FEDERAL COURT OF AUSTRALIA

Carrello, in the matter of Caneland Holdings Pty Ltd (in liq) [2019] FCA 1144

ORDERS

THE COURT ORDERS THAT:

 1.   Pursuant to s 90-15 of Schedule 2 to the Corporations Act 2001 (Cth):

(a)    The plaintiff as liquidator of Caneland Holdings Pty Ltd (in liq) (Company) is justified in treating and shall treat:

   (i)    all of the business and assets of the Company as assets of the Sutherland Family Trust (Trust);

   (ii)   all of the debts and liabilities which are provable in the winding up of the Company as having been incurred in the conduct of a business as trustee of the Trust;

    (iii) all of the assets of the Trust, including the proceeds of assets realised by the plaintiff in the course of the external administration of the Company (Proceeds) as being subject to an indemnity in favour of the Company as to its power to exonerate the debts and liabilities provable in the winding up.

(b)    The plaintiff is justified in distributing and shall distribute the Proceeds:

   (i)    first, in payment of his remuneration, costs, disbursements and expenses as approved by these orders;

   (ii)   second, in payment of creditors afforded priority under s 556 of the Corporations Act in the order of priority afforded under that section;

   (iii)  third, in respect of any remaining amount in payment of a dividend to unsecured creditors of the Company

(c)    The plaintiff is entitled to be paid remuneration, costs, disbursements and expenses in the amount of $108,226.54 as described in the affidavits of the plaintiff dated 23 April 2019, 21 May 2019 and 31 May 2019 (plus GST where applicable) for the period from 12 December 2017 to 12 April 2019.

(d)    The plaintiff is entitled to be paid further remuneration from and including 13 April 2019 that is approved by creditors in accordance with the Insolvency Practice Rules (Corporations) 2016 (Cth) as if all the work was undertaken in the external administration of the Company and not in the exercise of powers conferred only upon the trustee of the Trust.

 2.   The plaintiff shall give notice of these orders by circular sent by ordinary post within 7 days of the making of these orders to each of the Company's creditors, persons known to be claiming to be creditors of the Company and persons known to be beneficiaries of the Trust.

 3.   There be liberty to any party claiming to be prejudiced by the making of these orders to apply to vacate or vary the orders on or before 20 August 2019.

 4.   These orders shall not take effect unless and until there has been compliance with order 2 and shall, in any event, be stayed until 20 August 2019.

 5.   There be no order as to costs of the application.

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

REASONS FOR JUDGMENT

COLVIN J:

1    Mr Giovanni Carrello is the liquidator of Caneland Holdings Pty Ltd (in liq) (Caneland). He was appointed on 12 December 2017. Mr Carrello seeks orders to facilitate the conclusion of the winding-up of Caneland. He anticipates that there will be a return to ordinary creditors of between 20 and 30 cents in the dollar. The calculation is made on the basis that Mr Carrello's remuneration is approved in an amount of $108,226.54.

2    Mr Carrello's investigations have led him to conclude that Caneland only traded in its capacity as trustee of the Sutherland Family Trust in Ballidu in Western Australia and all the creditors of Caneland relate to the business conducted by Caneland as trustee of the Trust.

3    The Trust deed provides that the office of trustee shall be determined and vacated if the Trustee being a company shall enter into liquidation. On 5 June 2018 (almost six months into the liquidation), a deed of amendment in relation to the Trust was executed by Caneland and Mr David Sutherland. Mr Sutherland is the appointor of the trust. The deed of amendment provided for the insertion of a new clause in the following terms:

If the Trustee becomes or became disqualified from holding office pursuant to clause 11.1 by reason of being a company which has entered into liquidation, the Trustee, being a company:

[1]    shall nonetheless remain in office until such time as the affairs of the company are wound up by its liquidator; but

 [2]    during this time shall only have such powers as are necessary to:

  [a]    realise, sell or transfer the assets of the Trust; and

  [b]    deal with any liabilities of the Trust to the extent necessary.

4    The deed of amendment also provided for Mr Sutherland to be appointed as trustee and then for the deed to be amended and for Mr Sutherland to resign as trustee the following day. The effect of these provisions appears to be that Mr Sutherland was added as an additional trustee for a day and on that day the amendment to the deed was made to introduce the provision set out above and then he immediately resigned.

5    The deed of amendment further provided that:

Upon the completion of the winding up of the affairs of Caneland by the Liquidator [defined as Mr Carrello] … Caneland will, by the Liquidator, give written notice … that it retires from its position as Trustee of the Trust.

6    Beyond pointing to the power of amendment in the deed of trust, no submissions were advanced to support the validity of the provisions in the deed of amendment. They appear to be changes made for the sole benefit of Caneland so as to preserve its position as trustee so that it can realise the assets of the trust so they might be readily claimed on the basis of Caneland's indemnity and applied to exonerate creditors of Caneland. In a related decision delivered today I have questioned whether an amendment of that kind would be a fraud on the power of amendment: Carrello, in the matter of Gembrook Investments Pty Ltd (in liq) [2019] FCA 1143. If so, Caneland could not be said to have been acting as trustee in selling the assets of the Trust.

7    The deed of trust also has provisions as to remuneration of the trustee.

8    The appropriate course to secure an outcome whereby the liquidator of a trustee company might be able to realise the assets of the trust in the exercise of a right of indemnity (and then apply the funds by way of exoneration to meet the claims of creditors) would be for Mr Carrello to apply to be appointed as a receiver for that purpose: Gembrook at [10]-[12]. Such a course is to be preferred because it results in the liquidator acting consistently with the nature of the rights that are being exercised in such circumstances. For the insolvent trustee to continue to administer the trust might result in a failure to properly consider whether the trustee has engaged in any conduct that compromises the power of exoneration in the particular circumstances. It also gives rise to issues as to the appropriate remuneration of the trustee. In such instances, the liquidator is not seeking to take over the responsibilities as trustee (and all that might entail, such as a duty to recover assets of the trust or deal with the consequences of any past breaches of trust), but rather is seeking to realise the assets consistently with the trustee's right of indemnity. Nor is the liquidator seeking to be appointed to wind-up the trust. The beneficiaries may have an interest in that being done in an orderly manner, but undertaking that role takes the liquidator beyond the task of winding-up the affairs of the company in liquidation.

9    These matters reflect the change that arises upon the insolvency of a trustee where there are insufficient assets in the trust fund to meet the trustee's right of indemnity. Prior to that point a solvent trustee selling assets as part of the administration of a solvent trust fund is simply administering the trust in the usual course, even where the assets are being realised to provide funds to exonerate creditors. The trustee is acting in the interests of the beneficiaries. However, when the trustee becomes insolvent and is being administered in the interests of creditors there is the prospect of conflicting interests. If the liquidator of the trustee is seeking to sell assets in the exercise of the trustee's right to indemnity then the appropriate means to do so is through seeking appointment as a receiver.

10    If there is a particular reason why the company in liquidation is to continue as trustee of the trust (beyond realising assets the subject of the trustee's indemnity for the purposes of the exercise of a right of exoneration) then a prudent liquidator would consider whether to seek appropriate orders as to the administration of the trust rather than simply administering the trust in the interests of the winding-up.

11    For reasons that I have given in Gembrook, I consider the preferable course to take as to remuneration in cases where the liquidator has realised the assets of a trust in the purported exercise of powers as trustee of the trust (rather than in the exercise of powers as court appointed receiver) is for consideration to be given to evaluating the reasonableness of the remuneration as if the liquidator had secured an appointment as receiver. Otherwise, there are issues as to whether it is appropriate to remunerate the liquidator on the basis that the company in liquidation is entitled to be remunerated for performing responsibilities as trustee of the trust and, if so, the scale of remuneration to be applied. Where, as here, the course that has been followed is the same as that which would have been undertaken if orders had been made for appointment as receiver and there is no matter disclosed that bears upon the right of exoneration or the propriety of the way assets were realised, then there is statutory power to assess remuneration on that basis and make orders for the proceeds to be distributed according to the statutory priority. That is the course I propose to take in this case.

Reasonableness of remuneration

12    Mr Carrello is an insolvency practitioner with more than 26 years of experience. He has provided an affidavit in which he has described the work done and the amount charged for that work as well as disbursements incurred. Like the position in Gembrook there was no differentiation between work done in relation to the assets of the trust and work done in the general liquidation. In response to my request, breakdowns were provided. They show that $24,130.58 (including disbursements) is claimed for statutory purposes and $84,095.96 is claimed for work undertaken in administering the Trust up until 12 April 2019. Further amounts are sought of $6,000 and $24,000 respectively to complete the winding-up.

13    The administration has involved recovering preferences of approximately $40,000, realisation of plant and equipment for approximately $151,000, the realisation of real property for approximately $20,000 and recovery of trade debtors of approximately $42,000.

14    The claims of creditors of Caneland total $323,936, with priority claims by employees forming $5,748 of the total.

15    A meeting of creditors on 23 March 2018 approved remuneration to 20 February 2018 of $56,730 exclusive of GST. On 23 October 2018 further remuneration of $36,401.50 exclusive of GST was approved by creditors.

16    The costs claimed would amount to about one-third of the assets available in the liquidation. On the evidence there have been some difficulties associated with the remoteness of Ballidu and with securing access to the property of the company as well as complications with the sale of the real property. The reasons for the costs have been explained in the affidavit material and the amounts claimed have been substantially approved by creditors. Although the approval is not strictly applicable given the nature of the work being undertaken in the purported exercise of power as trustee, I consider the approvals to be relevant to whether to exercise the statutory power to make orders approving the remuneration.

17    Notice of the application has been given to known creditors and those claiming to be creditors and identified beneficiaries of the Trust. However, the class of beneficiaries is wide and Mr Carrello does not claim to have notified all beneficiaries given the impracticalities of doing so. No party appeared to oppose the orders. Mr Carrello seeks orders on the basis that their operation be stayed for a period of 14 days after notice of the orders has been given by way of circular so as to provide a further opportunity to any interested party to apply to set aside the orders if there be a proper reason to do so.

18    In all the circumstances, I am satisfied that the remuneration should be approved in the exercise of the Court's power under s 90-15(1) and there should be orders as to the distribution of funds realised from the Trust. As to the nature of the power and the appropriateness of making the orders in circumstances such as the present I refer to my reasons in Gembrook. For reasons there expressed I do not make the order sought that the costs of the present application form part of the costs of the administration of Caneland. As to the order sought for provision for future costs, I would not make the order sought. There is insufficient information for me to evaluate the reasonableness of the amount sought. Instead, I would provide for further remuneration that is approved by creditors in accordance with the Insolvency Practice Rules (Corporations) 2016 (Cth).

Associate:

Dated:    26 July 2019