Smith, in the matter of Buddy Management Pty Ltd (in liq) v Buddy Management Pty Ltd

Federal Court of Australia|2019-04-15|Before: Gleeson J

THE COURT DIRECTS THAT:

Pursuant to s 90-15 of schedule 2 of the Corporations Act 2001 (Cth), the plaintiff is justified in treating the assets of the defendant as property held by the defendant in its own right, including assets identified in paragraphs 12 and 14 of the plaintiff's affidavit sworn on 15 October 2018 and filed in this proceeding. THE COURT ORDERS THAT:
The costs of the proceeding be costs in the liquidation. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

GLEESON J: 1 The plaintiff ("liquidator") was appointed as liquidator of the defendant ("company") by the Supreme Court of New South Wales on 5 February 2018. The company was ordered to be wound up on the application of Revenue NSW for non-payment of a statutory demand issued in respect of unpaid traffic fines. 2 By originating process filed on 29 October 2018, the liquidator applied for relief under s 90-15 of schedule 2 of the Corporations Act 2001 (Cth) ("Act"), concerning whether the company holds its assets in its own right, and if not, for the liquidator to be appointed as the receiver of such assets so that he can realise them to meet the company's right of indemnity. 3 The relevant assets are: (1) Two adjoining parcels of land in Werrington in the state of New South Wales; and (2) a Mercedes Benz motor vehicle. 4 The primary relief sought by the liquidator is a direction that he is justified in treating the two parcels of land and the vehicle as property held by the company in its own right. 5 Alternatively, the liquidator seeks declarations that: (1) prior to 23 November 2017, the relevant assets were held by the company as trustee of the Buddy Zeaiter Family Trust ("trust"); and (2) the company from at least the time that title to each of the assets was acquired by the company to 23 November 2017, had no other function other than as trustee of the trust. 6 In the event that that the Court makes the declarations sought in the alternative, the liquidator seeks a further order that he be appointed as receiver of the relevant assets pursuant to s 57 of the Federal Court of Australia Act 1976 (Cth), and consequential relief in relation to the receivership. 7 The evidence in support of the application is an affidavit of the liquidator sworn on 15 October 2018.

Buddy Zeaiter 8 Mr Zeaiter was the sole director and shareholder of the company from the date of its registration on 2 December 2009. 9 He is not a party to this proceeding. 10 The liquidator gave Mr Zeaiter notice of the proceeding, so that he had an opportunity to seek leave to participate at the hearing in accordance with r 2.13 of the Federal Court (Corporations) Rules 2000. Rule 2.13(1) provides that the Court may grant leave to a person who is, relevantly a contributory or officer of a corporation to be heard without becoming a party to the proceeding. Rule 2.13(3) provides that the Court may order that a person who is, or who claims to be, a creditor, contributory or officer of a corporation be added as a defendant. 11 Although Mr Zeaiter attended case management hearings on 7 February, 29 February and 4 April 2019, on those occasions he did not indicate whether he sought to participate in the proceeding. Mr Zeaiter expressed dissatisfaction with the fact that the company had been wound up. This is consistent with the liquidator's observation in his report to creditors dated 2 May 2018 that Mr Zeaiter had expressed a desire to have the liquidation terminated. The liquidator's report states that no application had been made to the Court to terminate the liquidation as at the date of the report. 12 On 15 April 2019, Mr Zeaiter was represented by Mr Hall, solicitor. Mr Zeaiter sought to give oral evidence at the hearing. Senior counsel for the liquidator, Mr Marshall SC submitted that Mr Zeaiter should be joined as a defendant to the proceeding if he wished to give evidence so that he would be bound by the Court's decision, given his apparent view that the relevant assets were held by the company on trust. I indicated that Mr Zeaiter could give evidence if he agreed to be added as a defendant to the proceeding. Mr Zeaiter did not agree to be added as a defendant. In those circumstances, I asked Mr Hall whether Mr Zeaiter sought to make any other application pursuant to r 2.13. Mr Hall said that Mr Zeaiter did not make any other application. 13 I note that before Mr Zeaiter was asked whether he agreed to be joined as a defendant to the proceeding, Mr Marshall SC informed the Court that the liquidator was not presently minded to seek any costs order against Mr Zeaiter.

Correspondence between liquidator and Mr Zeaiter 14 By notice dated 5 February 2018, the liquidator required Mr Zeaiter to deliver to him any money, property or books to which the company was prima facie entitled which were in Mr Zeaiter's hands. 15 Also on 5 February 2018, the liquidator sent Mr Zeaiter a "Basic Information Sheet" which he asked Mr Zeaiter to complete and a notice to submit a report as to affairs ("RATA"). The "Basic Information Sheet" included the question: "Is the Company Trustee of a Trust?" 16 Mr Zeaiter did not return a completed copy of the "Basic Information Sheet" to the liquidator. 17 By letter dated 16 February 2018, the liquidator requested again that Mr Zeaiter complete a RATA and provide the company's books and records. 18 By letter dated 6 March 2018, solicitors then acting for Mr Zeaiter, McCullough Robertson, told the liquidator's solicitor, Stacks Champion, that the company acted as trustee for the trust. The letter enclosed a document entitled "Buddy Zeaiter Family Trust Discretionary Trust Deed" prepared by Hunt & Hunt lawyers and which, McCullough Robertson said, had been "registered with ASIC on 11 December 2009" ("trust deed"). The trust deed identifies the "Settlor" as Charles Massih; the trustee as the company; the beneficiaries as "Buddy Zeatier [sic]" and the "Initial Sum" as $10.00. 19 The trust deed provided by McCullough Robertson is not executed by Mr Massih. It is executed by Mr Zeaiter on behalf of the company. 20 By letter dated 23 March 2018, Stacks Champion asked McCullough Robertson to provide any further documentary evidence to substantiate that the properties, or any other assets, were held by the company for the benefit of the trust, within 14 days. Stacks Champion noted that, in the absence of further evidence to the liquidator's satisfaction, the liquidator considered the assets to be held by the company in its own right. 21 In the absence of a substantive response, by letter dated 24 April 2018, the liquidator foreshadowed an application to the Court for directions as to the capacity in which the assets were held by the company. 22 By letter dated 26 April 2018, McCullough Robertson stated that Mr Zeaiter apologised for the delay in providing substantiating information, which was the result of ill health, and difficulty "collating" the relevant documents and information. 23 On 15 June 2018, there was an informal meeting between the liquidator and Mr Zeaiter. 24 By letter dated 3 July 2018, McCullough Robertson sent the liquidator's lawyer a RATA signed by Mr Zeaiter and books in Mr Zeaiter's possession that related to the company. The sole asset of the company was identified as a "right of indemnity pursuant to the Trust" in an amount of $304,326.41. The letter purported to enclose all books in Mr Zeaiter's possession that related to the company and stated: "We are instructed that our client does not know the location of any other books relating to the Company".

Other facts concerning ownership of assets 25 The company was registered on the Australian Business Register on 2 December 2009, and assigned an Australian Business Number ("ABN"). 26 On 11 December 2009, the "Trustee for Buddy Zeaiter Family Trust" was also assigned an ABN. 27 On 26 May 2011, contracts were exchanged for the company's purchase of one of the two parcels of land ("first property"). There is no mention of the trust in the contract, although there was no evidence that in the ordinary course such a trust would be referred to in a contract for the sale of land. The transfer of the property to the company is dated 29 July 2011. 28 By letter dated 17 April 2018, the liquidator sought information from the lawyer acting on the conveyance of the first property, Mr Walid Kalouche. By email dated 23 April 2018, Mr Kalouche stated: "Our only instructions were that the company was buying the property and there was no qualification to that." 29 There is an application form from "Buddy Management" to "RAMS Home Loans" for a $120,000 loan proposed to be secured against the first property. The form provides for the specification of the loan applicant as trustee for a trust. No trust was identified. The application form notes a vehicle valued at $90,000 as an asset of the loan applicant. 30 On 29 July 2011, $120,000 was drawn down on a RAMS home loan account in the name of the company, apparently to assist with the purchase of the first property. 31 There is a second application form from "Buddy Management" to "RAMS Home Loans" for a $156,000 loan proposed to be secured against the other parcel of land ("second property"). Again, although the form provided for the specification of the loan applicant as trustee for a trust, no trust was identified. The application form notes the first property and a motor vehicle valued at $90,000 as assets of the loan applicant. 32 There is a transfer of title to the second property to the company dated 27 September 2011. Despite making an inquiry of the solicitor acting for the company on the conveyance, the liquidator has not obtained a contract for the purchase of this property. 33 On 27 September 2011, $144,000 was drawn down on a second RAMS home loan account in the name of the company, apparently to assist with the purchase of the second property. 34 On 14 August 2017 and 11 January 2018, the Chief Commissioner of State Revenue issued land tax assessment notices to the company for land tax assessed on the two parcels of land. 35 By letter dated 5 March 2018, the Australian Taxation Office ("ATO") informed the liquidator that the company owed income tax of $3,470 for the year ended 30 June 2017, and had outstanding lodgement obligations for the years ended 30 June 2012, 2016, 2017 and 2018. The liquidator infers that the company lodged income tax returns for the 2013 to 2015 financial years. 36 By letter dated 10 April 2018, Revenue NSW informed the liquidator that the company "atf Buddy Zeaiter Family Trust" owed $39,988.38 for outstanding land tax. 37 In response to an inquiry made by the liquidator by email dated 21 May 2018, Mr Massih stated that he "did not execute the Deed as Settlor". It is probable that this statement refers to the trust deed. 38 The liquidator's investigations have led him to the conclusion that the company did not actively trade.

Jurisdiction 39 I was satisfied that the Court had power to make the orders sought pursuant to s 90-15 of Sch 2 of the Act and that the question of whether to exercise that power was to be answered by reference to the principles that applied to the exercise of the discretions previously contained in s 479(3) and s 511 of the Act: Walley, in the matter of Poles & Underground Pty Ltd (Administrators Appointed) [2017] FCA 486 at [33] - [41]. In particular, I note the following statement by Goldberg J in Re Ansett Australia Ltd and Korda [2002] FCA 90; 115 FCR 409, concerning s 479(3) at [65]: [T]he prevailing principle adopted by the courts, when asked by liquidators and administrators to give directions, is to refrain from doing so where the direction sought relates to the making and implementation of a business or commercial decision, either committed specifically to the liquidator or administrator or well within his or her discretion, in circumstances where there is no particular legal issue raised for consideration or attack on the propriety or reasonableness of the decision in respect of which the directions are sought. There must be something more than the making of a business or commercial decision before a court will give directions in relation to, or approving of, the decision. It may be a legal issue of substance or procedure, it may be an issue of power, propriety or reasonableness, but some issue of this nature is required to be raised. It is insufficient to attract an order giving directions that the liquidator or administrator has a feeling of apprehension or unease about the business decision made and wants reassurance. There must be some issue which arises in relation to the decision. A court should not give its imprimatur to a business decision simply to alleviate a liquidator's or administrator's unease. There must be an issue calling for the exercise of legal judgment. 40 As Gleeson JA noted in In the matter of Hawden Property Group Pty Ltd (in liq) [2018] NSWSC 481; (2018) 125 ACSR 355 at [8], the power under s 90-15 is expressed in terms wider than the power under the former s 479(3) and accommodates the determination of substantive rights. Gleeson JA noted that the Court would not do so without affording potentially affected parties an opportunity to be heard, following the approach formerly taken in considering the exercise of s 479(3). 41 Following the approach formally taken in considering the exercise of s 479(3), and on the facts set out above, I am satisfied that Mr Zeaiter has been afforded a reasonable opportunity to be heard in this case.

Legal principles concerning creation of a trust 42 For a trust to come into existence, there must be four elements: (1) a trustee; (2) one or more beneficiaries or a charitable purpose; (3) trust property; and (4) an equitable obligation that binds the trust property: Young et al, On Equity, [6.90]. 43 As Young et al went on to explain: An express trust arises in one of two ways. The first is where a person (the settlor) transfers property to another person (the trustee) on the basis that the latter is to hold the property on trust for the benefit of other persons (the beneficiary or beneficiaries). The second is where the settlor declares that they hold the legal title to property on trust for the benefit of beneficiaries: Comptroller of Stamps (Victoria) v Howard-Smith (1936) 54 CLR 614 at 621-622. 44 Section 23C of the Conveyancing Act 1919 (NSW) concerns the creation of interests in land. It provides: (1) Subject to the provisions of this Act with respect to the creation of interests in land by parol: (a) no interest in land can be created or disposed of except by writing signed by the person creating or conveying the same, or by the person's agent thereunto lawfully authorised in writing, or by will, or by operation of law, (b) a declaration of trust respecting any land or any interest therein must be manifested and proved by some writing signed by some person who is able to declare such trust or by the person's will, (c) a disposition of an equitable interest or trust subsisting at the time of the disposition, must be in writing signed by the person disposing of the same or by the person's will, or by the person's agent thereunto lawfully authorised in writing. (2) This section does not affect the creation or operation of resulting, implied, or constructive trusts. (3) For the purposes of this section, a requirement for writing may be satisfied in electronic form and a requirement for writing to be signed may be satisfied by electronic signature.

Liquidator's submissions 45 The liquidator submitted that, despite giving Mr Zeaiter and his former lawyers every opportunity to prove the creation of the trust, there is hardly any evidence that the trust was ever settled, let alone that property was held by the company as trustee for the trust. 46 The liquidator identified the following matters against the proposition that the company held assets on trust as trustee of the trust: (1) The trust deed is not signed by the settlor. It was not dated. There is no evidence that the settlement sum (of $10) was paid. If there was a trust it was not expressly settled in writing under the hand of the settlor, nor was a trust fund settled. (2) If the trust somehow came into existence despite this, then there is no conduct that one would expect would evidence the intention of the settlor to settle trust property on the company. In this regard, there are no financial accounts of the trust and no balance sheet for the trust recording the properties or the vehicle or anything else held as an asset of the trust. There is no profit and loss statement recording transactions of the trust; for example rents received, or holding costs paid. (3) There are no income tax returns for the trust. However, it appears the company lodged tax returns itself for at least three years after acquiring the properties. There are no business activity statements. (4) The contract for sale of land for the first property did not mention the trust, just the company as purchaser. This accorded with the instructions given to the solicitor acting for the company. The contract for the second property has not been produced. (5) The loan applications for both of the properties made to RAMS did not mention the company as applying for the loans as a trustee, despite the space on the form for inclusion of that fact. (6) There is no evidence of a bank account held by the company as trustee for the Trust. (7) Revenue NSW assessed the properties as subject to land tax, and charged the company in its own right. It was only after the company's liquidation that Revenue NSW varied the name of the taxpayer to be the company as trustee of the trust. There is no evidence as to the circumstances in which this occurred. (8) Despite being offered several opportunities, Mr Zeaiter has been unable to supply any of the above documents to evidence the ownership by the company of assets as trustee of the trust. 47 The liquidator submitted that the matters in favour of finding that the company holds the relevant assets as trustee of the trust are few, and are as follows: (1) In about December 2009 a form of trust deed was prepared by lawyers, which included in the schedule the company as trustee and the name of the trust reflective of a relationship with Mr Zeaiter. Mr Zeaiter also signed the deed (but did not date it). (2) There may be a faint stamping imprint in the deed, possibly indicating duty was paid, but not on what basis. (3) The trust was allocated an ABN by the ATO. 48 The liquidator contended that the RATA has no evidential weight on the question of ownership of the relevant assets.

Consideration 49 I accept, on the balance of probabilities, that the alleged trust was not created and the relevant assets are owned beneficially by the company, having regard to the following matters: (1) the absence of a trust deed signed by the settlor and evidence of payment of the initial sum referred to in the trust deed; (2) the loan application documents and loan accounts, which indicate that the two properties were acquired by the company in its own right and not as a trustee of the trust; and (3) the absence of any financial statements of the trust, and any income tax returns lodged by the trust. 50 In my view, the absence of any reference to the trust in the contract for sale of land and the transfer are equivocal in the absence of evidence about the usual practice concerning the inclusion or non-inclusion of references to a trust on documents of that kind. 51 I note that the trust deed is imprinted with a record of payment of stamp duty in an amount of $500. The imprint refers to s 58(1) of the Stamp Duties Act 1923 (NSW). By s 58(1), duty of $500 is chargeable in respect of an instrument executed in New South Wales that declares a trust over New South Wales property, none of which is dutiable property. Although the date of the imprint is not clear, it may be 9 March 2018. If so, the trust deed may have formed part of the basis on which Revenue NSW informed the liquidator, by its April 2018 letter, that land tax was owing by the company as trustee of the trust. However, that material, in my view, is insufficient to displace the other matters that have led me to conclude on the balance of probabilities that the alleged trust was not created. 52 Having regard to the history of this matter from which it appears that, although he did not participate in the proceeding, Mr Zeaiter evidently does not consent to an order in the form of prayer 1 in the originating process, I am satisfied that this case is an appropriate occasion for the exercise of the power in s 90-15 of the Act to resolve an apparent legal issue in the liquidation.

Conclusion 53 I will grant the relief in prayer 1 of the originating process. 54 The costs of the proceeding should be costs in the liquidation. I certify that the preceding fifty-four (54) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gleeson.

Stamp Duties Act 1923(NSW)

Corporations Act 2001(Cth)s 479(3), Sch

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