Federal Court of Australia

Anderson (Liquidator) v Aravanis (Trustee), in the matter of Anderson [2021] FCA 1185

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 89 of the Trustees Act 1962 (WA) there be conferred upon G & G Contractors Pty Ltd (in liq) as bare trustee of the Gray Family Trust the power to sell or realise the property of the trust and wind up the affairs of the trust such power to be exercised by Gary John Anderson in his capacity as liquidator of G & G Contractors Pty Ltd (in liq).

2.    The proceeds from the sale of the property of the Gray Family Trust are to be dealt with in accordance with the provisions of the Corporations Act 2001 (Cth) on the basis that the creditors of G & G Contractors Pty Ltd (in liq) were entitled to exercise a power of exoneration in respect of such proceeds including remuneration of the liquidator in accordance with the Corporations Act.

3.    Orders 1 and 2 be made with effect from 24 August 2017.

4.    There be liberty to apply within 14 days.

5.    The plaintiff's costs of these proceedings be costs and expenses in the winding up of G & G Contractors Pty Ltd (in liq).

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

REASONS FOR JUDGMENT

COLVIN J:

1    Mr Gary Anderson is the liquidator of G & G Contractors Pty Ltd.

2    Prior to his appointment the company had engaged auctioneers to sell certain of the company's assets. In his capacity as liquidator, Mr Anderson allowed the sale by auction to proceed. The net proceeds realised at auction were $50,718.69. After his appointment as liquidator and before the completion of the sale of the assets, Mr Anderson became aware that the company acted as trustee of the Gray Family Trust (Trust). Much later he became aware that by operation of the terms of the instrument establishing the trust, the company was removed as trustee upon the commencement of the liquidation.

3    Mr Anderson applies ex parte for certain orders consequent upon steps having been taken by him to deal with the assets of the Trust even though the company was not the trustee. The orders are sought pursuant to s 89 of the Trustees Act 1962 (WA) and s 1318(2) of the Corporations Act 2001 (Cth), alternatively orders are sought appointing the plaintiff as receiver of the trust assets. Orders are sought with effect from the time when the assets were sold.

Relevant events

4    Mr Anderson was appointed as liquidator on 24 August 2017. The sale of the relevant assets occurred from late August until 6 November 2017.

5    About a year after the sale of the assets was completed and the proceeds of sale had been received by Mr Anderson as liquidator, he received a copy of the Gray Family Trust Deed (Deed). The copy of the Deed was received in response to a request that was made in the course of dealing with other aspects of the administration of the liquidation. At that point, it was discovered that the Deed provided that upon the liquidation of the company it ceased to be the trustee of the Trust.

6    The company has only ever acted as trustee of the Trust. No other company or person has been appointed as trustee of the Trust. Under the terms of the Deed, the appointor is entitled to appoint a new trustee. The appointor described in the Deed is Ms Sheryl Gray who is also the sole director of the company. If there is no appointor then certain persons, including the liquidator of the last person to be appointed as trustee may exercise the power of appointment. Ms Gray is an undischarged bankrupt. The position in relation to appointment is that the trustee of Ms Gray's bankrupt estate has been given notice of the present application, but that no request has been made of Ms Gray to appoint a new trustee and Ms Gray has not been given notice of the present application in her personal capacity. The trustee of Ms Gray's estate neither consents to nor objects to the orders sought on the present application.

7    The primary beneficiaries of the Trust are the children of Ms Gray and she and any other person related to her by blood or marriage are additional members of the class of general beneficiaries. Certain charitable objects are also named within the class of general beneficiaries.

8    The liabilities incurred by the company as trustee vastly exceed its assets. The total sum available for distribution to creditors in the liquidation is $99,875 whereas the claims of creditors are almost $2 million in total. As the only activity of the company has been as trustee, the claims of creditors are against the company in respect of its activities as trustee.

9    No-one has sought to make a claim to the assets of the Trust or to appoint a new trustee. Given her role with the company and her responsibilities under the Deed, Ms Gray may be taken to have been aware of the administration of the affairs of the company by Mr Anderson. Claims for the personal benefit of Ms Gray would form part of her bankrupt estate and the trustee in bankruptcy does not oppose the making of the orders sought.

10    Under the terms of the Deed, the trustee has power to carry on a business (cl 8.10), to purchase property (cl 8.30), to sell property (cl 8.6), and to pay out of the fund all costs, charges and expenses incidental to the management of the fund (cl 8.8).

Legal principles

11    It is now settled that the liquidator of an insolvent (former) trustee cannot sell the trust's property without order of the Court or by appointment of a receiver over the trust assets: Cremin, in the matter of Brimson Pty Ltd (in liq) [2019] FCA 1023 at [49] (Moshinsky J); applying the reasoning of Allsop CJ at [44] (Farrell J agreeing at [196]) in Jones (Liquidator) v Matrix Partners Pty Ltd, in the matter of Killarnee Civil & Concrete Contractors Pty Ltd (in liq) [2018] FCAFC 40; (2018) 260 FCR 310. As was observed by Moshinsky J:

The rationale for this position is that, on a proper understanding, the trust assets are not the 'property of the company', but are instead trust property in which the corporate trustee has a proprietary interest by way of lien or charge to secure its right of exoneration: see Jones & Matrix at [89]. Thus, to the extent that the subject of a sale is the whole of a trust asset, rather than merely the company's lien or charge in respect of that asset, it is not authorised by the power of sale in s 477(2)(c) [of the Corporations Act].

12    The statements in the earlier authorities of Caterpillar Financial Australia Limited v Ovens Nominees Pty Ltd [2011] FCA 677 and Pleash, in the matter of Suncoast Restoration Pty Ltd (in liq) [2013] FCA 355; (2013) 211 FCR 203 relied upon by Mr Anderson should be understood in that context and should be modified accordingly.

13    The practical consequences were summarised by Moshinsky J in Cremin at [50]-[51] as follows:

The courts are generally willing, upon an appropriate application, to make orders permitting the liquidator of a (former) corporate trustee to sell trust assets. In situations where the property of the trust will be exhausted following its sale and subsequent distribution to creditors, it may be appropriate merely to give the liquidator a power of sale … The more common course is, however, for the liquidator of the insolvent (former) corporate trustee to apply to be appointed a receiver for the purpose of selling the trust assets and distributing the proceeds among trust creditors … Orders appointing a liquidator as a receiver for this purpose may be made nunc pro tunc to authorise sales of trust assets that have already occurred …

The proceeds from an exercise of a corporate trustee's right of exoneration may only be applied in satisfaction of the trust liabilities to which that right relates … Thus, the liquidator of a (former) corporate trustee may only apply the proceeds of a sale of trust assets to satisfy debts owed to trust creditors (as opposed to general creditors). This includes the costs of the liquidation (including the liquidator's remuneration) because such costs constitute debts incurred by the company in discharging the duties imposed by the trust … In circumstances where a company has only ever acted as a trustee of one trust and that has been the totality of its affairs, no issue arises as to the application of trust assets to general creditors because all of the company's creditors are trust creditors. In this situation, the proceeds from the exercise of the right of exoneration are to be distributed to the trust creditors in accordance with the order of priority prescribed by the Corporations Act …

(citations omitted)

14    The above statement has since been followed in a number of decisions of this Court, including Hughes, in the matter of Substar Holdings Pty Ltd (in liq) [2020] FCA 1863 at [27] (McKerracher J), Deppeler, in the matter of Old Port Road Pty Ltd (in liq) [2021] FCA 980 at [16] (O'Bryan J) and Rathner (liquidator), in the matter of Garrows Close Pty Ltd (in liq) [2021] FCA 505 at [11] (Beach J) .

15    Rathner, like the present case, was an instance where the application was brought under the relevant legislation concerned with trustees. Orders of the kind sought in the present case were made. The circumstances were slightly different to the present case. There the Court considered an application for orders under s 63(1) of the Trustee Act 1958 (Vic) by liquidators of a company that already held its assets as bare trustee. Section 63(1) provides that the Court may confer a power of sale where the sale of property vested in a trustee 'is in the opinion of the Court expedient' but there is no power of sale. In the present case, the company acquired its status as bare trustee upon its removal as trustee under the terms of the Deed. The application is under s 89 of the Trustees Act (WA) which is in slightly different terms. It requires, relevantly for present purposes, the Court to be of the opinion that a sale 'is expedient in the management or administration of any property vested in a trustee' in order for the Court to be able to confer upon the trustee the necessary power.

The application under the Trustees Act (WA)

16    I am satisfied that power is conferred under s 89(1) of the Trustees Act (WA) to make the orders sought. The amounts involved and the entitlement of the company to a right of exoneration that far exceeds the proceeds from the sale of the property make it expedient for the power to sell the property to be conferred. It has been sold at auction so no issue arises as to whether market value has been obtained. There is no reason to establish a receivership so as to deal with competing claims. There is no reason why the order should not be made nunc pro tunc. There is no suggestion that Mr Anderson acted in a manner that might be criticised when it came to the steps taken to realise the property or that there was any dishonesty or unreasonableness in the dealings. No steps have been taken by any other party to secure the appointment of a trustee to the Trust.

17    The present case is substantively the same as that described by Moshinsky J in Cremin because no issue arises as to the application of the trust assets to general creditors after allowing for the costs of the liquidation that involved discharging the duties imposed by the Trust.

The application under s 1318(2) of the Corporations Act

18    Section 1318(2) applies where a liquidator (amongst others) has reason to apprehend that a claim will or may be made against that person 'in respect of any negligence, default, breach of trust or breach of duty' in the capacity as liquidator. In such a case, if the person has acted honestly and in all the circumstances ought fairly to be excused, the Court may relieve against the whole or part of that liability on such terms as the Court thinks fit.

19    The submission made in support of the application for an order under that provision is that there is the potential for some person to raise a claim as to the manner in which the auction was conducted or by reason of the breach of the bare trust which, at the time of sale, did not authorise the liquidator to cause the company to sell the property.

20    An order of the kind sought was granted in Pleash on the basis that there was a real rather than a fanciful or remote possibility that a claim might be made, concerning a breach of trust and that the liquidators had acted unwittingly and honestly. In Theobald, in the matter of Finplas Pty Ltd [2014] FCA 31, Siopis J refused to make such an order in similar circumstances to the present case: at [35]-[40]. I am inclined to the same view. In addition to the reasoning by his Honour which applies also in the present case, as I am satisfied that an order should be made under the Trustees Act (WA) and that the order can and should be made to speak nunc pro tunc the consequence is that the authority to sell conferred by the order will apply to the time when the property was sold. In those circumstances, it is difficult to see how there could be any claim. Of course, the refusal of the application at this time would not prevent the making of a future application if the circumstances were to change.

Orders

21    For the reasons I have given, there will be orders substantially in terms of the primary relief sought on the application. It follows that the alternative orders for the appointment of Mr Anderson as a receiver are not required. I am satisfied that the liquidator has acted reasonably in bringing the present application and will make the orders sought as to costs.

Associate:

Dated:    30 September 2021