FEDERAL COURT OF AUSTRALIA

N T L V Pty Ltd v Nguyen, in the matter of N T L V Pty Ltd (in liq) [2018] FCA 1000

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to section 482(1) of the Corporations Act 2001 (Cth), the winding up of N T L V Pty Ltd (ACN 140 644 480) (in liquidation) be terminated.

2.    The control of N T L V Pty Ltd (ACN 140 644 480) (in liquidation) be returned to its director, Loan Anh Thi Nguyen.

3.    The receivership of N T L V Trust (receivers and managers appointed) settled by deed 19 November 2009 be terminated and that Michael Edward Slaven and Henry Joseph Kazar be discharged as receivers and managers.

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

REASONS FOR JUDGMENT

PERRAM J:

1    N T L V Pty Ltd (in liq) (subject to a deed of company arrangement) (‘N T L V’) was the trustee of a trading trust known as the N T L V Trust (receivers and managers appointed) (‘Trust’) and, apart from that, did not carry on any activity in its own right. In its capacity as trustee, N T L V carried on the business of operating a number of nail and beauty salons in the Australian Capital Territory, New South Wales and Victoria. It also operated a business as the franchisor of other nail and beauty salons which it did not conduct itself. For both businesses it leased commercial premises from which the salons were operated. It employed around 40 staff.

2    The sole director and shareholder of N T L V is Ms Nguyen. During 2017 she failed to realise the significance of demands for unpaid tax received by N T L V as trustee from the Deputy Commissioner of Taxation (‘DCT’). She had ignored them. Eventually, the DCT issued N T L V with a creditor’s statutory demand for unpaid PAYG income tax withholdings and unpaid GST tax liabilities in all totalling $330,049.00. These related to the six month period between 1 July 2016 and 31 December 2016. Although Ms Nguyen failed to cause N T L V as trustee to comply with the statutory demand, as will be seen, it now appears that it could easily have done so and was not, by any means, short of funds. The DCT eventually presented a creditor’s petition and, on 24 November 2017, Registrar Lackenby of this Court made an order winding up N T L V in insolvency and appointing Mr Henry Kazar and Mr Michael Slaven as its liquidators.

3    Because N T L V was only a trustee, its winding up is more complex than might ordinarily be the case. It had held office as the trustee of the Trust under the terms of a Trust Deed dated 19 November 2009. The settlor of that trust, Mr Dang, had established the Trust by settling the sum of $10 upon it. The Trust was discretionary in the sense that it allowed the trustee to distribute both income and capital to a range of beneficiaries in its absolute discretion.

4    It seems that after the Trust was established it was operated as a trading trust and as such conducted the nail and beauty salon businesses. With one exception, all of N T L V’s business assets were held on the terms of the Trust.

5    The one asset N T L V did own in its own right was its right as the trustee, both in relation to recoupment and exoneration, to be indemnified out of the assets of the Trust: Commonwealth v Byrnes (as joint and several receivers and managers of Amerind Pty Ltd) (Receivers and Managers Appointed) (in liq) [2018] VSCA 41; 124 ACSR 246 at 267 [96], 271 [114]; Jones (Liquidator) v Matrix Partners Pty Ltd, in the matter of Killarnee Civil & Concrete Contractors Pty Ltd (in liq) [2018] FCAFC 40 at [68]-[69], [79] and [211].

6    The winding up of N T L V in insolvency had a number of immediate impacts. First, under cl 74 of the Trust Deed the appointment of liquidators had the automatic effect of removing N T L V from office as trustee under the Trust. Secondly, N T L V was then left in the situation of holding all of the assets of the Trust but neither beneficially nor as trustee of the Trust. This had the consequence that it became a bare trustee of those assets: Caterpillar Financial Australia Limited v Ovens Nominees Pty Ltd [2011] FCA 677 at [7]-[8], [20] and [26]; Parker, in the matter of Dengi Pty Limited (in liq) v Dengi Pty Limited (in liq) [2018] FCA 444 at [30] per Markovic J.

7    Thirdly, as such the liquidators of N T L V were in control of an entity which was the bare trustee of the property involved in the conduct of the nail and beauty salon businesses. Although in control of that property it was not property of the company that was available for distribution to creditors (because it was held on trust).

8    Fourthly, as bare trustee N T L V no longer had the rights it formerly had under the Trust Deed. Although it had some rudimentary powers deriving from the Trustee Act 1925 (ACT) these did not include a power of sale. In practical terms, this meant that the business of the trading trust was significantly impaired with neither N T L V nor those in control of N T L V being able to trade. Consequently, the liquidators were confronted with the difficulty that they could not conduct the business of the Trust of which N T L V had been, until recently, trustee.

9    On 7 December 2017 the liquidators applied to this Court in the winding up proceeding for orders appointing them as receivers and managers to the assets of the Trust. On 8 December 2017 Jagot J made orders to that effect including an order authorising the receivers to conduct the business of the Trust and allowing them to sell property and make payments on behalf of the Trust. They were also given a power to investigate transactions entered into by the Trust.

10    The liquidators then commenced investigations which rapidly confirmed that the business conducted by the Trust was entirely solvent and the problem had arisen only because Ms Nguyen had made the unwise decision to ignore the statutory demand issued by the DCT.

11    The case was one, therefore, of mismanagement not insolvency. Ms Nguyen’s evidence confirms this and explains the various difficulties that had confronted her which had led her to overlook the need to pay N T L V’s tax in a timely fashion. There were four aspects to this. First, she was enmeshed in an emotional dispute with her mother which caused her attention to be distracted from N T L V’s affairs. Secondly, one of the Trust’s salons had to relocate and she was engaged in extensive negotiations with the lessor. Thirdly, she was stressed by the closure and refit of one of the salons during which N T L V had incurred expenses without making any corresponding income. Finally, the working visas of a number of her staff had expired resulting in significant inconvenience. It was not suggested that I should not accept this evidence and I so find.

12    Thereafter, and no doubt in just recognition of the soundness of the underlying businesses and Ms Nguyen’s aptitude to conduct them, Mr Kazar and Mr Slaven permitted Ms Nguyen to continue to conduct the salon businesses. Initially, this appears to have been on an informal basis but from 22 January 2018 she conducted the businesses under a formal licence. An important feature of the licence from the receivers and managers was that under it the staff have worked for Ms Nguyen personally rather than for the liquidators.

13    There was then a creditors’ meeting held on 11 January 2018. The situation of N T L V was perhaps a little unusual in that the return to creditors appeared likely to be 100 cents in the dollar. The liquidators suggested, and the creditors agreed, that it would be convenient for Mr Kazar and Mr Slaven also to become administrators so that a deed of company arrangement might then be executed. Following a resolution at the creditors’ meeting, the liquidators then appointed themselves administrators of N T L V on 22 January 2018 (which they were permitted to do in light of the creditors’ resolution). A deed of company arrangement was formulated by 16 February 2018 and circulated to creditors shortly afterwards on 19 February 2018. On 27 February 2018 the creditors agreed to the deed which was then executed on 28 February 2018.

14    It is then necessary to say something of the debts of the company all of which are debts of the Trust. The single largest of these is a loan owed by N T L V as trustee to Ms Nguyen of $402,383. This represents various loans advanced by Ms Nguyen to N T L V as trustee from time to time. On 10 January 2018 Ms Nguyen lodged a proof of debt with the liquidators for this amount which has been accepted by the liquidators as a valid claim.

15    The other outstanding debts are:

DCT/ATO            $332,870 (including petitioner costs)

Payroll Tax            $34,067

Employee entitlements        $29,253

16    Further, if the winding up is terminated the costs of Mr Kazar and Mr Slaven (in their capacities as liquidators, receivers and mangers and deed administrators) will be $91,908.45. The total of all the debts (apart from Ms Nguyen’s) is $488,098.45.

17    It is proposed that these debts will be dealt with as follows: first, Ms Nguyen has indicated at that she will defer repayment of her loan until the Trust can afford to repay it. Secondly, Mr Kazar and Mr Slaven are holding $534,395.55 in cash on behalf of the Trust. It is apparent, therefore, that the Trust has more than enough money on hand to pay all of its current debts (apart from Ms Nguyen’s which she is not presently minded to enforce).

18    Under the deed of company arrangement the Trust creditors (apart from Ms Nguyen) will be paid in full by the deed of administrators when the final dividend is declared. That is to occur (and has in fact occurred) on 16 April 2018. Then, apart from Ms Nguyen herself and N T L V’s employees, N T L V as trustee will have no creditors.

19    Ms Nguyen now applies for orders terminating both the winding up of N T L V and the appointment of the receivers and managers to the assets of the Trust. In my view, subject to the final distribution being made on 16 April 2018, it is clear that this should occur so long as N T L V is reappointed as the trustee of the N T L V Trust.

20    However, the mechanics of how this might be done are not necessarily straightforward. Because N T L V is not presently the trustee of the Trust, the termination of the winding up would revive a company with no business of its own. On the other hand, because N T L V is in liquidation at the moment it cannot be immediately reappointed as the trustee.

21    The practical solution is, so it seems to me, to terminate the winding up and receivership on being satisfied that: (a) the underlying business is solvent; (b) that the circumstances are such that the business should be put back in the hands of its original operator, Ms Nguyen; and, (c) that N T L V will be immediately reappointed as the trustee of the Trust. This last matter is unrelated to the setting aside of the winding up order. It would, however, be remiss to leave the Trust without its trustee and N T L V is willing to fulfil that role.

22    The legal situation is complicated by the presence of a corporate trustee which is being wound up. Subject to appropriate adjustment to take account of the fact that the underlying assets are trust assets and that the company’s only beneficially-owned asset will be its right of indemnity against those assets, in my opinion the principles governing when a winding up may be terminated by court order apply equally to a corporate trustee such as N T L V.

23    That power is found in s 482 of the Corporations Act 2001 (Cth) (‘the Act’). The discretion conferred by it is unfettered but a useful summary of some discretionary considerations which are usually relevant was recently distilled by Gleeson J in Judson, in the matter of Maneroo Pty Ltd (in liq) [2015] FCA 783 at [22], citing Re Warbler Pty Ltd (1982) 6 ACLR 526 at 533:

‘(1)    The grant of a stay is a discretionary matter, and there is a clear onus on the applicant to make out a positive case for a stay: Re Calgary & Edmonton Land Co Ltd (in liq) (1975) 1 WLR 355 (“Re Calgary”) at 358-359 per Megarry J.

(2)    There must be service of notice of the application for a stay on all creditors and contributories, and proof of this: Re South Barrule Slate Quarry Co (1869) LR 8 Eq 688; Re Bank of Queensland Ltd (1870) 2 QSCR 113.

(3)    The nature and extent of the creditors must be shown, and whether or not all debts have been or will be discharged: Krextile Holdings Pty Ltd v Widdows [1974] VR 689 (“Krextile”) ; Re Data Homes Pty Ltd [1972] 2 NSWLR 22.

(4)    The attitude of creditors, contributories and the liquidator is a relevant consideration: Re Calgary.

(5)    The current trading position and general solvency of the company should be demonstrated. Solvency is of significance when a stay of proceedings in the winding-up is sought: In Re a Private Company [1935] NZLR 120; Re Mascot Home Furnishers Pty Ltd [1970] VR 593 at 598.

(6)    If there has been non-compliance by directors with their statutory duties as to the giving of information or furnishing a statement of affairs, a full explanation of the reasons and circumstances should be given: Re Telescriptor Syndicate Ltd [1963] 2 Ch 174.

(7)    The general background and circumstances which led to the winding-up order should be explained: Krextile.

(8)    The nature of the business carried on by the company should be demonstrated, and whether or not the conduct of the company was in any way contrary to “commercial morality” or the “public interest”: Krextile.’

24    Dealing with these in turn and with an eye on the fact that a trust is involved, the following remarks are apposite.

25    As to the first issue of whether Ms Nguyen has notified the creditors and contributories of her application I would just say this. To begin with Ms Nguyen is the only contributory and all of the non-employee creditors have been notified of the application. So far as the employees are concerned I do not think that their interests are affected by the determination of the present application. They will remain in their jobs with their entitlements intact. It was accepted in Deputy Commissioner of Taxation v Lencal Excavations P/L (in Liq) [2004] NSWSC 783 at [20] that there is no hard and fast rule that all creditors must necessarily be served, a sentiment echoed in Acconci v Alpha Technologies Corporation Ltd (in liq) [2010] FCA 970; 79 ACSR 505 at 527 [119]-[121]. I am satisfied in this case that the non-service of the employees should not stand in the way of making the orders. On the other hand, there is a requirement that the Australian Securities and Investments Commission be served with the application per r 2.8 of the Federal Court (Corporations) Rules 2000 (Cth). But this has, in fact, occurred.

26    Dealing, secondly, with the nature and extent of the creditors, it will follow from what I have said above that all the non-employee creditors will be paid out in full (and in fact have been paid out in full) on 16 April 2018. The employee creditors are creditors for their entitlements only. As I discuss below, there is no reason to think the N T L V as trustee of the Trust (if reappointed) will be unable to meet those obligations.

27    Thirdly, as to the attitude of the creditors, the DCT does not oppose the application, Revenue NSW will support it once it is paid on 16 April 2018 and the attitude of the Victorian revenue authorities is unknown (although they have been notified of the application). For their part the liquidators do not oppose the application and Ms Nguyen herself is, of course, the person pursuing the application (so that she is aware of its making beyond doubt).

28    Fourthly, as to the general solvency of N T L V and the Trust, it is clear that they were both solvent when the original winding up order was made. If the receivership is ended and N T L V is reappointed trustee of the Trust then (subject to the winding up being set aside) N T L V will also be solvent (because of its right of indemnity). So much appears from the liquidators’ report to creditors which indicated that:

    the income of the Trust over the financial years ending 30 June 2014, 2015, 2016 and 2017 totalled $11,947,000;

    it was profitable in each of those years (FY 2014: $345,000; FY 2015: $299,000; FY 2016: $594,000; FY 2017: $531,000); and

    it had net assets in each of these years of between $308,000 and $603,000.

29    Further, the liquidators are of the view that the books and records of N T L V have been properly kept. The liquidators’ cash flow forecast to February 2019 indicates that there will be a considerable cash surplus across that period. I am satisfied that N T L V will be solvent if reappointed trustee.

30    Fifthly, as to the issue of Ms Nguyen’s compliance with her statutory obligations, it is likewise clear that she has complied. She furnished a report as to affairs within the prescribed period and no suggestion is made that she has not complied with any other obligation.

31    Sixthly, as to the circumstances which led to the winding up order being made, I have set those out above and indicated that I accept Ms Nguyen’s explanation for her failure to deal with the statutory demand and the creditor’s petition.

32    Seventhly, as to the nature of the business being carried on and whether, in particular, it is being conducted in any way which is contrary to commercial morality, the answer is that it is not. It is a nail and hair salon business. The only defaults to be laid at Ms Nguyen’s feet are those consisting of her failure to pay attention to the demands of the DCT. But, apart from that, no criticisms have been made of her conduct of the business or as a director. There is no reason that the administration and control of N T L V and the Trust should not be placed back in her hands.

33    During the hearing I was satisfied that upon the making of the orders sought N T L V would immediately be reappointed as the trustee of the Trust. On that basis, I made orders at the hearing terminating the winding up. At the same time, and for the same reasons, I terminated the receivership.

34    It was for these reasons that I made the orders I did on 18 April 2018.

Associate:

Dated:    29 June 2018