Tang, in the matter of Wright's Transport Pty Limited (in liq) v Wright [2020] FCA 1122 | Case summary

Judgment (6 paragraphs)

[1]

Pursuant to s 530C(4) of the Corporations Act 2001 (Cth) (Corporations Act), the plaintiffs are authorised to dispose of the property and books seized under the warrant issued pursuant to the orders made on 26 May 2020.
Pursuant to s 57 of the Federal Court of Australia Act 1976 (Cth), the first plaintiffs, Jason Bing-Fai Tang and Ozem Azzam Kassem of One Wharf Lane, Level 20, 171 Sussex Street, Sydney NSW 2000, be appointed until further order as receivers and managers (Receivers), without security, of the assets and undertakings of each of: (a) RJ & D Wright Asset Holding Trust, being the trust established by Deed of Trust between David O'Brien, as settlor, and Wright's Transport (in Liquidation) (Company), as trustee; and (b) Wright's Transport Family Trust, being the trust established by Deed of Trust between David O'Brien, as settlor, and the Company, as trustee, (together, the Trusts).
Anything that may be done required or authorised to be done by the Receivers may be done by any one of them.
The Receivers have all the powers that a receiver has in respect of the business and property of a company under s 420 of the Corporations Act (other than in s 420(2)(s), (t), (u) and (w)) as if the reference in that section to "the corporation" were a reference to the Trusts including, without limitation, the power to do all things necessary or convenient to: (a) investigate transactions made using funds derived from the assets beneficially held by the Trusts; (b) demand the books and records of the Trusts from any person; (c) determine, settle and make payment of any claims made against the assets beneficially held by the Trusts; (d) sell and convert into cash any property or asset beneficially held by the Trusts; (e) enable the first plaintiffs, as Receivers, to realise assets beneficially held by the Trusts to enforce the second plaintiff's right of indemnity as trustee, and apply the proceeds to discharge the liabilities of the second plaintiff; (f) enable the first plaintiff to recover the costs of the receivership and the general costs of the liquidation of the second plaintiff; (g) distribute the proceeds of the sale of the assets beneficially held by the Trusts (after payment of the costs, expenses and remuneration of the Receivers in their capacity as the Receivers and as liquidators of the second plaintiff) to any creditors of the second plaintiff in its capacity as trustee of the Trusts; and (h) distribute any surplus thereafter to the beneficiaries of the Trusts.

Background 3 The history of the affairs and operations of Wright's Transport, including its entry into voluntary administration and then liquidation, are set out in Tang (liquidator) v Wright, in the matter Wright's Transport Pty Limited (in liq) [2020] FCA 709 (Wright's Transport (No 1)) at [4]-[10] as follows: 4 Prior to its external administration the company operated a long-range freight transport business as a subcontractor for two large customers, Toll and Incitec Pivot, and it utilised between seven and 12 heavy motor vehicles at any given time. 5 The company was and remains the trustee of two trusts, the RJ & D Wright Asset Holding Trust and the Wright's Transport Family Trust, and appears to have carried on business in its capacity as trustee of those trusts and does not own any assets in its own right, that is, as opposed to as trustee. 6 On 29 November 2019, the company was placed into voluntary administration by resolution of the director of the company and Messrs Kassem and Tang were appointed as administrators. On 15 January 2020, the creditors of the company resolved that the company be wound up and Messrs Kassem and Tang were appointed as the liquidators. 7 At all relevant times Mr Wright has been a director of the company. Further, his wife, Dawn Wright, was a director of the company up to 16 March 2018. Mr and Mrs Wright are the members of the company in equal share. 8 On 18 May 2018, the company purchased from Alfridge Pty Ltd, trading as Pengelly Trucks & Trailer Sales, the following two used Kenworth prime mover vehicles: (1) Kenworth prime mover with registration number 338XUD and VIN 6F5000000DA449412 (Kenworth 338XUD); and (2) Kenworth prime mover with registration number 302XUD and VIN 6F5000000DA450072 (Kenworth 302XUD). 9 The Kenworth 338XUD and Kenworth 302XUD were purchased using finance provided by Flexirent Capital Pty Ltd and on 22 May 2018 asset finance agreements were entered into with Flexirent. Flexirent has been given notice of the ex parte application today and, other than requesting to have its claimed interest in the vehicles brought to the attention of the Court, has not appeared on the application. 10 Flexirent registered its security interest in the vehicles following the asset finance agreements. However, the liquidators contend that the registration of the security interests is invalid and as a result each of the security interests vests in the company such that Flexirent no longer has any security over the vehicles. That issue does not fall for consideration in this proceeding. 4 Insofar as the Trusts are concerned the following further facts were brought to my attention: (1) in the trust deeds establishing the Trusts, which are in materially identical terms, Wright's Transport is named as the trustee of both Trusts; (2) the Trusts are discretionary trusts, the beneficiaries of which are Mr Wright, Dawn Wright, his wife, and persons or entities related to or otherwise connected with them; (3) by cl 8.8.2 of each of the trust deeds, the office of trustee was vacated by reason of, relevantly, administrators being appointed to Wright's Transport or Wright's Transport being placed into liquidation; (4) Mr Wright is the appointor of each of the Trusts and, in that capacity, has the powers prescribed by cl 7 of each of the trust deeds, including the power to appoint a new trustee; and (5) after Wright's Transport went into administration but before the Liquidators were appointed, Mr Wright purported to appoint Wright's Transport as the trustee of each of the Trusts. Even assuming that was effective, upon the winding up of Wright's Transport, the office of trustee was again vacated. 5 On 21 May 2020, among others, an order was made for the issue of a warrant pursuant to s 530C of the Act (First Warrant) for recovery of Kenworth prime mover vehicle with VIN 6F5000000DA449412 (Kenworth Prime Mover): see Wright's Transport (No 1). Relevantly, for the purposes of making that order Stewart J was satisfied that the Kenworth Prime Mover is owned by Wright's Transport and that the second prime mover (see at [6] below) was also so owned. At [16]-[17] his Honour relevantly said: 16 … The company acquired the vehicle and granted a security interest over it in favour of Flexirent, noting that the registration of that security interest is now in dispute. The purchase and security that is claimed is recorded in the sales invoices and in the security documentation which is before me. Following the appointment of administrators, Mr Wright was permitted to retain de facto control of both the vehicles because the business of the company was still being traded during the administration period. 17 There was then a proposal that a new entity controlled by the Wrights purchase the vehicles from the liquidators, but that did not ultimately proceed. The draft sale contracts, however, explicitly recorded that the company was the owner of the vehicles. 6 On 26 May 2020 the order for issue of the First Warrant was revoked and an order was made for the issue of a warrant pursuant to s 530C of the Act (Second Warrant) for recovery of Kenworth prime mover vehicle with VIN 6F5000000DA450072 (Recovered Prime Mover): see Tang (liquidator) v Wright, in the matter Wright's Transport Pty Ltd (in liq) (No 2) [2020] FCA 749. 7 On 1 June 2020 the Second Warrant was executed by Liquid Asset Management, who attended the relevant premises with the police, on behalf of the Liquidators, and the Recovered Prime Mover is now in possession of the Liquidators. 8 Flexirent Capital Pty Ltd (Flexirent), which provided the finance for the acquisition by Wright's Transport of the Kenworth Prime Mover and the Recovered Prime Mover (collectively, Prime Movers) did not seek to appear in the proceeding. As was the case in Wright's Transport (No 1) the question of the validity of Flexirent's alleged security interest over the Prime Movers does not arise for determination in this proceeding. In any event, Mr Tang's evidence was that the Liquidators and Flexirent were close to resolving their dispute consensually.

Appointment of the liquidators as receivers and managers 13 The Court's power to appoint a receiver is found in s 57(1) of the Federal Court of Australia Act 1976 (Cth). 14 A receiver may be appointed whenever it is necessary for the safety of trust property: see University of Western Australia v Gray (No 6) [2006] FCA 1825 at [72]. 15 The Liquidators sought their appointment as receivers and managers because of the limited powers of a liquidator in dealing with assets of a company where they are held by the company as bare trustee, as occurred here upon the appointment of the Liquidators. That is, upon the company going into liquidation, Wright's Transport was removed as trustee of each of the Trusts by operation of cl 8.2.2 of each of the trust deeds and became a bare trustee. 16 Relevantly, as submitted by the plaintiffs: (1) by law, in equity and, in this case, cl 8.4 of each of the trust deeds, Wright's Transport in its capacity as trustee of each of the Trusts, has a right of indemnity and may reimburse itself from the trust property or pay or discharge out of the trust property all expenses properly incurred or expended in or about the execution of each of the Trusts or in accordance with its powers as trustee; (2) a trustee's right of indemnity and exoneration is secured by a charge or lien, in the nature of a security interest over the trust assets, which subsist over the trust property in priority to the rights of the beneficiaries to that property: see In the matter of MINMXT Holdings Pty Ltd (In liquidation) [2017] NSWSC 156 at [22]-[23]; (3) where a trustee is a corporation, upon its winding up, the right of indemnity, and the corresponding charge over the trust assets, passes to the external administrator and extends to the external administrator's expenses and remuneration: see Suco Gold Pty Ltd (in liq) (1983) 33 SASR 99; Sutherland Re; French Caledonia Travel Service Pty Ltd (in liq) (2003) 59 NSWLR 361 at [201]; (4) a trustee's right of indemnity survives the retirement or replacement of the trustee and is available to a former trustee. If the trust property is transferred, the new trustee takes that property subject to the right of indemnity of the predecessor trustee: see Apostolou v VA Corporation Aust Pty Ltd [2010] FCA 64; (2010) 77 ACSR 84 at [49]; (5) following the replacement of a trustee, where the predecessor trustee continues to hold trust assets it does so as a bare trustee. The powers of a bare trustee are limited to protecting the trust assets which includes the right to hold those assets but not to deal with them: see Caterpillar Financial Australia Limited v Ovens Nominees Pty Ltd [2011] FCA 677 at [22]-[28]; and (6) where the predecessor trustee is in external administration, the administrator or liquidator has no power to sell the trust assets and must obtain a court order or apply for the appointment of a receiver in order to do so: see Jones (Liquidator) v Matrix Partners Pty Ltd; in the matter of Killarnee Civil & Concrete Contractors Pty Ltd (in liq) [2018] FCAFC 40; (2018) 354 ALR 436 at [44]. 17 The approach of appointing the external administrator as receiver and manager of the assets and undertakings of the relevant trust of which the company was trustee has been adopted in a series of cases in this Court including, by way of example, SMP Consolidated Pty Limited (in liquidation) v Posmot Pty Limited [2014] FCA 1382; QBE Insurance (Australia) Limited v WA Metal Recycling Pty Ltd, in the matter of WA Metal Recycling Pty Ltd (in Liq) [2016] FCA 238; Kite v Mooney, in the matter of Mooney's Contractors Pty Ltd (in liq) [2016] FCA 886; Roufeil (Liquidator), Leighton Scaffolding Pty Ltd (in liq) [2018] FCA 34. 18 As demonstrated by the evidence before me, upon the appointment of the Liquidators, the office of trustee of each the Trusts was vacated and, despite the attempt to reappoint Wright's Transport as the trustee of the Trusts after the appointment of the Liquidators as administrators, no other steps have been taken to appoint a new trustee. Accordingly, the orders now sought by the Liquidators for their appointment as receivers and managers of the Trusts are necessary. This is because, as things presently stand, Wright's Transport is a bare trustee and the Liquidators have no power to realise the assets of the Trusts. That is, while Wright's Transport retains the right of indemnity secured by its charge or lien over the assets of the Trusts, as it is a bare trustee, the Liquidators have no right to deal with the assets of the Trusts and cannot sell or transfer them for the benefit of creditors. 19 The Liquidators' opinion is that Wright's Transport did not carry on business in its own right. Further, it appears that the only assets of Wright's Transport are the Prime Movers which, based on the evidence, are owned by Wright's Transport as trustee of one of the Trusts, although the question of which of the Trusts is yet to be resolved. 20 Given those matters, it followed that the Liquidators ought to be appointed, jointly and severally, as receivers and managers of the property, assets and undertakings of the Trusts. As I have already observed, in the absence of such an appointment the assets could not be sold, realised or otherwise dealt with. 21 In addition, the Liquidators are experienced insolvency practitioners, familiar with the business and assets of Wright's Transport and there is no conflict of interest between their duties as liquidators and as receivers and managers of the assets of the Trusts: see Bailey (liquidator) of Bruce Bros Floor Coverings Pty Ltd (in liq) v Trustee of the Bruce Bros Floor Coverings Trust, in the matter of Bruce Bros Floor Coverings Pty Ltd (in liq) [2018] FCA 1838 at [16]. Further, as submitted by the Liquidators, the appointment of the same persons as receivers and managers will minimise the costs of the external administration of Wright's Transport and the receivership of the Trusts and thus be the most cost-effective way of realising the property of the Trusts. 22 One of the orders sought by the plaintiffs was an order that the costs, expenses and remuneration of the Liquidators in acting as the receivers and managers of the assets and undertakings of the Trusts, be paid from the assets of the Trusts. A noted above, Mr Wright raised an issue in relation to the Liquidators' remuneration, costs and expenses in that he submitted that the proceeds of sale of the Prime Movers should be used only to pay out the Liquidators' costs incurred in the Asset Holding Trust and that the balance of the proceeds of sale should be paid out to creditors of that trust and not to the creditors of the Trading Trust. That submission was made on the basis of Mr Wright's assertion that the Prime Movers are held in the Asset Holding Trust. 23 Insofar as payment of the Liquidators' remuneration, costs and expenses, both in their capacity as liquidators and as receivers and managers, is concerned, the summary of relevant principles set out by Brereton J in In the matter of AAA Financial Intelligence Ltd (in liquidation) [2014] NSWSC 1004 at [13] provides guidance: (1) Where the company is trustee of a trading trust and has no other activities, the liquidators are entitled to be paid their costs and expenses, whether for administering the trust assets or for "general liquidation work", out of the trust assets [Re Suco Gold Pty Limited (1993) 33 SASR 99; 7 ACLR 873; Grime Carter & Co Pty Limited v Whytes Furniture (Dubbo) Pty Limited [1983] 1 NSWLR 158; Re Sutherland; Re French Caledonia Travel Service Pty Ltd (in liq) [2003] NSWSC 1008; (2003) 59 NSWLR 361; 48 ACSR 97, [201]; Bastion v Gideon Investments Pty Ltd (in liq) [2000] NSWSC 939; (2000) 35 ACSR 466, 480 [70]; In the matter of North Food Catering Pty Ltd [2014] NSWSC 77]. (2) Where the company does not act solely as trustee, costs and expenses referable to work done in relation to trust assets which may nonetheless be considered as having been done for the purpose of winding up the company ought ordinarily be borne primarily by the (non-trust) property of the company, to the extent that the assets permit [Re GB Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674, 685-689; Re Greater West Insurance Brokers Pty Ltd [2001] NSWSC 825; (2001) 39 ACSR 301; French Caledonia, [209]]. (3) At least where the non-trust assets do not permit that course, and perhaps even when they do, a liquidator is entitled to be indemnified out of trust assets for his costs and expenses, but only to the extent that they are referable to administering the trust assets [13 Coromandel Place Pty Ltd v CL Custodians Pty Ltd (in liq) [1999] FCA 144; (1999) 30 ACSR 377, 385; French Caledonia, [211], [213]. This is pursuant to the court's equitable jurisdiction to allow a trustee remuneration costs and expenses out of trust assets, which extends to a person such as a liquidator who is, for practical purposes, controlling a trustee [Berkeley Applegate (Investment Consultants) Ltd; Harris v Conway [1989] Ch 32, 50-51; Re Application of Sutherland [2004] NSWSC 798; (2004) 50 ACSR 297; Trio Capital Ltd (Admin App) v ACT Superannuation Management Pty Ltd [2010] NSWSC 941; (2010) 79 ACSR 425; In re MF Global Australia Ltd (in liq) (No 2) [2012] NSWSC 1426, [55]; Alphena Pty Ltd (in liq) v PS Securities Pty Ltd atf Joseph Family Trust [2013] NSWSC 447; (2013) 94 ACSR 160]. (4) In principle, where the liquidator does work which would entitle him both to remuneration as liquidator by the company, and recovery from the trust assets, there are two funds liable and there should be contribution between them. However, where there are no assets of the company available, it is unnecessary to consider the question of contribution. If a liquidator has done work which is attributable equally to the winding up of the company and the administration of trust assets, and there are no assets of the company at all to meet his expenses in doing so, the expenses are payable solely from the trust assets [French Caledonia, [212]]. (5) Where the liquidator is administering, through the company of which he/she is liquidator, more than one trust, the liquidator is not entitled to charge the beneficiaries of one trust with the costs and expenses incurred in relation to the other, although where allocation is not possible a pari passu allocation may be permitted [Re Suco Gold, ACLR 882-3; 13 Coromandel, 386]. 24 The issue of which of the Trusts owns the assets and from which fund the Liquidators' and receivers and managers' remuneration might ultimately be paid was not one that should or could be determined on the present application and, as explained to Mr Wright, was an issue to be addressed at a future point in time having regard to the relevant principles. Accordingly, I declined to make any order as to how costs should be apportioned and to whom any net funds available for distribution should be paid. In addition, insofar as Mr Wright was concerned by payment of the Liquidators' remuneration, as opposed to the costs and expenses associated with the maintenance and disposal of the Trusts' assets, any remuneration sought by the Liquidators, either in their capacity as liquidators or as receivers and managers, cannot be paid without prior approval of the creditors or the Court. 25 Mr Wright also sought an order that the assets of the Trusts be disposed of at their market value. I declined to make such an order, noting that the receivers and managers once appointed would have certain duties and that it was a matter for them to determine the best mode of disposal of the assets including price. 26 Finally, I made an order that there be no distribution of the assets of the Trusts to creditors or unit holders without further order or direction of the Court. The purpose of this order is to preserve the rights of creditors and beneficiaries of the Trusts, especially in circumstances where there is some uncertainty as to which of the Trusts is the beneficial owner of the Prime Movers. A similar approach was adopted in In the matter of Double Bay Property Management Pty Ltd (in liq) [2020] NSWSC 203 at [11]. However, given the circumstances of this case that order was framed so that the Liquidators would not be constrained from resolving the dispute with Flexirent and, if necessary, paying an agreed sum to it from the proceeds of sale of the Prime Movers as part of a resolution of that dispute. To do otherwise would mean that the Liquidators in their capacity as receivers and managers would be unable to finalise the realisation of the Trusts' property and thus to create a fund of net assets for the benefit of creditors.

Tang, in the matter of Wright's Transport Pty Limited (in liq) v Wright

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