Vince (Liquidator) v Electro Specialties Pty Ltd, in the matter of Electro Specialties Pty Ltd

Introduction 1 The plaintiff is the liquidator of the defendant, Electro Specialties Pty Ltd (ACN 068 923 062) (in liquidation) (Company). 2 By originating process filed on 8 May 2023, the plaintiff applied to be appointed without security as the receiver and manager (receiver) of the property, undertakings and assets of the More Family Superannuation Fund (Super Fund) pursuant to s 57 of the Federal Court of Australia Act 1976 (Cth) (Act), and for ancillary orders. 3 The application was supported by the plaintiff's affidavit and three affidavits of service. 4 On 1 June 2023, I made orders substantially in the form of the orders sought by the plaintiff. These are my reasons for making those orders.

Background 5 The plaintiff relied on the following materials in support of his application: (a) an affidavit of the plaintiff dated 28 April 2023, which deposed to the background to the application; (b) the affidavit of Chris Byrne dated 23 May 2023, which deposed to service of the proceeding on Susan Judith More on 28 April 2023 (Ms More); (c) a further affidavit of Chris Byrne dated 23 May 2023, which deposed to service of the proceeding on Bruce Markie More on 17 April 2023 (Mr More); and (d) an affidavit of service of Jacqueline Mouchbahani dated 26 May 2023, which deposed to service of the proceeding on the Australian Taxation Office (ATO) and the Australian Securities & Investment Commission (ASIC) on 15 May. 6 The plaintiff's affidavit evidence was based on the limited books and records of the Company available to him, and his investigations. The plaintiff's evidence is set out at [7] to [16] below. 7 Mr More and Ms More are the current directors of the Company. They have held that office since the Company was incorporated on 3 April 1995. Mr and Ms More are the only shareholders of the Company. 8 The Super Fund is an ATO Regulated Self-Managed Superannuation Fund. The plaintiff deposed that, based on the limited books and records available to him, the Company is, or was at some point, the trustee of the Super Fund. 9 On 12 May 2015, the Federal Circuit Court of Australia made sequestration orders against the estate of Mr More. On 18 January 2016, this Court made orders that the Company be wound up in insolvency, and that the plaintiff be appointed liquidator. The petitioning creditor was the Deputy Commissioner of Taxation. 10 The plaintiff's evidence was that, following his appointment, he received limited assistance from the directors in relation to the affairs of the Company and the Super Fund. The plaintiff deposed that, on about 11 February 2016, he referred the directors' failure to provide him assistance to ASIC. ASIC commenced criminal proceedings against the directors, who ultimately pleaded guilty to breaches of ss 475 and 530A of the Corporations Act 2001 (Cth) on 28 November 2017. 11 The plaintiff has made enquiries in order to locate a copy of the Super Fund's trust deed including making a freedom of information request and writing to the ATO, writing to the Super Fund's accountant, writing to Westpac Banking Corporation (Westpac) (which, on the evidence, appears to hold a bank account for the Super Fund), writing to the trustees of Mr More's bankrupt estate, and writing to More Superannuation (which the plaintiff suspected may be the administrator of the Super Fund). Despite those enquiries, the plaintiff has been unable to obtain a copy of the Super Fund's trust deed. 12 The plaintiff opined that, based upon his investigations, the Company had operated in its own right, in addition to acting as trustee of the Super Fund. The basis for the plaintiff's opinion was, amongst other things, the fact that the Company and Super Fund held separate bank accounts and the fact that they had separate ABNs. 13 The Super Fund's assets include shares held in an account maintained with Westpac Securities Ltd which, as at 30 June 2022, were valued at $107,510.68. The Super Fund also has cash held in a Westpac account in the sum of approximately $37,931.74, which has since been transferred into an account in the name of the Company. 14 The Super Fund's sole creditor is the ATO. The ATO has lodged a proof of debt which includes the following debts: (a) $294,003.44 for income tax as at 18 January 2016 payable by the Super Fund; and (b) $13,523.98 in respect of the Super Fund's running balance account. 15 The Company has a number of creditors. The ATO is the Company's primary creditor. The ATO has lodged a proof of debt which identifies the Company's running balance account deficit debt as at 18 January 2016 as $127,412.69. The Company's other creditors total less than $10,000. 16 The plaintiff deposed that he has not located any evidence to suggest that the Company was replaced as trustee of the Super Fund at any time, notwithstanding that the Company was in liquidation.

Hearing 17 The proceeding was listed for a first case management hearing on 1 June 2023. However, the plaintiff's solicitors informed my chambers that the plaintiff sought the making of final orders at the hearing. For this purpose, the plaintiff provided my chambers with a written outline of submissions in support of their application. 18 At the hearing, appearances were entered for the plaintiff and Ms More. Ms More made submissions from the bar table opposing the plaintiff's application. Ms More's submissions were not supported by affidavit evidence. Ms More contended that the plaintiff's affidavit inaccurately recorded the Company's debtors. Ms More submitted that she and Mr More were the only debtors of the Company. Ms More submitted that she had lodged a proof of debt with the liquidator, which related to a purported loan from the Super Fund to the Company of approximately $322,000. That loan was recorded in a Report as to the Affairs of the Company dated 22 November 2017, which was provided to the plaintiff after ASIC commenced criminal proceedings against Mr More and Ms More. The Report described the loan as the "More Family Superannuation Loan" and further referred to it as a "loan to Electro Specialties". The Report stated that the amount owing under the loan was $322,130.71. Ms More stated that the plaintiff rejected a proof of debt claim relating to this loan on the basis that she and Mr More had provided insufficient evidence of the existence of the debt.

Power to appoint receiver over trust property 19 Section 23 of the Act relevantly provides: The Court has power, in relation to matters in which it has jurisdiction, to make orders of such kinds, including interlocutory orders, and to issue, or direct the issue of, writs of such kinds, as the Court thinks appropriate. 20 Section 57 of the Act provides: (1) The Court may, at any stage of a proceeding on such terms and conditions as the Court thinks fit, appoint a receiver by interlocutory order in any case in which it appears to the Court to be just or convenient so to do. (2) A receiver of any property appointed by the Court may, without the previous leave of the Court, be sued in respect of an act or transaction done or entered into by him or her in carrying on the business connected with the property. (3) When in any cause pending in the Court a receiver appointed by the Court is in possession of property, the receiver shall manage and deal with the property according to the requirements of the laws of the State or Territory in which the property is situated, in the same manner as that in which the owner or possessor of the property would be bound to do if in possession of the property. 21 The ground on which the Court appoints a receiver is the protection or preservation of property for the benefit of the persons who have an interest in it: Re Business Aptitude Pty Ltd (in liquidation) [2016] FCA 1438 (Business Aptitude) at [17] (per Gleeson J). 22 A company that holds trust assets in circumstances where that company no longer acts as trustee holds those assets as bare trustee. In these circumstances, its powers are limited to protecting the trust assets: Re Substar Holdings Pty Ltd (in liq) [2020] FCA 1863 at [27] (per McKerracher J). 23 Subject to the terms of the trust deed, a trustee has a right of indemnity against debts and liabilities incurred in performing its duties and powers out of the assets of the trust. Subject to the terms of the trust deed, this right is secured by a lien: Jones v Matrix Partners Pty Ltd (2018) 260 FCR 310 at [35] (per Allsop CJ) (Jones). A trustee does not require judicial intervention to exercise its right of indemnity where property is not required to be sold. However, the lien "does not confer a power of sale, and if sale be necessary a court order or the appointment of a receiver to sell is required": Jones at [44]. 24 The Court may appoint a receiver over trust property to secure a former trustee's right of indemnity out of the assets of the trust: Business Aptitude at [22]. This includes where it is necessary for a liquidator "to realise the assets of the trust so that the liabilities incurred by the [liquidator] in the performance of the trust can be met": Sapphire (SA) Pty Ltd v Ewens Glen Pty Ltd [2011] FCA 600 at [15] (per Besanko J). In Re Simpkiss Pty Ltd (in liq) [2018] FCA 2121, Markovic J made orders appointing a liquidator of a corporate trustee as receiver of the assets and undertakings of a trust. Markovic J explained her reasons for doing so in the following terms (at [30]): Here, as noted above, the office of trustee of the Trust became vacant as a result of Ms Amirbeaggi's appointment as administrator. There was no suggestion that a new trustee would be appointed. It was thus necessary to appoint Ms Amirbeaggi as receiver and manager to permit her to further deal with any remaining Trust assets, bring certainty to the process of finalising the liquidation and secure Simpkiss' right of indemnity out of the assets of the Trust for the benefit of Simpkiss' (and the Trust's) creditors.

Appointment of a receiver over trust property of a superannuation fund 25 Section 120(2)(e) of the Superannuation Industry (Supervision) Act 1993 (Cth) (Superannuation Act) provides that a body corporate is a "disqualified person" if "the body has begun to be wound up". A disqualified person commits an offence under s 126K of the Superannuation Act if the person acts as trustee of a superannuation entity. Nonetheless, the body corporate does not cease to be a trustee of the superannuation fund merely because it becomes a disqualified person. In Re Stansfield DIY Wealth Pty Limited (in liq) [2014] NSWSC 1484 (Stansfield), Brereton J held (at [36]): The result, as it seems to me, is that while upon going into liquidation the company became a disqualified person within the meaning of the legislation, it did not thereby cease to be trustee of the super fund. It remains the trustee of the super fund. However, by continuing to be and act as trustee while a disqualified person, the company contravenes s 126K and thereby commits an offence. … If the company in liquidation were to exercise any of the trustee's powers under the trust deed - including the power of sale - it would be acting as trustee, in contravention [of] s 126K. The liquidator would probably be liable as an accessory. 26 Justice Brereton subsequently concluded that the liquidator in that case would be justified in applying to be appointed receiver and manager of the trust assets. His Honour relevantly stated (at [45]): This [that is, appointment of the liquidator as a receiver] would enable the liquidator, as receiver, to realize trust assets to enforce the (former) trustee's indemnity, and apply the proceeds to discharge the liabilities of the company (all of which were incurred in the capacity of trustee). In addition, he would be entitled to recover the costs of the receivership and, because the company's sole function was to act as trustee of the super fund, the general costs of liquidation. As this is likely to exhaust the assets of the super fund, the absence of a replacement trustee would be of little consequence.

Consideration 27 The ordinary position is that potentially affected parties must be notified of a liquidator's application under s 57(1) of the Act: Re Brimson Pty Ltd (In Liq) [2019] FCA 1023 at [8]. This would typically include beneficiaries and creditors of the Super Fund: Kite (in their capacity as liquidators of Mooney's Contractors Pty Ltd (in liq)) v Mooney [2017] FCA 653 at [7]. In the present case, notice of the proceeding has been provided to the ATO (the sole creditor of the Super Fund), ASIC, and the two directors and shareholders of the Company, Mr and Ms More. I accept that, on the materials available to the plaintiff, it is not possible for the plaintiff to identify the beneficiaries of the Super Fund. In these circumstances, I am satisfied that all known potentially affected parties have been notified of the proceeding. 28 For the reasons set out below, I accept the plaintiff's submission that, in this case, it is just and convenient to appoint the plaintiff as receiver and manager of the Super Fund's property. 29 I cannot accept Ms More's submissions that the Company has no creditors other than herself and Mr More. Those submissions were unsupported by affidavit evidence, and were inconsistent with the affidavit evidence of the plaintiff as to the true creditors of the Company and the Super Fund. In any case, if the plaintiff considered that the plaintiff had improperly rejected her proof of debt, it would have been open for her to challenge the plaintiff's decision in separate proceedings. During the hearing, Ms More accepted that she had not done so. In these circumstances, I do not consider that Ms More has provided a sufficient basis for doubting the veracity of the plaintiff's affidavit evidence, and denying the relief sought by the plaintiff. 30 Although not raised by Ms More at the hearing, I note that the plaintiff's application is attended by additional complexity given that the plaintiff has deposed that, in his view, the Company operated a business in its own right, in addition to acting as the trustee of the Super Fund: cf Caterpillar Financial Australia Ltd v Ovens Nominees Pty Ltd [2011] FCA 677 at [36] (in which Gordon J made orders under, inter alia, s 63 of the Trustee Act 1958 (Vic) permitting a company through its liquidator to sell trust assets). Ultimately, there is no "bright line" that determines when it is preferable for a Court to make orders permitting a corporate trustee to act as a receiver over trust property: Re Old Port Road Pty Ltd (in liq) [2021] FCA 980 at [17] (per O'Bryan J). However, I consider that the Court must be particularly cautious before making such orders in cases where it cannot be said that an insolvent corporate trustee has acted only as trustee of a trust. 31 Nonetheless, in the present case, I remain of the view that the preferable course is to make orders appointing the plaintiff as receiver of the Super Fund's property. This is because the plaintiff's ability to perform his functions as liquidator are impaired by the fact that he is unable to sell the trust property and, even if he were, by doing so he would face the risk of accessorial liability for contravention of s 126K of the Superannuation Act. I am satisfied that the trust property, including the cash at bank and the share portfolio, need to be secured, maintained and ultimately realised. The creditors of the Super Fund must be paid. I am satisfied that, on the available evidence, there is insufficient cash resources in the possession of the plaintiff to do so. In these circumstances, trust property must also be realised to pay the Super Fund's creditors, as well as the costs of the winding up of the Super Fund. If the trust property cannot be realised, then any return to the ATO will be limited. 32 I further note that the evidence does not disclose any obvious conflicts that might disentitle the plaintiff to be appointed as receiver and manager. 33 I consider that it is appropriate to make orders that the liquidator's costs, expenses and remuneration in connection with the receivership, including the costs and expenses of this application, be paid from the assets of the Super Fund and, if they be insufficient, from the assets of the Company. Ordinarily, this Court would make an order for payment of a liquidator's remuneration in respect of the receivership, capped at a certain amount: see, eg, Re SKC & Co Pty Ltd (in liq) [2020] FCA 454 at [17]-[18] (Gleeson J); Bailey v Rock Solid Rendering Pty Ltd (in liq) [2020] FCA 600 at [23]-[24] (Gleeson J). In the present case, as there is evidence that the Company operated a business in its own right, in addition to acting as the trustee of the Super Fund, there is a question as to whether the plaintiff's remuneration should be paid from the Company's funds or the funds of the Super Fund. Given this, I consider that the plaintiff should apply for approval of his remuneration in the liquidation, at which time this issue can be addressed by the Court. 34 To the extent necessary, the need for the receiver to file a guarantee under r 14.21 and r 14.22 of the Federal Court Rules 2011 (Cth) should also be dispensed with.

Disposition 35 For the above reasons, I have made orders that: (1) Pursuant to section 57(1) of the Act, the plaintiff be appointed without security as receiver and manager over the property, undertaking and assets (Assets) of the More Family Superannuation Fund (Super Fund). (2) The need for the plaintiff to file a guarantee under r 14.21 and r 14.22 of the Federal Court Rules 2011 (Cth) be dispensed with. (3) The plaintiff have in respect of the Assets of the Super Fund the powers that a receiver has in respect of the business and property of a company under section 420 of the Corporations Act 2001 (Cth) (other than in section 420(2)(s), (t), (u) and (w)) as if the reference in that section to 'the corporation' were a reference to the Super Fund. (4) The costs, expenses and remuneration incurred by the plaintiff in acting as receiver and manager of the Assets, including the costs of this application, be paid from the Assets of the Super Fund and, if they be insufficient, from the assets of the Defendant. (5) The plaintiff have liberty to apply for approval of his remuneration in the liquidation of the defendant from the Assets upon realisation of the Assets. (6) There be liberty to apply to any person who can demonstrate sufficient interest to modify or discharge paragraphs 1 to 5 of these orders on not less than 48 hours written notice to the plaintiff. I certify that the preceding thirty-five (35) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Anderson.