FEDERAL COURT OF AUSTRALIA

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

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to section 57 of the Federal Court of Australia Act 1976 (Cth) the first plaintiff is appointed without security as receiver of the assets of the Bruce Bros Floor Coverings Trust (ABN 52 669 707 120) (“Trust”).

2.    The first plaintiff has, in respect of the property of the Trust, the powers that a liquidator has in respect of the property of a company under the Corporations Act 2001 (Cth) without limitation, including to do all things necessary to effect the realisation of the assets of the Trust.

3.    The first plaintiff be granted leave to file electronically, by no later than 5.00 pm on 8 November 2018, the amended originating process dated 8 November 2018 and the affidavit of Daniel Luke Bruce made on 8 November 2018.

4.    The first plaintiff be granted leave to file electronically, by no later than 22 November 2018, any additional evidence and submissions addressing the beneficiaries’ position in relation to orders 3 to 5 of the orders set out in the amended originating process filed on 8 November 2018 and any distributions that have been made from the Trust to beneficiaries.

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

REASONS FOR JUDGMENT

GLEESON J:

1    On 8 November 2018, following an ex parte application by the plaintiffs, I made orders pursuant to s 57(1) of the Federal Court of Australia Act 1976 (Cth) for the appointment of the first plaintiff (“Mr Bailey”) as receiver and manager of the assets of the Bruce Bros Floor Coverings Trust (“trust”), and ancillary orders. These are my reasons for making those orders.

Background to application

2    On 23 August 2018, Mr Bailey was appointed as the liquidator of the second plaintiff (“company”) pursuant to a creditors’ voluntary winding up.

3    The company’s sole director, secretary and shareholder is Daniel Bruce.

4    Based on his investigations and communications with Mr Bruce, Mr Bailey believes that the company’s sole purpose was to act as trustee of the trust. The company only maintained management accounts in its capacity as trustee of the trust. As at 12 October 2018, Mr Bailey was not aware of any creditors incurred by the company in its own right.

5    Until about 20 August 2018, the trust operated a business of supplying and installing carpet, tile and vinyl floor products.

6    Since his appointment as liquidator, Mr Bailey has performed substantial work including securing and taking possession of all of the material assets owned by the company in its own right and in its capacity as trustee of the trust, and commissioned valuations of those assets.

7    The current known assets of the company comprise four motor vehicles, plant and equipment, stock and work in progress and debts.

8    The known creditors of the company in its capacity as the trustee of the trust, as at 12 October 2018, were estimated to total $1,555,486.67.

Trust

9    The trust was established in 2007. Mr Bailey is presently making inquiries to identify the beneficiaries of the trust. Mr Bruce is a beneficiary. Several other beneficiaries have been identified by Mr Bruce, none of whom appears to have had any involvement in the business of the trust, or with the company.

10    By cl 27.2 of the trust deed, the position of trustee became vacant when the company entered into liquidation, which occurred on 23 August 2018. No new trustee has been or is expected to be appointed. As provided by cl 28.1 of the trust deed, the company currently holds the assets of the trust as a bare trustee.

11    Under cl 11.2 of the trust deed, the company is entitled to be indemnified out of the trust’s assets in respect of any liability it has incurred as trustee. The trustee also has rights of indemnification at general law, subject to the terms of the trust: see Jones (Liquidator) v Matrix Partners Pty Ltd, in the matter of Killarnee Civil & Concrete Contractors Pty Ltd (in liq) [2018] FCAFC 40; 354 ALR 436 (“Killarnee”) at [35]-[42].

12    Mr Bailey sought to be appointed manager and receiver of the trust’s assets in order to:

(1)    secure and protect the company’s right of indemnity out of the assets of the trust;

(2)    secure the assets of the trust and to take steps to recover the trust’s debtors;

(3)    review and determine the claims of secured creditors who have registered security interests over assets of the trust;

(4)    facilitate the sale and realisation of the trust’s assets for the benefit of the creditors of the trust;

(5)    investigate and take such steps as are necessary to recover debts owed to the trust;

(6)    investigate and if necessary bring any actions available under the Corporations Act 2001 (Cth); and

(7)    create a fund from the sale of the trust assets to be distributed upon order of the Court.

13    Mr Bruce consented to the orders sought by Mr Bailey.

Legal framework

14    In Hosking, re Business Aptitude Pty Ltd (in liq) [2016] FCA 1438; (2016) 34 ACLR 16, I set out the following principles which are relevant to this application at [17]-[22]:

[17]     The general ground upon which the Court appoints a receiver is the protection or preservation of property for the benefit of persons who have an interest in it: QBE Insurance (Australia) Ltd v WA Metal Recycling Pty Ltd, in the matter of WA Metal Recycling Pty Ltd (in Liq) [2016] FCA 238 (“QBE Insurance”) at [13], citing Sapphire (SA) Pty Ltd v Ewens Glen Pty Ltd [2011] FCA 600 at [15].

[18]    Where a trustee is removed, it retains a right of indemnity from the trust assets secured by an equitable charge over them for its liabilities incurred by reason of acting as trustee: In the matter of Stansfield DIY Wealth Pty Ltd (in liquidation) [2014] NSWSC 1484; (2014) 291 FLR 17 (“Re Stansfield”) at [10].

[19]    There is a conflict of authority as to whether the liquidator of a corporate trustee, which has ceased to be trustee, has the power to sell trust assets to enforce the (former) trustee’s right of indemnity. In Apostolou v VA Corporation of Aust Pty Ltd [2010] FCA 64; (2010) 77 ACSR 84, Finkelstein J held, at [48]-[50], that the liquidator of a corporate trustee which held legal title to trust property in which it also had an equitable interest could sell the subject property pursuant to the power of sale conferred by s 477 of the Act and that this survived the removal of the corporate trustee.

[20]    However, in Re Stansfield, Brereton J disagreed with the decision of Finkelstein J and held (at [10], [16]-[20], [30], [33]) that, if a trustee company ceases to be trustee of a trust it can no longer exercise the trustee’s power of sale under the trust instrument or general law and that s 477(2)(c) of the Act does not empower the liquidator to sell property held by the trustee company on trust, even if the trustee company has an equitable charge over it, because the property is not in itself “property of the company”.

[21]    Notwithstanding this conflict of authority, it is well-established that a receiver and manager can be appointed over trust property to secure the trustee’s right of indemnity out of the assets of the trust: SMP Consolidated Pty Ltd (in liquidation) v Posmot Pty Limited [2014] FCA 1382 (“SMP Consolidated”) at [7] citing Re Indopal Pty Ltd (1987) 12 ACLR 54 at 57; Kerr, in the matter of Angel’s Castle Pre-School Pty Ltd (In Liquidation) [2010] FCA 786 (“Angel’s Castle Pre-School”) at [25]; In the matter of Gramarker Pty Ltd; Clifford Sanderson (as liquidator of Gramarker Pty Ltd) v Kerr [2014] NSWSC 243 at [6]-[7]; Re Stansfield at [31], [33], [45].

[22]    This Court has exercised its power under s 57(1) of the FCA Act for the purpose of appointing a liquidator of a former trustee company as receiver and manager of the trust, for example, in QBE Insurance and in Kite v Mooney, in the matter of Mooney’s Contractors Pty Ltd (in liq) [2016] FCA 886.

…

[26]    There is no obvious conflict between the duties of the liquidator as liquidator and as receiver and manager because both the company and the trust appear to be insolvent. In any event, the beneficiaries of the trust consent to the appointment of the liquidator as receiver and manager.

15    In Deputy Commissioner of Taxation, in the matter of Manor Holdings (NSW) Pty Ltd v Manor Holdings (NSW) Pty Ltd [2018] FCA 590 at [11], Griffiths J referred to Allsop CJ’s analysis in Killarnee at [36]-[42], concerning the trustee’s right of indemnity, and noted that:

While a trustee may exercise its right of indemnity without the need to seek the Court’s intervention where a property is not required to be sold, the lien does not confer a power of sale. Consequently, if a sale is necessary as is the case here, a Court order or appointment of a receiver is a necessary step.

Consideration

16    I was satisfied that Mr Bailey should be appointed as receiver and manager of the assets of the trust to enable him to realise the trust assets, and to convey a secure title to those assets. There was no apparent conflict of interest between Mr Bailey’s duties as liquidator and as receiver and manager because both the company and the trust appear to be insolvent.

17    I also granted leave to Mr Bailey to file additional evidence with a view to considering whether to make orders to permit Mr Bailey to deal with the proceeds of sale of the assets of the trust and for his remuneration in chambers.

Associate:

Dated:    23 November 2018