Federal Court of Australia

Brooks, in the matter of Tease Hair & Spa Pty Ltd (in liquidation) [2022] FCA 457

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 90-15 of Schedule 2 to the Corporations Act 2001 (Cth) (Insolvency Practice Schedule (Corporations)) (IPS), the first plaintiff is justified and acting reasonably in proceeding on the basis that the second plaintiff (Company), has at all material times since its incorporation, acted solely as the trustee of the Hoggins Family Trust (Trust) and in no other capacity.

2.    Pursuant to s 47 of the Trustee Act 1898 (Tas), the Court confers on the Company, nunc pro tunc, the necessary powers to enable the Company to wind up the Trust, including to:

(a)    sell or otherwise dispose of, in any manner, all or any part of the Trust property;

(b)    compromise any claim made against the Company in its capacity as trustee of the Trust or against the property of the Trust on any terms as the first plaintiff thinks fit;

(c)    bring any claim against any party on behalf of the Trust;

(d)    pay the creditors of the Trust from the proceeds of the assets of the Trust, pursuant to the priorities prescribed under the Corporations Act; and

(e)    execute any tax returns, financial statement or other documents relating to the Trust.

3.    Pursuant to s 90-15 of the IPS, the first plaintiff is able to rely on her statutory powers as liquidator of the Company pursuant to s 477 of the Corporations Act to take all necessary steps to wind up the Trust pursuant to order 2 above.

4.    Pursuant to s 90-15 of the IPS, the first plaintiff is justified and acting reasonably in proceeding on the basis that she can deal with, hold, apply and/or distribute the Trust property in accordance with Parts 5.5 and 5.6 of the Corporations Act.

5.    There be liberty to apply to any person who can demonstrate sufficient interest to modify or discharge the directions and orders made by the Court.

6.    The costs, expenses and remuneration incurred by the first plaintiff as liquidator of the Company, including the costs of this application, be paid in priority from the property of the Trust.

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

REASONS FOR JUDGMENT

O’CALLAGHAN J:

1    This is an application by Ms Shelley-Maree Brooks (the Liquidator) in her capacity as liquidator of Tease Hair & Spa Pty Ltd (Company) and the Company for orders and directions to facilitate the Liquidator’s dealing with and distribution of the Company’s assets and assets of the Hoggins Family Trust (Trust).

2    At the case management hearing on 8 April 2022, I made an order that the plaintiffs file brief written submissions in support of their application for orders and directions, and that the matter be determined on the papers. Ms Jennifer O’Farrell, who appeared at the case management hearing and is the solicitor responsible for the conduct of the proceeding, subsequently filed such submissions.

3    The submissions were very helpful and I have used their structure and large parts of their content in fashioning these brief reasons. For the reasons explained below, I will make the orders sought by the Liquidator.

4    The plaintiffs relied on an affidavit of the Liquidator affirmed on 9 February 2022, which deposed to the following facts.

(1)    The Company was incorporated on 25 January 2010.

(2)    On 20 December 2021, the Liquidator was appointed as liquidator to the Company pursuant to ss 491 and 499 of the Corporations Act 2001 (Cth) (Corporations Act).

(3)    The Liquidator’s investigations have indicated that the Company has conducted two businesses, namely (i) a hair and beauty business known as “Tease Hair & Spa” from premises at 149C Collins Street in Hobart at all material times since the Company’s incorporation; and (ii) a fabric and craft retail store known as “Applepip Project” at Shop 5, Bank Arcade, 64-68 Liverpool Street in Hobart at all material times since around January 2021.

(4)    The Trust deed establishing the Trust names the Company as trustee, and the beneficiaries as the Company, Corinne Lucie Hoggins (who is also known as “Lucie”) and Brendon Hoggins. Lucie and Brendon Hoggins are each a director and secretary of the Company, and are responsible for the two businesses.

(5)    The deed establishing the Trust has an “ipso facto” clause, which determines and vacates the office of the incumbent trustee (namely, the Company) if the corporate trustee, relevantly, passes a resolution for its winding up. No replacement trustee has been appointed.

(6)    From the Liquidator’s investigations, including a review of various financial and tax records, contracts, and other documentation, it appears that the Company has only traded in its capacity as trustee of the Trust and in no other capacity.

(7)    There are a number of creditors of the Company, whose debts appear to have been incurred in the furtherance of the Trust.

(8)    The Liquidator has disclaimed two vehicles in the Company’s name which were used by the two businesses, as well as the leases for the premises used to conduct the businesses, under s 568 of the Corporations Act.

5    The plaintiffs also relied on an affidavit of Ms Clare Balfour affirmed on 8 March 2022, which confirmed that the originating process had been served on all known creditors of the Company and on the beneficiaries of the Trust. No relevant notices of appearance were filed.

6    I should first deal with a preliminary issue that the plaintiffs identified in their submissions. The Trust deed is dated 22 January 2010, but the Company was incorporated three days later on 25 January 2010, which raises a question about the proper appointment of the Company as trustee.

7    However, the deed correctly identifies the Company’s Australian Company Number, which self-evidently would not have been assigned until the Company’s incorporation. In my view, and as the plaintiffs submitted, it is plain that the date of the Trust deed is an error and that the deed could only have been executed after the registration of the Company. Compare eg Keswick Developments Pty Ltd v Kevroy Pty Ltd [2009] QSC 176 at [27], and on appeal in Keswick Developments Pty Ltd v Keswick Island Pty Ltd [2009] QCA 340, where the Court of Appeal accepted that a deed dated “2009” which referred to the company’s ACN could only have been executed after its registration on 14 January 2008. And, as the plaintiffs submitted, the evidence is that the Liquidator’s investigations suggest that the Company always acted and treated itself as trustee of the Trust. Accordingly, I am satisfied that the Company was properly appointed as trustee on the date of its incorporation, 25 January 2010.

8    The principal relief sought by the plaintiffs is for the court to confer on the Company the necessary powers to enable it to wind up the Trust. The plaintiffs submitted, and I accept, that by operation of the “ipso facto” clause in the Trust deed, the Company is a bare trustee of the Trust and has no powers with which to deal with the Trust assets, including to realise those assets for the benefit of creditors. See eg Caterpillar Financial Australia Limited v Ovens Nominees Pty Ltd [2011] FCA 677 at [26] (Gordon J). Accordingly, the plaintiffs sought the orders set out above conferring on the Company the power to realise Trust property for the benefit of creditors.

9    Orders of the kind sought by the plaintiffs are necessary because, without such orders of a court (or appointment of a receiver over trust assets), a liquidator of an insolvent former corporate trustee cannot sell trust property. Trust assets are not property of the insolvent company, the sale of which would be authorised by the power of sale in s 477(2)(c) of the Corporations Act, but rather trust property in which the corporate trustee has a proprietary interest by way of lien or charge. See Cremin, Re Brimson Pty Ltd (in liq) [2019] FCA 1023; (2019) 136 ACSR 649 at 655–656 [49]–[50] (Moshinsky J).

10    It is well accepted that the court can make orders under State trustee legislation to confer a corporate trustee with the relevant powers to deal with trust assets. See, by way of example only, Anderson (liquidator) v Aravanis (trustee) [2021] FCA 1185 under the Trustees Act 1962 (WA) (Colvin J); and Rathner (liquidator), Re Garrows Close Pty Ltd (in liq) [2021] FCA 505 under the Trustee Act 1958 (Vic) (Beach J). Section 47 of the Trustee Act 1898 (Tas) relevantly provides:

(1)    Where in the management or administration of any property vested in trustees, any sale, lease, mortgage, surrender, release, or other disposition, or any purchase, investment, acquisition, expenditure, or other transaction is, in the opinion of the Court, expedient, but the same cannot be effected by reason of the absence of any power for that purpose vested in the trustees by the trust instrument, if any, or by law, the Court may by order confer upon the trustees, either generally or in any particular instance, the necessary power for the purpose, upon such terms, and subject to such provisions and conditions, if any, as the Court may think fit, and may direct in what manner any money authorized to be expended, and the costs of any transaction, are to be paid or borne as between capital and income.

…

(3)    An application to the Court under this section may be made by the trustees, or by any of them, or by any person beneficially interested under the trust.

…

11     The plaintiffs sought the following orders:

(1)    Pursuant to s 90-15 of Schedule 2 to the Corporations Act 2001 (Cth) (Insolvency Practice Schedule (Corporations)) (IPS), the first plaintiff is justified and acting reasonably in proceeding on the basis that the second plaintiff (Company), has at all material times since its incorporation, acted solely as the trustee of the Hoggins Family Trust (Trust) and in no other capacity.

(2)    Pursuant to s 47 of the Trustee Act 1898 (Tas), the Court confers on the Company, nunc pro tunc, the necessary powers to enable the Company to wind up the Trust, including to:

(a)    sell or otherwise dispose of, in any manner, all or any part of the Trust property;

(b)    compromise any claim made against the Company in its capacity as trustee of the Trust or against the property of the Trust on any terms as the first plaintiff thinks fit;

(c)    bring any claim against any party on behalf of the Trust;

(d)    pay the creditors of the Trust from the proceeds of the assets of the Trust, pursuant to the priorities prescribed under the Corporations Act; and

(e)    execute any tax returns, financial statement or other documents relating to the Trust.

(3)    Pursuant to s 90-15 of the IPS, the first plaintiff is able to rely on her statutory powers as liquidator of the Company pursuant to s 477 of the Corporations Act to take all necessary steps to wind up the Trust pursuant to order 2 above.

12    I have read the Liquidator’s affidavit, and in my view, the making of these orders is appropriate, having regard to the enquiries that she made, and to which she deposed, which indicate that the Company has only ever traded in its capacity as trustee of the Trust. As the plaintiffs submitted, to the extent that the debts owed by the Company to creditors were properly incurred in furtherance of the Trust, the Company has a right of indemnity against the Trust assets to pay its creditors, which right is secured by equitable lien. It is therefore expedient for the management and administration of the Trust’s assets that the Company have the powers conferred in the orders sought. Without such orders, the Company cannot proceed to realise the Trust assets for the benefit of its creditors.

13    I should also mention that the orders provide for retrospective relief, because the Liquidator has already dealt with some Trust assets, including the disclaiming of the leases and vehicles identified above. Accordingly, retrospective relief is necessary to overcome these past dealings with Trust property not strictly within power.

14    The Liquidator’s evidence is that, at the time of disclaiming the property, she did not realise that she may not have the power to do so, and that she did not intend for the Company to commit a breach of Trust in so doing. There is no suggestion that the Liquidator acted dishonestly or unreasonably, and I am satisfied that these dealings were necessary to assist with the expedient administration of property. Compare eg Anderson (liquidator) v Aravanis (trustee) [2021] FCA 1185 at [16] (Colvin J). In my view, retrospective relief is therefore appropriate in these circumstances.

15    I will also make the order sought that, pursuant to s 90-15 of the IPS, the first plaintiff is justified and acting reasonably in proceeding on the basis that she can deal with, hold, apply and/or distribute the Trust property in accordance with Parts 5.5 and 5.6 of the Corporations Act. It is appropriate to do so because, “where a company has only ever acted as a corporate trustee for one trust the property of the company that includes the right of exoneration and the funds obtained from its exercise is to be distributed in accordance with the statutory command”. See Jones (Liquidator) v Matrix Partners Pty Ltd, Re Killarnee Civil & Concrete Contractors Pty Ltd (in liq) (2018) 260 FCR 310 at 337 [102] and 339 [108] (Allsop CJ).

16    The plaintiffs also sought an order that the costs, expenses and remuneration incurred by the first plaintiff as liquidator of the Company, including the costs of this application, be paid in priority from the property of the Trust. As the plaintiffs submitted, it is well established that where a company is the trustee of a trading trust and has no other activities, liquidators are entitled to be paid their costs and expenses, whether for administering the trust assets or for “general liquidation work”, out of those assets. See eg Re AAA Financial Intelligence Ltd (in liq) [2014] NSWSC 1004 at [13] (Brereton J) and the cases cited therein. In my view, there is no reason to depart from the ordinary course here, and I will make the order sought.

17    For the above reasons, I will make the orders sought by the plaintiffs.

Associate:

Dated:    28 April 2022