24] [2019] FCA 1023; (2019) 136 ACSR 649 ('Brimson').

[26] [2020] FCA 741; (2020) 145 ACSR 342 ('Balsub').

[30] [2020] VSC 487 ('Pako').

[32] [2018] VSCA 41; (2018) 54 VR 230. This was the decision the subject of the appeal to the High Court in Carter Holt Harvey (n 7).

[33] [2018] FCAFC 40; (2018) 260 FCR 310 ('Killarnee').

[34] Pako (n 30) [49].

[35] [2020] VSC 474 ('Civil Construction').

[36] [2017] VSC 127; (2017) 320 FLR 118.

[38] Citing Killarnee (n 33) 324 and 333 (per Alsop CJ, with whom Farrell J agreed at 351-352).

[39] [2020] VSC 293.

[41] The documentary evidence which supported his opinion in that regard is detailed at paragraphs [27] to [31] above.

[42] See, for example, Pako (n 30), [49]-[51].

[43] [2014] NSWSC 1484; (2014) 291 FLR 17, 20 [7].

[47] Killarnee (n 33) 333-334 (Allsop CJ) and 344 (Siopsis J).