FEDERAL COURT OF AUSTRALIA

Deputy Commissioner of Taxation v Fairsales Pty. Limited, in the matter of Fairsales Pty. Limited [2018] FCA 499

ORDERS

THE COURT ORDERS THAT:

1.    Order 3 made on 15 February 2018 (as varied by Order 7 made on 7 March 2018) be varied such that Timothy James Clifton and Daniel Lopresti, in their capacity as Receivers and Managers (the Receivers) for the Aboyne Family Trust (the Trust), have all the powers provided by s 420 of the Corporations Act 2001 (Cth) (the Act) as if the reference therein to “the Corporation” were to the Trust together with the powers that a liquidator has in respect of the property of the Defendant in its role as legal owner and trustee pursuant to s 477(2) of the Act.

2.    The costs, expenses and remuneration incurred by the Receivers in acting as receivers and managers of the property of the Trust and, because the Defendant’s sole function was to act as trustee of the Trust, their costs, expenses and remuneration incurred by them in acting as administrators during the voluntary administration of the Defendant and as liquidators during the liquidation of the Defendant be paid from the assets of the Trust.

3.    The Receivers have liberty to apply for the fixing of the quantum of their costs, expenses and remuneration referred to in paragraph 2 herein.

4.    The Receivers’ costs of, and incidental to, the interlocutory application dated 9 March 2018 and the oral application made on 15 February 2018 be paid from the assets of the Trust.

5.    Mr Standish’s interlocutory application filed on 26 March 2018 is dismissed.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

WHITE J:

1    This judgment concerns an application by the Receivers and Managers (the Receivers) of trust property for orders that they have all the powers for which s 420 of the Corporations Act 2001 (Cth) provides in relation to the property of the trust and for orders with respect to their costs, expenses and remuneration. It also concerns an interlocutory application by a former director of the trustee.

2    On 14 February 2018, a Registrar of the Court made an order on an application by the Deputy Commissioner of Taxation (DCT) for the winding up of Fairsales Pty. Limited (the Company) and appointed Mr Timothy Clifton and Mr Daniel Lopresti as its joint and several liquidators (the Liquidators). Earlier, on 31 January 2018, the Company had been placed into voluntary administration by a resolution of its directors, Mr Roger Standish and Mrs Barbara Standish, they having resolved that it was insolvent or likely to become insolvent.

3    The sole activity of the Company had been to act as the corporate trustee of the Aboyne Family Trust (the AFT) which conducted a retail business selling bicycles at three premises in Adelaide. In two cases the premises are owned by one or other or both of the directors and the third is leased by another company with which one or both the directors are associated.

4    The effect of the winding up order of the Company was that, by operation of cl 16 of the Trust Deed relating to the AFT, the Company then ceased to be the Trustee of that Trust. No alternative trustee has been appointed. In that circumstance, the Company now stands as a bare trustee of the trust’s assets, with an obligation to protect those assets, but with no power of sale.

5    Until the recent decisions in Jones (Liquidator) v Matrix Partners Pty Ltd, in the matter of Killarnee Civil & Concrete Contractors Pty Ltd (in liq) [2018] FCAFC 40 (delivered on 21 March 2018) and in Commonwealth v Byrnes and Hewitt [2018] VSCA 41 (delivered on 28 February 2018), there had been some doubt that a liquidator’s power of sale of the property of a company in liquidation under s 477(2)(c) of the Corporations Act 2001 (Cth) extended to the property of a trust of which the company had been trustee when, because of its liquidation, the Company could not continue as trustee: see Re Stansfield DIY Wealth Pty Ltd (in liq) [2014] NSWSC 1484; (2014) 291 FLR 17; Aced Kang Investments Pty Ltd (in liq) [2017] FCA 476 at [12]-[13]. The uncertainty had concerned the treatment of the trustee’s right of exoneration from the assets of the trust and, in particular, whether those assets and their proceeds formed part of the general assets of the Company. In those circumstances it became common for liquidators of companies to seek appointment, pursuant to s 57 of the Federal Court of Australia Act 1976 (Cth) (the FCA Act), as receivers and managers of the property held by the company in its capacity as trustee. See by way of example Re Standsfield; SMP Consolidated Pty Ltd (in liq) v Posmot Pty Ltd [2014] FCA 1382; Hosking, in the matter of Business Aptitude Pty Ltd (in liq) [2016] FCA 1438; Tonks, in the matter of PWG Holdings Pty Ltd (in liq) [2017] FCA 426; and Combis, in the matter of Reehal Holdings Pty Ltd (in liq) (Trustee) v Reehal Holdings Pty Ltd (in liq) (Trustee) [2017] FCA 793. It is now established that the power of sale vested by s 477(2)(c) does not encompass property which is not the property of the company but is instead trust property in which the trustee has a proprietary interest by way of lien or charge to secure its right of exoneration: Killarnee at [89].

6    In this case, the Liquidators, who had also been the joint and several administrators of the Company, made an oral application at the time of the hearing of the winding up application for appointment as receivers and managers of the assets of the AFT. The Registrar referred that application for consideration by a Judge.

7    Later on 14 February 2018, the Liquidators received a letter from a firm of solicitors in Queensland, Colwell Wright, stating that that firm had been instructed by Mr Standish. Colwell Wright asserted that Mr Standish had rights of subrogation arising from his discharge, pursuant to guarantees, of liabilities which the Company had incurred to National Australia Bank Limited (NAB) and to Westpac Banking Corporation Limited (Westpac). Colwell Wright continued:

The administration and liquidation of the Company is an event entitling him to possession of the assets of the Company, in order to realise his security. I am instructed that he is in the process of taking possession of those assets, including in particular the stock stored at the Company’s stores.

8    Understandably, the statement that Mr Standish was in the process of taking possession of “the assets of the Company” was a matter of concern to the Liquidators. In that circumstance, they sought an urgent hearing of their oral application to be appointed Receivers of the property of the AFT and the matter came before me on the afternoon of 15 February 2018. At that hearing I was concerned about a number of matters, including:

(a)    the indication in the letter from Colwell Wright of 14 February 2018 that Mr Standish was in the process of taking possession of the assets of the Company and, in particular, the stock in the Company’s three stores;

(b)    evidence that security guards were present at each of the three stores preventing the Liquidators’ staff from entering them, with the inference that Mr Standish was taking steps to enforce the entitlement asserted on his behalf by Colwell Wright;

(c)    neither Mr or Mrs Standish (or for that matter any creditor of the Company other than the DCT who is the Plaintiff) had had notice of the Liquidators’ application to be appointed as Receivers of the assets of the Trust, let alone of the hearing that afternoon.

9    The first two matters suggested that some urgent intervention by the Court was required so as to preserve, at the very least, the assets of the AFT until all persons with an interest had had the opportunity to be heard. Accordingly, I issued an interlocutory injunction restraining Mr and Mrs Standish from removing, selling, converting, dealing with, or otherwise engaging in any activity which may diminish the value of any of the property of the Trust, including the property at the three stores.

10    I was conscious that the injunction may have the effect only of precluding interference by Mr and Mrs Standish with the property but may not otherwise secure its preservation until the parties could be heard more fully. Accordingly, acting on the view that, prima facie, an order appointing the Liquidators as receivers and managers of the trust property was appropriate, I also made orders on 15 February 2018 appointing the Liquidators as receivers and managers of the property of the AFT. I ordered that in that capacity they have the powers provided by s 420 of the Corporations Act as if the reference in that section to “the corporation” was to the AFT, together with the powers that a liquidator has in respect of the property of the Company in its role as legal owner and trustee pursuant to s 477(2) of the Corporations Act. However, because no party other than the DCT had been heard, I added that, until further order, the Receivers could exercise those powers only for the purpose of securing the assets, property and undertaking of the AFT. I added this qualification because of the potential for an application to have the appointment as Receivers revoked.

11    I then adjourned the further hearing of the Liquidators’ application to 20 February 2018, with orders for service, so as to give Mr and Mrs Standish and any other persons with a relevant interest, the opportunity to be heard.

12    Mr and Mrs Standish were represented by counsel at the hearing on 20 February 2018. By consent, the matter was adjourned to 7 March 2018 with orders providing for the timely filing and service of any affidavits to be relied on. However, the hearing contemplated for 7 March 2018 could not proceed because the Liquidators at short notice and without any written application sought relief of an expanded kind, and because Mr Standish provided the sole affidavit on which he intended to rely (made by his son Darren) only 15 minutes before the hearing. Accordingly, the hearing was adjourned to 5 April 2018.

13    In view of evidence that Mr Standish had on 3 March 2018 sold a bicycle to a customer in apparent breach of the injunction issued on 15 February 2018, I varied the receivership order so as to permit the Liquidators, as they saw appropriate, to relocate the stock in the shops to a secure location.

14    No application for revocation of the order appointing the Liquidators as Receivers has been made.

Consideration of the present applications

15    At the resumed hearing on 5 April 2018, the Receivers sought orders that in their capacity as receivers and managers of the AFT, they have the full powers provided for by s 420 of the Corporations Act and orders with respect to their costs, expenses and remuneration in acting as receivers and managers of the Trust.

16    A draft balance sheet for the Company as at 31 December 2017 reveals a net asset deficiency of $1,897,951.38. All the known creditors of the Company have been provided with a copy of the Court’s orders of 15 February 2018. The Company’s principal secured creditor is BankSA which holds a fixed and floating charge over its assets. BankSA has informed the liquidators that it does not intend, at least currently, to enforce its security and it does not object to the Receivers taking possession of and then realising, those of the Company’s assets which are the subject of the security. No other creditor has indicated any opposition to the Receivers having the full range of powers contemplated by s 420.

17    Although counsel for Mr Standish pressed the interlocutory application filed by Mr Standish on 26 March 2018, he did not otherwise oppose the making of the orders sought by the Receivers.

18    Mr Standish sought, first, a declaration with respect to his subrogated rights and, secondly, an order that the stock removed by the Receivers from the Company’s premises be delivered to him. The declaration sought was in the following terms:

A declaration that Roger Standish is subrogated to [the] right of the National Australia Bank under the security described as “Debenture” created on or around 3 May 1999, and having registration number 201112120929120 in the Personal Property Securities Register.

19    Mr Standish supported this application by his affidavit made on 26 March 2018 and by reference to the affidavit of his son Darren made on 7 March 2018. In short, Mr Standish’s claim was that, as part of financial facilities provided by NAB to the Company and other entities in August 2006, and again in September 2008, he had provided a guarantee in his personal capacity. He asserts that in 2009 and 2010, he had sold two properties in his personal name which had provided security for the facilities and had thereby reduced the overall indebtedness to NAB under the facility by $445,000. Mr Standish asserts that he had paid this amount in his personal capacity and as guarantor with the consequence that he is now subrogated to the rights of NAB. On this basis, Mr Standish asserts, amongst other things, an entitlement to receive the sum of $445,000 as a secured creditor.

20    It is not necessary to discuss presently the principles concerning subrogation on which Mr Standish relies. There are two reasons for that. First, the evidence on which Mr Standish relies for the asserted right of subrogation is incomplete, and much is left to inference. In particular, Mr Standish has not provided all of the documentation on which he relies for the claimed right of subrogation and that which he has provided is insufficient to establish that the amounts paid to NAB upon which he relies were paid by him in his capacity as guarantor and in satisfaction of a guaranteed liability. The circumstances in which the NAB facility was reduced are not clear and it is possible that the amounts were paid to NAB in discharge of a primary liability of Mr Standish, rather than of a liability as guarantor.

21    It is not necessary to address that evidence in more detail because there is a second, and more fundamental, reason why the declaration sought by Mr Standish on the basis of the asserted right of subrogation should not be made. A declaration is not made by way of interlocutory relief. An interlocutory declaration is a form of order not known to the law: Graham Barclay Oysters Pty Ltd v Great Lakes Council [2002] HCA 54; (2002) 211 CLR 540 at [129] per Gummow and Hayne JJ. In Magman International Pty Ltd v Westpac Banking Corporation (1991) 32 FCR 1, Beaumont J (with whom the other four members of the Court agreed on this issue) cited with approval the following statement of principle by Upjohn LJ in International General Electric Co of New York Ltd v Customs and Excise Commissioners [1962] Ch 784 at 789:

[A]n order declaring the rights of the parties must in its nature be a final order after a hearing when the Court is in a position to declare what the rights of the parties are, and such an order must necessarily then be res judicata and bind the parties forever, subject only, of course, to a right of appeal.

22    For this reason, it would, in any event, be inappropriate to grant Mr Standish the relief which he seeks in [1] of his interlocutory application.

23    By [2] of his interlocutory application, Mr Standish seeks the following order:

An order that the receivers of Fairsales Pty Limited as trustee for the Aboyne Family Trust (the Trust) deliver to Roger Standish the property of the Trust held by them or on their behalf, at the premises of Pickles Auctions, South Australia.

24    Mr Standish seeks this order by reason of his asserted right of subrogation and because of his belief that, having operated businesses selling bicycles for a number decades, he has “the experience, knowledge and contacts in the industry which will allow him to obtain the best possible price for the sale of the stock”.

25    I accept that Mr Standish has experience extending over many years in the retail sale of bicycles. Nevertheless, I am not satisfied that the order sought by Mr Standish should be made. First, there is the stark fact that, despite his experience, the Company by which he conducted his businesses is now insolvent. That is to say, at least in recent times it seems that Mr Standish has not been able to sell bicycles profitably. Secondly, apart from the bare assertion of his experience, Mr Standish has not provided any evidence of the means which he proposes to adopt in relation to the sale of the stock, let alone that those means are available to him but not to the Receivers. There is no basis on which to conclude that the means of sale he may adopt are likely to produce a better return than the means which the Receivers will adopt. Thirdly, Mr Standish has not provided any evidence or undertakings with respect to the means which he proposes to account of the proceeds of sale and for some supervision by the Receivers. Fourthly, Mr Standish has not sought to explain or justify his sale of a bicycle on 3 March 2018 in apparent breach of the injunction issued by the Court on 15 February 2018. That circumstance makes it difficult for the Court to have confidence in the steps which Mr Standish may take in respect to the sale of the stock.

26    It is also appropriate to take into account the duty of the Receivers (if permitted to exercise the power of sale) to take all reasonable steps to sell the property for not less than its market value (if it has a market value) or otherwise the best price that is reasonably available: s 420A of the Corporations Act.

27    For these reasons, I decline to make either of the orders sought by Mr Standish.

28    I am satisfied that it is appropriate for the orders sought by the Receivers to be made. The stock will have to be sold in any event, and the Receivers are well positioned to undertake that task. In particular, I accept the submission of counsel for the Receivers that the asserted right of subrogation does not make the orders inappropriate and, as already indicated, counsel for Mr Standish did not contend that that was so. The Receivers will take the property of the Company as they find it and, if there is a prior security interest over the trust assets, then the trustees’ right of exoneration secured by the lien may be subordinated to it.

29    As there has been no replacement trustee appointed, it is in the interests of the proper winding up of the Company that the Receivers have the full powers which they seek.

30    No party contended that the orders sought by the Receivers with respect to costs, expenses and remuneration are inappropriate in the circumstances of this case.

31    Accordingly, I will make orders in the terms sought by the Receivers.

Associate:

Dated:    12 April 2018