Re Western Port Holdings Pty Ltd [2017] VSC 280 (23 May 2017)

2 The application has been brought in circumstances of considerable urgency as orders are sought to effect a sale of the assets of the trust where the sale process is at an advanced stage (offers having closed last Wednesday). There is also a meeting of creditors planned for tomorrow, 24 May 2017, at which time consideration will be given to a resolution as to whether or not the Deed of Company Arrangement (DOCA) be terminated and the company liquidated (with the current administrators appointed as liquidators).

3 Notice has been given of the making of the current application. In particular, notice has been given to the Australian Taxation Office (one of the company's largest creditors); to secured creditors of the company; the primary beneficiaries under the relevant trust, being Amber and Andrew O'Hare (the latter also being the appointor under the trust); as well as the company's current sole director, Matthew O'Hare.

4 There has been no opposition to the making of the orders sought.

6 On 13 April 2015, Mr David Ross and Mr Albarran, the Second and Third Plaintiffs, were appointed as administrators of WPH. WPH is a trading entity operating as part of the Western Port Group. It trades as 'Makesafe Traffic Management' and provides traffic management services. It is based in Nunawading.

7 On 22 May 2015, a DOCA was executed pursuant to a creditors' resolution. The administrators were appointed as Deed Administrators at that time. In broad summary, the DOCA provided for WPH to make a deed contribution of $1.09 million. WPH was also intended to continue to trade, but was required to meet various conditions while trading, including paying outstanding employee entitlements, as well as to pay its debts as and when they fell due.

8 Breaches of the DOCA occurred subsequent to the execution. Despite these breaches, on 3 August 2016, a majority voted against a resolution to terminate the said deed. Breaches nevertheless continued which included significant unpaid taxation and other statutory liabilities. On 7 March 2017, a notice of default was therefore served on the director and, on 5 May 2017, the administrators entered into possession of the business of WPH with a view to selling the business as an ongoing concern.

9 In early May the business was advertised for sale. As mentioned already, offers expired last Wednesday, 17 May 2017. Offers have been received and the administrators wish to accept one of these offers.

10 The issue that has arisen turns on the fact that WPH had entered into a deed of settlement for the establishment of a discretionary trust known as the DOH Family trust. Although the trust deed does not explicitly provide for the settlement of any business assets on WPH, it appears that WPH conducted its affairs on the basis that its business-related assets were in fact trust property, and that it traded in its capacity as trustee of the trust.

11 However, clause 8.7(c) of the relevant Trust Deed provides that the office of Trustee shall be determined and vacated if the Trustee makes or enters into any composition or scheme of arrangement with its creditors. Consequently, once it entered the DCA, WPH appears to have been disqualified from acting as trustee and now effectively holds the assets of the trust only in a capacity as a bare trustee.

12 In circumstances where no replacement trustee has been appointed, there is therefore concern as to whether or not the administrators can exercise powers to sell trust assets. In order to facilitate the proposed sale, the administrators therefore seek to be appointed receivers of the business and assets of the trust.

13 Pursuant to s 37 of the Supreme Court Act 1986 (Vic), the Court may, by order, whether interlocutory or final, appoint a receiver if it is 'just and convenient' to do so. Pursuant to Order 39.02 of the Supreme Court (General Civil Procedure) Rules 2015, the Court may also appoint a receiver at any stage of a proceeding.

14 The general principles applicable to the appointment of a receiver were considered by Warren J (as Her Honour then was) in a decision of Vladymir Martyniuk v Cecil King & Ors,[1] as well as a decision of Yunghanns (by Yunghanns) v Candoora No 19 Pty Ltd (No 2).[2] In particular, Her Honour emphasised that the court might appoint a receiver where it is a step necessary for the protection or preservation of trust property for the benefit of persons who have an interest in that property.[3] Her Honour also cited the decision of the appeal division of this Court in National Australia Bank Ltd v Bond Brewing Holdings Ltd[4] that the power should be exercised with the utmost care and caution although Her Honour also noted that the Bond case was concerned with a very different situation, that is, with financial arrangements between a bank creditor and a commercial borrower.[5]

15 The applicants have also provided a number of cases, particularly from the Federal Court,[6] where liquidators have been appointed as receivers of trust assets in circumstances where they held as a bare trustees, and where there was otherwise uncertainty as to the liquidator's powers to dispose of such trust property. In particular, while Finkelstein J in Apostolou v VA Corporation Aust Pty Ltd has held that a liquidator did have a power of sale in such circumstances, [7] Brereton J in In the matter of Stansfield DIY Wealth Pty Ltd (in liquidation) has expressed a contrary view.[8]

16 By way of example, in the recent decision of Hosking, in the matter of Business Aptitude Pty Ltd (in liq),[9] Gleeson J noted that the general ground upon which the court appointed a receiver is the protection or preservation of property for the benefit of persons who have an interest in it.[10] His Honour went on to note that where a trustee is removed, it still retains a right of indemnity from the trust assets secured by an equitable charge over them for its liabilities incurred by reason of acting as a trustee.[11]

17 His Honour then cites the conflicting authority I have referred to and finds that, notwithstanding this conflict of authority, it is well established that a receiver and manager can be appointed over trust property to secure the trustee's right of indemnity out of the assets of the trust.[12] His Honour ultimately appointed receivers in that particular case.

18 I accept that the appointment of a receiver should not be made unless the case in favour of it is a strong one. However, the above cases suggest that the court should act where there is a real risk to the assets of a company or trust.[13]

19 In the present situation, absent an order, there is a great risk that the sale could be adversely affected and/or delayed given the lack of clarity about whether or not the administrators can deal with trust property. Thus, although the conflicting authority, above, related to liquidators, it also appears to apply to the administrators under the DOCA given there would be doubt over whether their powers extend to the 'property of the company' under clause 4 of the Deed.

20 In facilitating the sale by making the orders, the trustee will be able to realise assets and thereby discharge liabilities incurred in its capacity as a trustee.

21 There are other factors that also support the making of the proposed orders.

22 First, the absence of opposition despite the extensive notice.

23 Second, that there is no obvious conflict between the duties of the administrators under the DOCA and as receivers. I have been advised that it is likely that only secured creditors will receive a distribution. I also propose making an order that the receivers not make any distributions without further direction of the court.

24 Finally, there has been no suggestion that a replacement trustee will be appointed. In particular, notwithstanding the notice given, the appointer has not made any suggestion to this effect.[14]

25 Pursuant to Order 39.05 of the Supreme Court (General Civil Procedure) Rules 2015, I am ordinarily to require security unless the court otherwise orders. However, in a decision of Sapphire (SA) Pty Ltd v Ewens Glen Pty Ltd,[15] Besanko J formed the opinion that it was an appropriate case to 'otherwise order', given that the receivers and managers were joint and several liquidators of the defendant and, therefore, already subject to obligations under the Corporations Act 2001 (Cth). Although the current administrators are not liquidators, they are as Deed Administrators subject to obligations under the Corporations Act 2001 (Cth). It is therefore appropriate to 'otherwise order' in this case.

26 I have also been provided with a consent to act by both Mr Albarran and Mr Ross dated 22 May 2017.

1. David Anthony Ross and Richard Albarran be appointed without security as receivers and managers (Receivers) of the business and assets of the DOH Family Trust established by deed of settlement dated 1 November 2011 (Trust).

2. Subject to order 3, the Receivers have in respect of the Trust business and assets the powers that a liquidator has to sell or otherwise deal with the business and property of a company under the Corporations Act 2001 (Cth) including, without limitation, the power to do all things necessary or convenient to effect the sale of the business and assets of the Trust.

3. The receivers not distribute the assets of the Trust to the First Plaintiff or the beneficiaries of the Trust without further direction of the Court.

4. The costs, expenses and remuneration incurred by the Second and Third Plaintiffs in acting as receiver and manager of the Trust business and assets be paid from the assets of the Trust, and if they be insufficient, the assets of the First Plaintiff, the quantum of such costs, expenses and remuneration to be approved by the Court.

5. The Plaintiffs' costs of this application be paid from the assets of the Trust, and if they be insufficient, the assets of the First Plaintiff.

WESTERN PORT HOLDINGS PTY LTD (TRADING AS MAKESAFE TRAFFIC MANAGEMENT) (SUBJECT TO A DEED OF COMPANY ARRANGEMENT) (ACN 085 780 150)

DAVID ANTHONY ROSS IN HIS CAPACITY AS JOINT AND SEVERAL DEED ADMINISTRATOR OF WESTERN PORT HOLDINGS PTY LTD (TRADING AS MAKESAFE TRAFFIC MANAGEMENT) (SUBJECT TO A DEED OF COMPANY ARRANGEMENT) (ACN 085 780 150)

RICHARD ALBARRAN IN HIS CAPACITY AS JOINT AND SEVERAL DEED ADMINISTRATOR OF WESTERN PORT HOLDINGS PTY LTD (TRADING AS MAKESAFE TRAFFIC MANAGEMENT) (SUBJECT TO A DEED OF COMPANY ARRANGEMENT) (ACN 085 780 150)

[1] [2000] VSC 319 (Martyniuk).

[2] [2000] VSC 300; (2000) 35 ACSR 34 (Yunghanns).

[3] Martyniuk [2000] VSC 319, [15]; Yunghanns [2000] VSC 300; (2000) 35 ACSR 34, [65].

[4] [1991] VicRp 31; [1991] 1 VR 386 (Bond).

[5] Martyniuk [2000] VSC 319, [28], [30].

[6] For QBE Insurance (Australia) Ltd v WA Metal Recyling Pty Ltd [2016] FCA 238; Kite v Mooney, in the matter of Mooney's Contractors Pty Ltd (in liq) [2016] FCA 886; Tonks, in the matter of PWG Holdings Pty Ltd (in liq) [2017] FCA 246; Aced Kang Investments Pty Ltd (in liq), Re Aced Kang Investments Pty Ltd (in liq) [2017] FCA 476.

[7] (2010) 77 ACSR 84.

[8] [2014] NSWSC 1484; (2014) 291 FLR 17.

[9] [2016] FCA 1438.

[13] As was also highlighted by Austin J in Bastion v Gideon Investments Pty Ltd (in liq) [2000] NSWSC 939; (2000) 35 ACSR 466, [64].

[14] A solicitor acting for the appointer was also clearly apprised of the making of this application.

[15] [2011] FCA 600.