Thorne Developments Pty Ltd v Thorne [2015] QSC 156

The applicant also relies on a fourth issue, if it is unsuccessful on the first three issues:

(d) whether the court should declare pursuant to clause 17.1 of the trust deed that the respondent as from 28 February 2015 was deemed to have vacated the office of trustee of the trust on the basis that she was "subject to any bankruptcy law" within the meaning of clause 17.1 of the trust deed.

[13] The relevant parts of s 601AD of the Act are:

"(1) Company ceases to exist A company ceases to exist on deregistration.

Note: Despite the deregistration, officers of the company may still be liable for things done before the company was deregistered.

(1A) Trust property vests in the Commonwealth On deregistration, all property that the company held on trust immediately before deregistration vests in the Commonwealth. If property is vested in a liquidator on trust immediately before deregistration, that property vests in the Commonwealth. This subsection extends to property situated outside this jurisdiction.

(2) Other company property vests in ASIC On deregistration, all the company's property (other than any property held by the company on trust) vests in ASIC. If company property is vested in a liquidator (other than any company property vested in a liquidator on trust) immediately before deregistration, that property vests in ASIC. This subsection extends to property situated outside this jurisdiction.

(3) Rights and powers in respect of property Under subsection (1A) or (2), the Commonwealth or ASIC takes only the same property rights that the company itself held. If the company held particular property subject to a security or other interest or claim, the Commonwealth or ASIC takes the property subject to that interest or claim.

Note: See also subsection 601AE(3) - which deals with liabilities that a law imposes on the property (particularly liabilities such as rates, taxes and other charges).

(3A) Commonwealth to have all powers of an owner The Commonwealth has, subject to its obligations as trustee of the trust, all the powers of an owner over property vested in it under subsection (1A).

Note: Section 601AF confers additional powers on the Commonwealth to fulfil outstanding obligations of the deregistered company.

[14] The relevant parts of s 601AE of the Act are:

"(1) Trust property vested in the Commonwealth If property vests in the Commonwealth under subsection 601AD(1A), the Commonwealth may:

(a) continue to act as trustee; or

(b) apply to a court for the appointment of a new trustee.

Note: Under paragraph (1)(a), the Commonwealth may be able to transfer the property to a new trustee chosen in accordance with the trust instrument.

(1A) Obligations attaching to trust property If the Commonwealth continues to act as trustee in respect of the property, subject to its obligations as trustee, the Commonwealth:

(a) in the case of money - must credit the amount of the money to a special account (within the meaning of the Public Governance, Performance and Accountability Act 2013); or

(b) otherwise:

• (i) may sell or dispose of the property as it thinks fit; and
• (ii) if the Commonwealth does so - must credit the amount of the proceeds to a special account (within the meaning of the Public Governance, Performance and Accountability Act 2013).

Note: ASIC may, for and on behalf of the Commonwealth, perform all the duties and exercise all the powers of the Commonwealth as trustee in relation to property held on trust by the Commonwealth (see subsection 8(6) of the ASIC Act).

(2) Property vested in ASIC If property vests in ASIC under subsection 601AD(2), ASIC may:

(a) dispose of or deal with the property as it sees fit; and

(i) defray expenses incurred by ASIC in exercising its powers in relation to the company under this Chapter; and

ASIC must deal with the rest (if any) under Part 9.7.

(2A) Obligations attaching to property vested in the Commonwealth For the purposes of subsection (3), if any liability is imposed on property under a law of the Commonwealth immediately before the property vests in the Commonwealth under subsection 601AD(1A), then:

(a) immediately after that time, the liability applies to the Commonwealth as if the Commonwealth were a body corporate; and

(b) the Commonwealth is liable to make notional payments to discharge that liability.

(3) Obligations attaching to property Any property that vests in the Commonwealth or ASIC under subsection 601AD(1A) or (2) remains subject to all liabilities imposed on the property under a law and does not have the benefit of any exemption that the property might otherwise have because it is vested in the Commonwealth or ASIC. These liabilities include a liability that:

(a) is a security interest in or claim on the property; and

(b) arises under a law that imposes rates, taxes or other charges.

(4) Extent of Commonwealth's and ASIC's obligation The Commonwealth's or ASIC's obligation under subsection (2A) or (3) is limited to satisfying the liabilities out of the company's property to the extent that the property is properly available to satisfy those liabilities.

[15] Section 601AH of the Act deals with reinstatement. Section 601AH(5) deals with the effect of reinstatement:

"(5) Effect of reinstatement If a company is reinstated, the company is taken to have continued in existence as if it had not been deregistered. A person who was a director of the company immediately before deregistration becomes a director again as from the time when ASIC or the Court reinstates the company. Any property of the company that is still vested in the Commonwealth or ASIC revests in the company. If the company held particular property subject to a security or other interest or claim, the company takes the property subject to that interest or claim."

Could the respondent be appointed a trustee without the consent of the Commonwealth while the applicant was deregistered?

[16] The applicant's submission is that ss 601-601AH of the Act contain an exclusive code for the removal of the Commonwealth as trustee of trust property vested in the Commonwealth by s 601AD(1A), upon deregistration of a trustee company. The respondent framed this first issue in slightly different terms: do the provisions of ss 601-601AH of the Act constitute an exclusive code in respect of all matters concerning a deregistered company and is the effect of any such exclusivity to prevent a trustee being appointed pursuant to the TA or the trust deed?

[17] I will focus on the construction and application of the relevant provisions of the Act to deal with the issue thrown up by the respondent's appointment as trustee of the trust while the applicant was deregistered and the trust property was vested in the Commonwealth pursuant to s 601AD(1A) of the Act.

[18] The current terms of ss 601AD-601AH of the Act incorporate amendments that commenced on 1 July 2007 made in schedule 1 of the Governance Review Implementation (Treasury Portfolio Agencies) Act 2007 (Cth) (the 2007 amendments). Prior to the 2007 amendments, when a company was deregistered, its property vested in ASIC. The main change effected by the 2007 amendments to ss 601AD-601AH was to make a distinction between the vesting of property that was held by the deregistered company on trust and the property that was held in its own name. The effect of the 2007 amendments is that non-trust property of a deregistered company will still vest in ASIC, but the property the deregistered company held on trust will vest in the Commonwealth. In accordance with the note to s 601AE(1A) of the Act, ASIC may perform all the duties and exercise all the powers of the Commonwealth as trustee in relation to property so held on trust by the Commonwealth.

[19] The applicant argues that the effect of s 601AD(1A) and (3A) was to vest the property held by the applicant on trust immediately before deregistration in the Commonwealth as a full trustee and the effect of s 601AE(1) was that the Commonwealth, and no other, had the right to decide whether it would remain as the full trustee or relinquish that role by application to the court.

"[28] The first part of s 601AH(5) must mean that, upon reinstatement of the registration, the company is to be viewed as if it had never ceased to exist, so that both the initial cessation of existence and the ongoing absence of existence are retrospectively obliterated. While not all consequences of the initial cessation of existence are to be disregarded (for example, the section itself makes it clear, by saying that a person 'becomes a director again', that it does not effect retrospective continuity of the tenure of directors), there is to be unbroken continuity of corporate existence as such.

[29] It must follow that, if the registration of Cenco were reinstated, the cessation of existence and dissolution that caused it to cease to be the trustee of the Centrelease Trust would become invisible in the eyes of the law. That, coupled with the automatic revesting of property still vested in ASIC (subject to outstanding securities and other interests and claims), would cause Cenco to hold the remaining trust property subject to the rights of ARM and the claims or interests of unitholders under the Centrelease Trust and therefore upon the trusts created by the deed of 31 December 1982, so that it was again the trustee."

[24] The applicant submits that the approach of Barrett J in Danich in treating ASIC as the holder of the legal title to the trust property of the deregistered company, but not as a trustee differs from the approach of Gillard J to the effect of s 601AD and s 601AE in Chalker v Barwon Coast Committee of Management Inc [2003] VSC 286 at [30] where ASIC was treated as a full trustee and not a bare trustee which should be preferred. An appeal from that decision was unsuccessful in Chalker v Barwon Coast Committee of Management Inc [2005] VSCA 101.

[25] In Chalker a company was established as the trustee of a unit trust to conduct a restaurant in premises on Crown land that was managed and administered by the defendants. There was a dispute over rent and the restrictions imposed by the defendant management body. The company was wound up and deregistered when the liquidation was finalised. Mr Chalker and his son Mr Chalker as the plaintiffs then commenced a proceeding against the defendants purporting to act as trustees on behalf of the unit trust. Another company which claimed to be the sole unit holder and beneficiary of the unit trust sought to appoint Messrs Chalker as the trustees of the unit trust after the proceeding commenced. Messrs Chalker then purported to ratify the proceeding they had already commenced against the defendants. The defendants applied to strike out the proceeding on the basis the plaintiffs lacked capacity to bring the proceeding.

[26] When the company that was the unit trustee was wound up, the unit holders had failed to take advantage of the provision of the unit trust deed to appoint a new trustee. Gillard J found that the plaintiffs had no authority or capacity to bring the proceeding and it was dismissed. Gillard J stated at [30]:

"It follows that the legal estate held by the Unit Trust Trustee company prior to its de-registration was held thereafter by ASIC. S601AE provides for what ASIC can do with the property. S601AE(1) is concerned with property vested in ASIC which was held by the de-registered company on trust. ASIC may continue to act as trustee or to apply to a court for appointment of a new trustee. Clearly, ASIC has the power to transfer the legal estate to a new trustee appointed pursuant to the trust instrument. In my opinion, as at 22 November 2000, ASIC held the legal estate originally held by the Unit Trust Trustee prior to its de-registration, and held the legal estate for the benefit of the Unit Trust. No application was made to the court to appoint a new trustee and no steps were taken pursuant to the Unit Trust Deed to appoint a new trustee. It follows that at the date of issue of the writ, ASIC held the legal estate of the Unit Trust for the benefit of the beneficiary under the Unit Trust Deed. The only property comprised in the legal estate was the cause of action (if any) which the Unit Trust Trustee had on behalf of the Unit Trust against the defendants. Hence, the position as at 29 January 2001 was that if there was a cause of action against the defendants or either of them, the cause of action formed part of the legal estate of the trust. The property in that cause of action was vested in ASIC who held the estate for the benefit of the beneficiary under the Unit Trust, ..."

[27] Different arguments were advanced before the Court of Appeal in Chalker, and Eames JA who gave the leading judgment was at [26] able to dispose of the argument that ASIC was the trustee without deciding the point, as the outcome that the proceeding commenced by the plaintiffs was a nullity would be the same whether ASIC was the trustee or whether there was no trustee in place.

[28] In House of Peace Pty Ltd v Bangladesh Islamic Centre of New South Wales Inc [2009] NSWSC 817; (2009) 73 ACSR 446, the company House of Peace was the registered proprietor of land and had been incorporated by the first defendant for that purpose, its shareholders held their shares on trust for the first defendant, and the land was purchased using funds provided by the first defendant. The second defendant (who was the president of the first defendant) on behalf of the first defendant authorised one of the members of the first defendant to take steps to transfer the subject land from the House of Peace to the first defendant. House of Peace was deregistered by ASIC on 16 December 2002 for failing to lodge documents and its annual return. A transfer of the land from House of Peace to the first defendant was signed on 8 April 2003 by the second defendant as transferor and registered on 12 May 2003. House of Peace was reinstated on 28 March 2006. House of Peace then sought a declaration that the transfer was void on the basis that the transfer had been obtained fraudulently, because the second defendant was not a director of the plaintiff and knew at the time of the transfer the plaintiff had been deregistered. The alternative ground for seeking the declaration was that the transfer and/or its registration was ineffective because of a direct inconsistency between s 42 of the Real Property Act (NSW) (the State Act) and s 601AD and s 601AE of the Act that invoked s 109 of the .

"(2) On deregistration, all the company's property vests in ASIC. If company property is vested in a liquidator immediately before deregistration, that property vests in ASIC. This subsection extends to property situated outside this jurisdiction.

(3) Under subsection (2), ASIC takes only the same property rights that the company itself held. If the company held particular property subject to a security or other interest or claim, ASIC takes the property subject to that interest or claim.

(4) ASIC has all the powers of an owner over property vested in it under subsection (2)."

[31] The provisions of s 601AE(2)(a) and s 601AE(3) were in substantially the same terms as they now are after the 2007 amendments. Nicholas J was dealing with the subject property on the basis that it was not held by the plaintiff on trust.

[32] Nicholas J described the effect of deregistration at [83]-[84]:

"[83] Under s 601AD(2), on deregistration all the company's property vests in ASIC. It includes any legal or equitable estate or interest in real or personal property of any description (s 9). ASIC takes only the same property rights that the company itself held (s 601AD(3)), and has all the powers of an owner over property vested in it under subs (2) (s 601AD(4)).

[84] As a consequence of the company's deregistration the devolution of ownership of its property is effected by vesting by operation of law i.e. by force of s 601AD(2). The statutory vesting is, in my opinion, equivalent to the transmission of ownership from the company to ASIC in the sense defined in Wolfson v Registrar-General (NSW) [1934] HCA 29; (1934) 51 CLR 300 by Starke J (p 311-312) as follows:

Transmission in its strictest sense is the devolution of property upon some person by operation of law, unconnected with any direct act of the party to whom the property is transmitted - as, by death, bankruptcy, insolvency or marriage ... ."

"[86] With devolution of ownership ASIC takes only the same property rights as the company held, with all the powers of an owner over the property (s 601AD(3), s 601AD(4)). No different form of ownership or title is created, and the rights attaching to ownership and title remain the same. In my opinion, upon their proper construction, the provisions operate to change ownership of property from the company to ASIC, with the intention that ASIC is to take just the same kind of property as the company had at the time of deregistration, with the same rights and powers of ownership as the company had before deregistration. It would be incorrect to say that ASIC obtained a statutory title in the vested property which differed in any way from the nature of the title held by the company prior to deregistration.

[87] Section 601AD deals with the effect of deregistration, and s 601AE with what ASIC does with the property. Although s 601AE(2)(a) authorises ASIC to dispose of, or deal with, non-trust property as it sees fit, the Corporations Act makes no provision for the exercise of the powers of an owner which ASIC holds under s 601AD(4). As no comprehensive and exclusive code of the means by which these powers are to be exercised is to be found in the Corporations Act, in my opinion the enactment of these provisions assumed an existing legal system within which and by means of which those powers might be exercised (Re Residential Tenancies Tribunal (NSW) p 432). It follows, in my opinion, that these provisions "... were intended to operate within the setting of other laws so that it is supplementary to, or cumulative upon, the State law in question" (Attorney-General (Vic) par 54; Re Residential Tenancies Tribunal (NSW) p 433; Telstra Corporation Ltd par 27)."

[34] Nicholas J therefore concluded at [94] there was no inconsistency between the operation of the State Act and the relevant provisions of the Act, as the operation of s 41 and/or s 42 of the State Act could not alter, impair or detract from the operation of s 601AD, s 601AE and s 601AH of the Act.

[35] The applicant submits that the changes to s 601AD and s 601AE made by the 2007 amendments made those provisions materially different from the predecessors that were considered in House of Peace and the decision in that case is of no assistance in this matter.

[36] The 2007 amendments which created the dichotomy between the vesting of the trust property and the non-trust property of the deregistered company respectively in the Commonwealth and ASIC do not have the significance suggested by the applicant. The conclusion by Nicholas J that the powers conferred as a result of s 601AD and s 601AE are intended to operate within the setting of other laws is equally applicable to the current terms of the provisions after the 2007 amendments.

[37] I consider that Gillard J's analysis in Chalker of the effect of s 601AD and s 601AE of the Act reflects the proper interpretation of those provisions rather than the observation of Barrett J in Danich that ASIC did not become the trustee of the trust property of the deregistered company until it positively exercised the power to do so. The idea of the scheme set up by s 601AD and s 601AE of the Act is to ensure that there is an entity to deal with the property owned by a deregistered company upon its ceasing to exist. This has particular relevance in respect of the trust property held by the deregistered company as trustee, as the statutory vesting of the trust property in the Commonwealth may facilitate dealing with the trust property for the benefit of the beneficiaries under the relevant trust. It does not resolve the first issue by determining whether the Commonwealth is a full trustee or not in respect of the trust property held by a deregistered company that vested in it under s 601AD(1A) of the Act. Even if the Commonwealth were a full trustee, the statutory scheme under part 5A.1 of Chapter 5A of the Act anticipates the rights vested in the Commonwealth as the holder of the trust property may be affected or divested by the application of the other laws within which the scheme operates. This is implicit in the note to s 601AE(1) of the Act. If the relevant trust deed or a statutory provision such as s 12(1) or s 80 of the TA regulates the appointment of a new trustee when a corporate trustee has been deregistered, there is nothing in part 5A.1 of Chapter 5A of the Act that mandates the consent of, or notice to, the Commonwealth before such an appointment can take effect. The power the Commonwealth has pursuant to s 601AE(1) may be used to facilitate the transfer of the trust property to the new trustee or there may be practical reasons in a particular case for notifying the Commonwealth of the appointment of a new trustee, but that does not make the transfer to, or the appointment of, the new trustee conditional on the prior consent of, or notice to, the Commonwealth.

Whether the deed of appointment validly appointed the respondent a trustee of the trust

[40] The applicant argues that no occasion arose for the exercise by Mr Thorne of the power to nominate a new trustee, whether under s 12(1) of the TA or pursuant to clause 16.3 of the trust deed, on the basis that there was no vacancy in the office of trustee occupied by the applicant, because of the operation of s 601AD and s 601AE of the Act. The answer to this argument is the same as that which resolved the previous issue: that part 5A.1 of chapter 5A of the Act does not displace the operation of the laws that apply generally to trusts.

[41] Although the trust deed refers to the appointment of the respondent and Mr Craig Thorne being made pursuant to clause 16.3 of the deed, the application of s 10 of the TA meant that the source of the power for making a new appointment of trustees was s 12(1) of the TA.

[42] Section 12(1) of the TA provides for the process of appointment of a new trustee by the person nominated under a trust deed for the purpose of appointing new trustees. This avoids uncontentious applications to court for appointment of new trustees and enables the trust to be conducted in the manner that was anticipated by the settlor. In the case of a natural person who has been a trustee, the circumstances applying to a trustee which trigger the exercise of the power under s 12(1) of the TA are death, remaining out of the State for more than one year without having properly delegated the execution of the trust, refusal to act, unfitness to act, incapacity or being an infant. Special provision is then made in s 12(1)(h) for the exercise of the power of appointing a new trustee where specified circumstances apply to a trustee which is a corporation.

[43] When the TA was enacted, the relevant companies' legislation provided for dissolution of a corporation, rather than deregistration. The concept of deregistration was introduced by the Company Law Review Act 1998 (Cth).

[44] The issue of statutory interpretation that arises is whether deregistration by operation of law under s 601AB of the Act is caught by s 12(1)(h) of the TA.

[45] The respondent submits that the concept of deregistration is the same as the concept of dissolution and the terms can be used interchangeably and that is how the word "dissolved" should be construed in s 12(1)(h) of the TA. That is what Barrett J suggested in at [25]. The respondent also submits that if the power under clause 16.3 of the trust deed was applicable, it also applied where a corporate trustee had been dissolved and "dissolved" should be given the same meaning in that provision, as in s 12(1)(h) of the TA.

Whether the appointment of the respondent as a trustee was not bona fide

[50] The applicant argues that the appointment by Mr Thorne of his wife as a trustee was not a bona fide exercise of the power of appointment. The applicant submits Mr Thorne could not appoint himself, because he was bankrupt, and it should be assumed that he appointed his wife who would be influenced by him, so that it was in effect an appointment of Mr Thorne.

[51] The applicant relies on the statements of principle referred to by Daubney J in Schuhmacher v Emmerson [2013] QSC 205 at [94] about self appointment to the position of trustee. It should be noted that those statements of principle were quoted from a judgment that was subsequently reversed in the High Court in Montevento Holdings Pty Ltd v Scaffidi [2012] HCA 48; (2012) 246 CLR 325. The issue in Montevento was whether an appointor under a discretionary trust deed with power to remove a trustee and to appoint new trustees, could appoint a corporate trustee of which the appointor was the sole director and shareholder. There was an express prohibition in the deed that, so long as any individual appointor is a beneficiary, that individual shall not be eligible to be appointed as a trustee. The majority in the Court of Appeal of the Supreme Court of Western Australia had held that the prohibition was breached by the appointment of the corporate trustee on the basis that the beneficiary of the appointor would be involved in the performance of the functions of the corporate trustee which was the vice to which the prohibition was directed. The High Court held at [25] that the ordinary and natural meaning of the clause in the deed was that any natural person who holds the office of appointor may not be appointed as trustee, so that did not invalidate the appointment of the corporate trustee. In Schuhmacher, the appointor was the executor of the estate of the named appointor and the executor removed the existing trustee and appointed himself as the trustee of the family discretionary trust. In the factual circumstances of that matter, the appointment of the executor of himself as trustee of the trust was found at [97] to be justifiable.

Whether the respondent became subject to any bankruptcy law

[56] The applicant relies on the service of the respondent on 28 February 2015 of the bankruptcy notice issued on 27 February 2015 by Ozibar Pty Ltd as Trustee of the Ozibar Unit Trust. The respondent applied to set aside the bankruptcy notice. I have not been informed as to the outcome of that application, but the applicant's contention is that the outcome of the application is irrelevant, as upon service on the respondent of the bankruptcy notice she became "subject to any bankruptcy law" within the meaning of clause 17.1 of the trust deed and should have vacated the office of trustee.

[57] The applicant contends that as the issue of a bankruptcy notice is a proceeding under the Bankruptcy Act 1966 (Cth) (BA), as was recognised in Kleinwort Benson Australia Ltd v Crowl [1988] HCA 34; (1988) 165 CLR 71, 77, and the respondent has engaged the BA to bring the application to have the bankruptcy notice set aside, she must be subject to the BA which is the law dealing with bankruptcy. The applicant also relies on the characterisation by Deane J in Kleinwort at 81 of a bankruptcy notice being "the foundation of a bankruptcy".

[58] The respondent contends that a common sense approach should be taken to the construction of "subject to any bankruptcy law" in clause 17.1 of the trust deed and that a person becomes subject to any bankruptcy law only upon becoming a bankrupt or, possibly, upon signing an authority under s 188 of the BA. The respondent submits that it is an overly literal approach to treat proceedings under the BA anterior to a sequestration order as sufficient to disqualify a trustee from continuing in office as the trustee, when it is the sequestration order that has the effect of altering the status of the bankrupt.

[61] The applicant has failed to show that the appointment of the respondent as a trustee of the trust whilst the applicant was deregistered was invalid. It follows that the originating application should be dismissed. As the issue between the parties that has been resolved by this decision establishes the validity of the respondent's appointment as trustee, I am prepared to make a declaration in terms to that effect, subject to hearing any submissions by the parties on whether such a declaration should be made in this proceeding brought by the applicant.

[62] As the applicant has been unsuccessful in the issues it raised in this proceeding, costs should follow the event. I will, however, give the parties an opportunity to consider these reasons before making any costs order.